I have been noticing something more often in real estate transactions lately: South Jersey homeowners are putting their homes into living trusts.
It isn't limited to extremely wealthy families, either. I'm seeing homeowners in Burlington, Camden and Gloucester Counties using trusts as part of their estate planning.
So why are people doing it? Does putting your Cherry Hill, Mount Laurel, Marlton, Voorhees, Moorestown or South Jersey home into a living trust actually make sense?
The answer is: sometimes. But a trust is not a magic document, and it does not provide every benefit people sometimes assume it does.
Before going any further, an important disclaimer: I am a Realtor, not an attorney, accountant or tax adviser. This article is intended to help South Jersey homeowners understand the questions they may want to ask. Anyone considering a living trust should speak with a qualified New Jersey estate planning attorney and tax professional about their individual circumstances.
What is a living trust?
A living trust is a legal arrangement created while you are alive that can hold assets such as your home, bank accounts and investments.
In New Jersey, a living trust can be either revocable or irrevocable. With a revocable trust, the person creating the trust generally retains the ability to change or cancel it and regain ownership of the assets. NJ.gov
When most homeowners casually say, “I put my house in a living trust,” they are usually talking about a revocable living trust.
And that distinction matters tremendously.
Why would someone put their South Jersey home into a living trust?
One of the biggest reasons is estate planning and avoiding probate for property that has actually been transferred into the trust.
Normally, assets owned individually at death may have to go through the estate administration process. In New Jersey, the county Surrogate handles probate of wills and the appointment of the person authorized to administer an estate. NJ.gov
Property properly owned by a revocable trust generally passes according to the trust rather than through the probate estate. New Jersey's own tax regulations recognize that property held in a revocable trust is nonprobate property administered by the trustee. NJ.gov
For some families, that can make handling a home after a death easier.
Imagine Mom has lived in her South Jersey home for 40 years. She eventually passes away and the house needs to be sold. If the home was properly transferred into a trust and the trust documents are in order, the successor trustee may be able to step in and manage the property according to the trust rather than waiting for an executor to receive authority through probate.
That can be attractive to families who want a smoother transition.
A living trust can also help if you become unable to manage your affairs
Estate planning isn't only about what happens after someone dies.
Suppose a homeowner develops dementia, suffers a serious illness or becomes unable to handle financial matters.
A properly written trust can name a successor trustee who may be able to manage trust assets, including the home, according to the terms of the trust.
For older homeowners who want to remain in control while also planning ahead, that continuity can be an important reason to consider a trust.
Privacy can be another benefit
Probate involves court and estate administration records. Assets passing through a trust generally do not follow the same public probate process.
For families who value privacy, that can be attractive.
Keep in mind, however, that the deed to real estate is still a public record. Transferring your Cherry Hill or Mount Laurel home into a trust doesn't make the ownership history of the property disappear.
Trusts can give families more control over what happens later
A homeowner may not want the house or sale proceeds distributed immediately upon death.
Perhaps there is a blended family.
Perhaps one beneficiary is young.
Perhaps a parent wants a child to have use of the property but doesn't want that person immediately controlling the entire asset.
Trusts can be written to address situations that are more complicated than simply saying, “Leave everything equally to my children.”
That flexibility can be extremely valuable, but it is also exactly why an experienced estate planning attorney should prepare the documents.
Here's the big misconception: a revocable living trust does NOT automatically protect your house from nursing home costs
This is probably one of the most important things for South Jersey homeowners to understand.
I sometimes hear people say:
“I put my house in a trust, so the nursing home can't touch it.”
That statement can be dangerously misleading.
Under New Jersey Medicaid rules, the entire corpus of a revocable trust is generally treated as an available resource to the individual when determining Medicaid eligibility. Federal Medicaid guidance follows the same basic principle. NJ.gov
There are specialized irrevocable trusts and other estate planning strategies that attorneys may use for long term care planning, but those are completely different matters with strict rules, timing requirements and potential consequences.
Simply creating a revocable living trust does not automatically create Medicaid asset protection.
If protecting assets in connection with future long term care is your concern, talk to a New Jersey elder law attorney before transferring anything.
A trust doesn't automatically eliminate New Jersey inheritance tax either
Another misconception is that putting property into a trust makes taxes disappear.
New Jersey still has an inheritance tax, and whether tax is owed depends in part on who receives the property and their relationship to the person who died. Real estate can be among the assets considered for inheritance tax purposes. NJ.gov
Trust ownership does not automatically make those rules disappear.
Tax planning is one of the areas where I would absolutely want a homeowner working with both an attorney and, when appropriate, a CPA or tax professional.
What about ANCHOR, Senior Freeze and Stay NJ?
This is a particularly important question for South Jersey seniors.
Putting a primary residence into a trust does not necessarily mean you lose New Jersey property tax relief.
The New Jersey Division of Taxation says a homeowner can still qualify when a property is owned by a trust if the person is a beneficiary of the trust or the deed or trust agreement explicitly provides a life estate, assuming all other program requirements are met. The state may require a copy of the trust agreement and deed to verify eligibility. NJ.gov
That said, do not transfer title and assume every benefit will automatically continue without additional paperwork.
Ask first.
There are drawbacks to putting your home into a trust
Trusts cost money to establish properly. They require legal documents, and the home normally needs to be correctly transferred into the trust.
That last part is critical.
You can spend money creating a beautiful trust document, but if assets that were supposed to go into the trust are never actually transferred, the plan may not work the way you expected.
Trust ownership can also add paperwork when you refinance, obtain title insurance or sell the property. The attorney, title company and Realtor may need trust documents to determine who has authority to sign the listing agreement, contract and closing documents.
That doesn't make selling a house in a trust difficult. We sell trust owned properties all the time.
It simply means we need to know about it before we're sitting at the closing table.
So, should you put your South Jersey home into a living trust?
There isn't a universal answer.
For one homeowner, a living trust may be an excellent way to plan for incapacity, simplify the eventual transfer of property and provide clear instructions for family members.
For someone else, the additional cost and administration may not provide enough benefit.
And if your primary objective is protecting assets from creditors, reducing taxes or qualifying for Medicaid, a standard revocable living trust may not accomplish what you think it does.
That's why I would never tell a client, “You should put your house into a trust.”
That's an attorney's conversation.
Where your Realtor does matter
If your home is already owned by a trust and you're thinking about selling, tell your Realtor at the beginning of the process.
I want to know how title is held before your home goes on the market.
Who is the trustee?
Is there a successor trustee?
Who is authorized to sell?
Are all of the necessary documents available?
Are we dealing with a trust, an estate, multiple beneficiaries or some combination of those?
Those questions are much easier to resolve before we receive an offer than three days before settlement.
After more than three decades in South Jersey real estate, I've learned that some of the most important work involved in selling a house happens long before the For Sale sign goes in the yard.
If you own a home in Burlington, Camden or Gloucester County and you're beginning to think about downsizing, estate planning or selling a longtime family home, I'm happy to help you understand the real estate side of the process and connect you with the appropriate professionals when legal or tax advice is needed.
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