Home Ownership Transfer: How Living Trusts Can Help Your Family Save

Passing down our most beloved possessions to family members is a time-honored tradition. Some families take pride in sitting down with an attorney and carefully curating their wills. But if you’d prefer to skip the often confusing and costly probate process, we don’t blame you.

Luckily, there are plenty of options when it comes to homeownership transfer. Whether you’re looking to transfer home ownership now or planning for the future, transferring your home, even to a family member, can be a complicated process.

That’s where Insurify comes in.

We sorted through the jargon so you don’t have to. Keep reading for our guide on homeownership transfer to learn the ins and outs of the property transfer process. Then, if you’re in the market for home insurance savings, use Insurify’s home insurance comparison tools to secure the best home insurance policy and premium in just a few minutes.

How to Transfer Home Ownership

Transferring property owners comes with a laundry list of questions.

What are the types of deeds, and what’s the difference between a quitclaim deed and a general warranty deed anyway? Do you and the new owner plan to be joint tenants? Once you transfer home ownership, does your home insurance policy still protect you and the property? Should you just hire a real estate attorney to prepare the new deed for you?

Maybe, but don’t give up just yet.

The first step of property transfer is deciding who you’re transferring homeownership to, as this will determine your tenancy and which type of property deed you’ll need to fill out.

You may choose to completely transfer home ownership to someone else. But if you plan to co-own the property with the new owner, you can choose to be tenants in common or joint tenants. Tenants in common co-own property but with a bit of leniency. You can choose which percentage of the real estate you would like to own, and you can choose to sell your share at any time. Choosing joint tenancy with the new owner means you will each have equal ownership of your real property. This also ensures that the new owner will have the right to survivorship after you die, meaning that your portion of ownership will be transferred to the co-owner after your passing.

When transferring homeownership to family––whether you remain a co-owner or not––a quitclaim deed is easiest. Quitclaim deeds allow homeowners to transfer a property title without checking the chain of title or disclosing any encumbrances (like tax liens for unpaid property taxes). This makes the process easy, and you can fill out a quitclaim deed by yourself.

Still, these deeds offer little protection for a buyer (or grantee The grantee is left responsible for any of the property’s encumbrances and the grantor has no liability for title defects after transferring ownership interest. Because of this, quitclaim deeds are often used in interactions between people who know each other and in instances where the property is being transferred rather than purchased––perfect for transferring property to family.

Warranty deeds provide buyers with more legal protection, and a title search is often used to verify the quality of the title (assuming that the current homeowner does legally own the property). But when transferring property between family, quitclaim deeds will usually get the job done. Plus, if the grantee is looking for more protection, they can always seek out title insurance.

Whichever deed you choose will require the current owner’s name, the new owner ’s name, and the legal description of the property (as shown on the previous deed). After you fill out the deed, you will need to sign the deed in front of a notary public then bring the signed and notarized document to your county recorder’s office to be placed in the public records.

That’s it. You’ll need to transfer taxes and insurance, but after your new deed is publicly recorded, you have officially transferred ownership of your home.

What is a living trust?

If you’re still in the planning stages or are looking to transfer home ownership to your child in the event that you die or can no longer take care of your home in the future, a living trust allows you to do just that. Living trusts also allow you to pass on expensive assets, like real estate while bypassing the expensive process of probate (which can cost upwards of seven percent of the estate’s value).

A living trust is a legal document that essentially works as a will while the grantor (the person creating the trust) is still alive. Living trusts designate a trustee to manage the grantor ’s assets for the beneficiary (the grantee ) until the grantor dies.

There are two types of living trusts: revocable and irrevocable. The difference lies in who manages the assets of the trust and whether the grantor can alter the trust. The type of trust you choose will also affect the taxes you are required to pay on your assets.

The grantor of a living revocable trust has full control of the trust. They can change the trust rules and beneficiaries, undo the trust, and act as the trustee if they choose. This means that the individual who created the trust can control the assets of the trust, but it also means those assets still legally belong to the grantor. When using a living trust to transfer homeownership, a revocable living trust gives the homeowner flexibility to change their mind or even sell the house if they choose and exempts them from paying gift taxes to the IRS. If the grantor is acting as a trustee, though, the trust is included in estate taxes following the grantor ’s death. Still, the revocable trust allows the grantor and their family to avoid probate and ensures that ownership of the property is transferred to the designated grantee after the grantor ’s death or incapacitation.

An irrevocable living trust, on the other hand, gives a third-party trustee legal ownership of the trust until it is transferred to the beneficiary. Irrevocable trusts also cannot be changed as easily as revocable trusts. Any rules and beneficiaries listed cannot be changed without the beneficiary’s approval. Grantors of irrevocable living trusts are required to pay a gift tax, but property in the trust is not included in the grantor ’s estate taxes.

If you decide to transfer ownership of your home through a living trust, you will still need to complete a deed transfer. The process is the same as transferring a deed to a person, as previously discussed, except you’ll transfer the deed to the trust.

Transferring homeownership through a living trust is a win-win for you and your grantee. It allows you to continue paying off your mortgage and living in your home. But this also allows your grantee to secure a step-up in basis on the property after your death. This means the value of the property is evaluated based on when they receive the asset, rather than the value at the time you purchased it. This step-up basis will help the grantee, as it decreases the capital gains tax they will owe if they choose to sell the home.

Home Insurance and Living Trusts

Now that you know what it means to have a living trust, let’s talk about how insuring property in trust works.

Your home insurance policy typically names the owner of the property. But when you place your home in a living trust, the owner of the home is now the trust (or the trustee). This means that you need to add the trust to your home insurance policy. The person named on your home insurance policy will need to be changed from your name to the trust’s name (or trustee’s name if the trust has a third-party trustee)

But home insurance provides protection for more than just the physical structure of a house. Even a basic homeowners policy provides coverage for personal property, additional living expenses, and even liability insurance for the residents of the home. So removing your name from your home insurance policy could have serious consequences when it comes to your coverage.

That’s why the Insurance Service Office (ISO) created the “residence held in trust” endorsement. The endorsement allows you to list the trust as the named insured while still including you and your family on the policy. Talk to your insurance agent to change the named insured on your policy. That way, you can ensure that you and your family are still covered.

Understanding the best way to transfer home ownership to your family member can be overwhelming, to say the least. That’s why Insurify answered some of homeowners ’ most frequently asked questions about homeownership transfer.

Frequently Asked Questions

Home Ownership Transfer: The Bottom Line

Transferring homeownership to a family member can be confusing, but it doesn’t need to be costly. Living trusts can help family members transfer real estate without the lengthy or expensive process of probate. As long as you make sure to add your trust to your home insurance policy, the whole process can be as easy as pie. And if you’re looking for the best homeowners insurance coverage, use Insurify to find the best policy for you.