A residence can be held in further trust for the benefit of one or multiple beneficiaries after the owner’s death. In California, a trust can hold title to real property either for up to ninety years or for a period that ends no later than 21 years after the death of an individual who was alive at the real property owner’s death (when the trust is established). Let us discuss when, why and how the so-called “House Trust” is used; so-named because its primary asset is a residence.
First, consider a second-marriage with step-children, where the couple reside in a residence owned solely by one spouse. The spouse who owns the residence may want to allow the other (surviving) spouse to continue to live in a residence but ensure that the residence ultimately goes to his or her own children. Second, consider parent(s) who want to maintain a significant family residence after they die for the shared benefit of multiple children.
In the first (second marriage) scenario, the spouse who owns the residence wants to protect their surviving spouse from being forced out of their home. The spouse also wants ensure that when the surviving spouse dies (or moves out) that the residence ultimately benefits their children from before the second marriage.
The House Trust controls the rights and duties of the beneficiary spouse and the future beneficiaries. For example, the spouse may be allowed lifetime rent-free use of the residence but be required to pay the insurance, taxes, upkeep and utilities for the house while living in the house. The spouse may also be allowed to require the trustee to sell the residence and purchase another residence with the sale proceeds; this would help if the spouse decides to downsize or relocate. Ultimately, when the surviving spouse dies or does not keep his or her duties the trust will terminate and the remaining assets of the trust are distributed to the children of the spouse who owned the residence.
In the second scenario, the parents want the benefits and burdens associated with maintaining a residence to be shared amongst multiple children (and their families). Here, the “House Trust” addresses how multiple beneficiaries share the use of the residence over the calendar year, what duties the children (and their families) have for the upkeep of the residence and for each other, and how the many costs of owning the house are divided.
Drafting the “House Trust” provisions varies with each family situation and objectives. In all cases it allows for a trustee (or co-trustees) to manage the residence, enforce the rules, and avoid outright distribution or sale of the residence at the death of the spouse who owns the residence. It also provides creditor protection for the house against most creditor claims related to the beneficiaries’ personal debts. Outright distribution might otherwise mean the house is sold, becomes subject to claims by a beneficiary’s own creditors, or is not used in the intended manner.
The foregoing is a limited and simplified discussion of a larger and fact driven subject. It is not legal advice. Consult an attorney for guidance.
Dennis A. Fordham, attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@DennisFordhamLaw.com and 707-263-3235.