What You Need to Know About A Trust
Who Needs a Trust?
A trust is a legal entity that is created to hold property on behalf of another party. The trust’s job is to take care of the property at the direction of the beneficiaries. Although trusts are often used to handle someone’s assets after they die, they can also be created to hold real estate on behalf of the beneficiaries. There are number of advantages to using a trust to hold your real estate.
Privacy: Real estate records are public information and available to anyone with an Internet connection. So it is easy for someone to discover who owns the property, how much your property is worth, and how much you paid for it. “A trust conceals the identity of the owner, which can be helpful in a number of situations, particularly when you are acting as a landlord,” explains Shoeb Sharieff, owner of the Islamic finance company IjaraLoans.com. “Many landlords prefer that their renters deal just with the property manager, allowing them to remain anonymous.”
Multiple Owners: A trust can make it easier to administer a property that is held by multiple owners, such as siblings who inherit real estate when their parents die. Having all the beneficiaries sign documents and do other administrative tasks can be cumbersome. The trust can rent out, sell, or take other actions on behalf of the beneficiaries without their direct involvement. In addition, if one owner dies, gets divorced, or experiences legal difficulties, it can cloud the title to a property and cause difficulties for the other owners. A trust helps to avoid such title problems.
Property Ownership: The beneficiaries of a trust can be changed at any time, allowing you to transfer the ownership of real estate simply and easily. There is no need for contracts, notaries, or public records. This can also help avoid triggering transfer taxes and sales taxes – as well as increases in real estate tax assessments that might happen when a property is sold. “The ownership of the property can easily be divided or given as a gift,” points out Sharieff, an Islamic mortgage expert.
Probate: When someone dies the probate process can be lengthy and require the payment of probate fees. However, a trust can be set up with “contingent beneficiaries,” who will automatically inherit a property – transferring ownership while avoiding the need for a lengthy probate process.
Liens: Liens or other claims filed by work men, local or state governments, or other entities against a property owner can attach to the property, making it difficult to sell. A trust helps to protect the property. Since the trust owns the property, liens filed against the seller cannot be attached to it. Even if one of the beneficiaries has an IRS lien, the property can be sold or transferred without hindrance. “A trust is a particularly useful tool if one beneficiary is experiencing – or is prone to experiencing – legal trouble,” explains Islamic loan expert Sharieff. “It protects the other beneficiaries from the impact of the others’ legal battles.”
Home Ownership for Muslims:Devout Muslims must follow Sharia law’s restrictions against interest and unequally shared risk, so they cannot use traditional mortgages. However, the Ijara-wa-Iqtina (lease and ownership) Islamic home finance process allows Muslims to create a trust that owns the property and leases it to the customer, who pays a monthly rent to the trust. When the customer wishes to move out of the house, the trust must sell the property to the customer under the terms of a promise to purchase. “The Ijara loan process has been around in the United States for more than 20 years,” explains Sharieff, whose Ijara Loans company facilitates Shariah compliant loans. “The Ijarah loan sets up a lessor-lessee arrangement rather than a creditor-debtor relationship – so it is a very useful Islamic finance method.”
More About Trusts