Things change. So do people. And so do people’s mind when things start to change. This article is mostly for those of you who have set up a trust and is now seriously considering making changes to it. This can also be for you who are thinking about setting up a trust for the first time.
The basic idea for setting up a trust is protection. You want to protect your child’s future so you put up a living trust. Through this trust, everything you worked so hard to achieve like your house, will be transferred to your child without the complicated and expensive legal process of probate.
But what if a situation comes up that requires you to move your property or your assets out of the trust. How do you go about this?
Revocable Versus Irrevocable Trusts
Living (or inter vivos) trusts can either be revocable or irrevocable. There are major differences between these two and it is important for you to understand what these are. The type of trust you set up will dictate the necessary steps to move your property out of trust.
In a revocable trust, you as trustee keeps control of the property you put into it. You can choose to sell this property or take it out of the trust. You can even choose to terminate the trust if you feel that it no longer meets your needs.
In a revocable trust, you can nominate a successor who can take over control of the trust when you die or are incapacitated. The trust will not go into probate. This means the court need not appoint a conservator to supervise your financial affairs. And because you still own the property within the trust, it is not shielded from creditors, lawsuits against you, or estate taxes.
Here you are not a trustee. You completely relinquish ownership of the property you put into the trustee you appointed. You cannot take the property back out when you change your mind. You have no control over the use of this property or its sale or how money from the trust should be spent.
The advantage of having an irrevocable trust is that the property you put into it is automatically protected from creditors or anyone who has the lawsuit against you. It also no longer adds to the value of your estate which means lower taxes. And it is no longer part of your net worth so it cannot disqualify you from Medicaid or other government support.
How Do You Move a Property out of a Revocable Trust?
As a trustee, you can move property out of your revocable trust at any time. If you become incapacitated, your successor trustee can do this for you. The process is quite easy.
When you funded your trust, you granted the deed of your property under your name to the name of your trust. To take the property back, you simply draft a new deed granting the property under the name of your trust back to your name. This also applies to titles to vehicles or bank/retirement accounts, life insurance policy and other assets.
What Happens If Your Trust is Irrevocable?
Transferring properties out of irrevocable trust are more complicated.
You would need to convince the trustee as well as all the beneficiaries of the trust to come up with a written agreement, file a petition and explain to the court that the original terms and purpose of the trust is no longer applicable. If they are able to successfully defend their reason for moving the property out of the trust, the judge may order this to happen.
Following this, the trust will be stripped of everything it holds. The trustee needs to create a new trust into which the property will be transferred. However, this does not necessarily mean that you retain ownership of the property.
If you set up a trust protector provision in your original trust, you can tap this third party to implement the changes you require. However, the trust protector can only affect the changes you specified in your original trust document like the possibility of moving property out of the trust when a specified circumstance arise.