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Q&A: Beware placing your house into a trust
A California attorney recently explained how I could place my house into a trust to avoid the risk of losing it to a future malpractice creditor. Is there any downside to doing this?
Q: A California attorney recently explained how I could place my house into a trust to avoid the risk of losing it to a future malpractice creditor. Is there any downside to doing this?
A: There are several substantial negatives that must be considered. If the trust owns the house, you could lose the deductibility of your home mortgage interest and the ability to deduct real estate taxes. Worse yet, the $500,000 exemption from capital gains upon the sale of the residence tax applies to individuals, not trusts, so you would change a tax-free gain into a taxable entity. Also, if you retain control of the trust and enjoy the home, it likely would not be immune from creditors. Finally, most states have a tax that applies when real estate is transferred from an individual into a trust, and this should be reviewed in advance of any transfer.
