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Living Trusts
If you are the sole owner of property, it can be included in a living trust. You will need to change the title of that property to reflect ownership by your trust. There are several issues particular to real estate that come into play when property is transferred into a trust. They are as follows:
- Property tax reassessment: Many states, including California, do NOT require a reassessment when you transfer property into a trust when you designate yourself as a trustee.
- Transfer taxes: These taxes, which are normally assessed on real estate transfers, are generally not imposed when the transfer is to a living trust. However, check with your County Assessor or Recorder's Office since a few states do impose taxes on living trust transfers.
- Mortgage interest deductions: You, as the grantor, still have the right to deduct mortgage interest from your income taxes.
- Insurance policies: You do not need to change the registration of insurance policies to the trust for policies that cover property you have placed in the trust.
- Tax breaks for the sale of a home: You still have the right to exclude $250,000 of profit from taxation when you sell your principal home, even if that home is owned by the trust.
- Homestead rights: These rights, which protect a homeowner's equity interest in her home, still generally apply to property covered by the trust. A statement to this effect must be included in the Declaration of Trust.
- Due-on-sale clauses: Federal law prohibits lenders from enforcing these clauses when you transfer your principal residence to your trust. If you are concerned about this, you may want to get your lender's consent before the transfer.
- Part interests: You can transfer any part interest you have, such as a time share or percentage ownership, to the trust.
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