Types of Trusts That Hold Real Estate
There are instances where those who own real estate may decide to hold their real estate in a family trust. This is generally done for tax reasons or to ease the transition of real estate to heirs and beneficiaries. Buying a home in a trust means that the buyer first needs to establish who has the legal right to sell the home. Depending on how a trust is set up, there could potentially be legal challenges to the sale if it is not handled properly.
Types of Trusts
There are two basic types of trusts, a Revocable Trust and an Irrevocable Trust. The differences in these two are substantial, highlighted as follows:
Revocable Trust - A Revocable Trust is set up with either a Trust Agreement or a Declaration of Trust. The owner of the trust has full control over the trust at all times and may change it as they deem appropriate. This includes adding, removing or changing the beneficiaries of the trust. The trust may have one or more trustees or beneficiaries. Using the proper legal channels, either or both trustees may change the documents at any time.
In the event that a trust has more than one trustee and one trustee dies, the remaining trustee still has complete control over the trust and the assets of the trust.
Irrevocable Trust - An Irrevocable Trust may be set up with either a Trust Agreement or a Declaration of Trust. Generally, a Declaration of Trust is used since the trustee in this instance would not necessarily be required to have an agreement from another trustee or from the trust beneficiary. The similarities between the two types of trusts end here.
When an irrevocable trust is set up, the assets that are placed in that trust automatically become assets of the beneficiary or beneficiaries of the trust. Once a beneficiary of the trust has been named, the trustee (or trustees) become fiduciaries who are charged with protecting the assets and acting in the best interest of the beneficiary. The trustee must obtain permission from the beneficiaries in order to remove assets from the trust or to liquidate those assets.