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A trust is a legal arrangement where one party (trustee) holds property for the benefit of another (beneficiary). Trusts are commonly used to avoid probate, protect assets, and control how property passes to heirs. Understanding how trusts work helps property owners decide if this planning tool fits their situation.

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How Trusts Work

A trust involves three roles:
  • Grantor/Settlor: Person who creates the trust and transfers property into it
  • Trustee: Person or entity managing trust property according to trust terms
  • Beneficiary: Person who receives benefits from trust property
With living trusts, the same person often fills all three roles during their lifetime. After death, successor trustees and beneficiaries take over.

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Types of Trusts

Most common for real estate planning. Grantor maintains full control during lifetime—can change terms, remove property, or dissolve entirely.Pros: Avoids probate, maintains privacy, easy to modifyCons: No asset protection, no tax benefits during lifetimeAfter grantor’s death, becomes irrevocable.
Cannot be changed or dissolved once created (with limited exceptions). Property is permanently removed from grantor’s estate.Pros: Asset protection, potential estate tax benefits, Medicaid planningCons: Loss of control, difficult to modify, complex setupUsed for specific planning goals, not general probate avoidance.
Created by will and takes effect after death. Property goes through probate first, then into trust.Pros: Can control inheritance for minors or spendthrift beneficiariesCons: Doesn’t avoid probateCommon for leaving property to minor children.

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Transferring Property Into a Trust

For a trust to work, property must actually be transferred into it. This is called “funding” the trust.
Transferring real estate requires a new deed from the owner (grantor) to the trustee of the trust.Example: “John Smith” becomes “John Smith, Trustee of the John Smith Living Trust dated January 1, 2025”Deed must be recorded with the county.
Creating a trust document without transferring property into it accomplishes nothing. The trust exists but owns nothing. Property still goes through probate.This is the most common trust planning failure.
Some title companies require specific trust documentation before insuring property in a trust. May need trust certificate or full trust document copy.Notify your title company before closing if purchasing into a trust.
A trust only controls property that’s actually in the trust. If you create a living trust but never deed your house into it, the house still goes through probate at death.

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Benefits for Real Estate

Property in a trust passes directly to beneficiaries without court involvement. Faster, cheaper, and private compared to probate.Particularly valuable in states with slow or expensive probate processes.
Probate is public record. Anyone can see what you owned and who inherited it. Trust transfers remain private.
If you become unable to manage affairs, successor trustee can handle property without court-supervised guardianship. Smoother transition than relying on power of attorney alone.
Trust terms can specify exactly how and when beneficiaries receive property. Can protect inheritance from creditors, divorce, or irresponsible spending.Example: Child inherits at 25, receives half at 30, remainder at 35.
Avoids probate in each state where you own property. Without trust, real estate in other states requires separate “ancillary probate” in each location.

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Limitations

Living trusts cost more to establish than simple wills. Attorney fees typically range from $1,500 to $5,000+ depending on complexity.May not be worth it for modest estates or states with simple probate.
New property must be transferred into the trust. Refinancing may require moving property out and back in. Requires attention to keep funded properly.
Revocable living trusts don’t protect against creditors, lawsuits, or Medicaid spend-down. Assets still count as yours.
Still need pour-over will (catches assets not in trust), healthcare directives, and power of attorney for non-trust matters.

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Trusts and Mortgages

Most mortgages have “due on sale” clauses allowing lender to demand full payment if property transfers. However, federal law (Garn-St. Germain Act) generally protects transfers to living trusts where borrower remains beneficiary.Notify lender of transfer but acceleration is typically prohibited.
Some lenders don’t lend directly to trusts. May need to purchase in personal name, then transfer to trust after closing. Or transfer out of trust to refinance, then back in.
Title companies can insure property in trusts. May require trust certification showing trustee authority and trust terms. Plan ahead to avoid closing delays.

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After the Grantor Dies

1

Trust becomes irrevocable

Terms lock in. Successor trustee takes over management duties.
2

Trustee gathers documentation

Death certificate, trust document, property records, and any amendments.
3

Debts and taxes paid

Trustee pays any outstanding obligations from trust assets.
4

Property distributed or managed

Trustee transfers property to beneficiaries per trust terms or continues managing if trust requires.
5

Deed recorded

New deed transferring from trustee to beneficiary recorded with county. No court involvement required.

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Is a Trust Right for You?

Trusts make sense when:
  • Estate would face lengthy or costly probate
  • You own property in multiple states
  • Privacy is important
  • You want control over how heirs receive property
  • Incapacity planning is a priority
  • Estate is moderately complex
Trusts may not be necessary when:
  • Estate is small and state has simplified probate
  • All property passes by beneficiary designation or joint ownership
  • Cost of trust exceeds probate savings
  • Simpler tools accomplish goals
Estate planning isn’t one-size-fits-all. Consult an estate planning attorney to evaluate whether a trust fits your situation and goals.

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Authorizing others to handle property matters

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