Getting around a Living Trust: A tip? or a trap?
“You don’t need a trust if you do this …”
Is this the beginning of a tip or a trap?
What is the purpose of a trust? It is to avoid probate at death. Probate is expensive. It keeps your family from receiving your assets for many months, often for more than a year, after you die. But here is a simple way to avoid probate (or is it?):
Suppose a single parent owns a house and has an adult son. She says, “I will deed my house to my son as a joint owner. Then when I die it will pass immediately to him.” This method is cheap and quick.
Sound too good to be true?
Bad things can happen before the mother dies. Because the son now owns one-half of the house, the mother will always need her son’s agreement to do anything affecting the house. She can’t borrow money on it. She can’t obtain a reverse mortgage. She can’t sell the property without his consent if she wants to move. Yet, if he needed money, he could force a sale of the house through court even over his mother’s objection. The son’s spouse could pressure him to not co-operate with his mother. If mother and son had a falling out, she could not take his name off of the deed in trying to disinherit him. And what if the son was at fault in an auto accident and caused serious injury? Or he had bills he could not pay and got sued? In both cases a creditor could force the sale of the house in order to collect. And what if the son gets a divorce? Would the court consider his one-half ownership of the house in awarding assets to his wife?
A trust is the safe choice
It is difficult to believe that putting the house in joint names with the son is worth the risk. And because the mother does not have a trust, she probably does not have important durable powers of attorney for health care and asset management. No trusted person could make health care decisions for her if she were unable to make her own. No one could handle her finances if she were incapacitated. In fact she might have to be put under a court supervised conservatorship if she could not care for herself. Having a trust solves all of those problems. Deeding the house to the son creates problems.