A trust is an entity separate from you that can own assets. You can transfer ownership of assets such as your real estate or a bank account to the trust and appoint a trustee to manage them. Both individuals and corporations can serve as trustee, though corporations need to agree and will have a schedule of fees for serving. The trustee holds the assets on behalf of the beneficiaries named in the trust.
Many people fund their trust with their house, but it is not the right decision for everyone. Consider these pros and cons from SFGate before making the decision.
Will versus trust
Creating a will is simpler and less expensive than creating and funding a trust, and so is updating the will if you decide to sell your home. After your death, though, assets listed in a will go through a court-proceeding called probate. This legal process can tie up your real estate and other assets for months. Probate can also be a lengthy and expensive process if anyone contests the will or files an objection in the probate case.
Your assets in trust do not belong to your estate, so they are not subject to probate as long as the trust is properly funded (i.e. the trust is listed as the owner of the assets). The trustee can distribute your assets to your beneficiaries right away, and you may also avoid some taxes, depending on the design of your trust.
Trust versus power of attorney
A power of attorney allows you to name someone to take over certain financial decision-making authority and/or sign on your behalf if you become incapacitated or under certain other circumstances. For example, you may authorize someone to manage your property and pay bills for you while you are overseas.
While you can be the trustee and manage your own assets in the trust, you can also name co-trustees (trustees that serve with you) and successor trustees (trustees that serve after you). If you cannot take care of matters relating to your home, your co-trustee can step in. Upon your death or incapacity, the successor trustee may take over for you.
Although trusts serve some of the same functions as wills and powers of attorney, all three of these estate planning tools can work together, too. Combining them successfully may make it easier to pass your real estate, and other assets, to your beneficiaries.