The Importance of Setting Up a Trust for Family Property
When it comes to safeguarding family property, the time to act is now. Delays in establishing a trust can lead to dire consequences, especially in complicated family scenarios. Personal finance expert Suze Orman recently highlighted these risks in a discussion on the "Women & Money" podcast, emphasizing the critical nature of planning ahead.
Understanding the Risks
A listener, Yvonne, reached out with a perplexing situation: her mother resides in the family home with one of her siblings, while the father lives elsewhere with a girlfriend. Despite still being legally married, this arrangement raises several red flags. Yvonne and her wife, who already have their own trust, want to help Yvonne’s mother create a trust for the family home. However, as Orman pointed out, this can lead to complications if not managed properly.
Key Question: How is the House Titled?
Orman posed an essential question regarding the title of the property. If the house is owned jointly with the right of survivorship and the mother passes away first, the father would automatically inherit the entire property, regardless of the mother’s intentions outlined in her will or trust. This means the children could end up with nothing if the father decides to leave the house to someone else, even his girlfriend.
A Clear Path Forward
To help prevent this nightmare scenario, Orman proposed a straightforward plan:
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Transfer the Title: The first step is to ensure that the house is solely in the mother’s name. This may require a divorce or a legal agreement, particularly since the parents are still married.
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Set Up a Living Trust: Once the mother has sole ownership, she should transfer the home into a living trust. This structure allows her to remain the beneficiary while she’s alive and ensures the house will pass to her children according to her wishes upon her passing.
- Act Quickly: Orman stressed the urgency here; without these measures in place, the family could face significant hurdles if the mother dies first.
The Benefits of a Living Trust
A living trust offers several advantages:
- Avoids Probate: This helps the family sidestep the lengthy and often costly probate process.
- Clarifies Asset Distribution: It explicitly details who will inherit the property, reducing uncertainty and potential disputes.
- Provides Protection: A trust shields the property from being redirected due to unexpected events, like a surviving spouse remarrying or modifying their will.
While the idea of adding children to the title might seem like a quick solution, Orman warned against it. Doing so can lead to tax complications, such as losing the step-up in basis, which affects capital gains taxes.
Take Action Now
If you own a home and wish to ensure that it smoothly transitions to the next generation, merely having a will is not enough. Establishing a trust and properly managing the title are crucial steps to protect your family’s assets. Don’t wait—initiate the conversation about creating a trust today, and safeguard your loved ones from future headaches.
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Bio: Priya specializes in making complex financial and tech topics easy to digest, with experience in fintech and consumer reviews.