Trust funding, especially in the context of real estate, is a nuanced process. To comprehend how we might transfer the title of real property into a trust, we must first establish an understanding of the background concepts.
Real Estate and Its Unique Characteristics
Different from most personal property, real property carries unique characteristics and abides by different laws. Let’s start by discussing a term that is often used in estate planning – probate assets. In North Carolina, real property is not considered a probate asset. A probate asset is property that’s distributed according to a Will under the supervision of the court when someone dies. Unlike an individually owned bank account, real estate titled solely in the decedent’s name (the deceased person) does not fall under the court’s control in a probate proceeding. Instead, it transfers as per the decedent’s Will, or if the decedent dies without a Will, according to the laws of intestate succession. Interestingly, this type of property isn’t included when calculating court fees.
Real Estate, Mortgages, and Probate
As real property isn’t a probate asset, the expenses related to its upkeep, as well as servicing any liens against the real property (like making mortgage payments), aren’t considered eligible disbursements from the probate estate. Therefore, when a person dies while still having a mortgage on their property, both the title to the property and the responsibility to make any payments towards the property are transferred directly to the heirs.
However, if necessary, real estate can be brought under the jurisdiction of the probate court. For instance, if the estate doesn’t have enough assets to cover the decedent’s debts (i.e. is insolvent), it might be necessary to include the real estate in probate to generate cash by selling the property.
Marriage and Real Estate Titles
The next significant aspect of real estate in the trust funding landscape pertains to how married couples hold the title to real estate. In North Carolina, married couples typically hold titles as Tenants by the Entirety (TBE). TBE is a form of ownership where each spouse has an equal interest in the property. Similar to Joint Tenants with Rights of Survivorship (meaning that title automatically transfers to the surviving spouse upon the death of the first spouse), TBE also offers an extra layer of creditor protection. For example, if a creditor obtains a judgment against one spouse, they can’t enforce it against the home due to its status as an entire property held by both spouses. However, this protection is limited. If the judgment is against both spouses, the house could be used to settle the creditor’s claim.
These factors, including the limited creditor protection for spouses as tenants by the entirety and real estate’s non-probate asset aspect, play crucial roles in determining whether and when to fund real property into a trust. In our next post, we’ll explore the intricacies of how to fund real estate into a trust, along with special federal laws affecting our ability to fund mortgaged real property.
Need Help with Estate Planning? Brady Cobin Law Group, PLLC is Here for You
Navigating the complexities of trust funding and estate planning can be challenging. However, with the right guidance and a robust strategy, you can optimize your financial resources and safeguard your assets effectively. Start planning for your future today with Brady Cobin Law Group, PLLC, your reliable partner in estate planning in North Carolina.
Ready to take the first step? Contact us at (919) 782-3500 or reach out to us online to schedule a consultation with our seasoned estate planning attorney in Raleigh, NC.