One of the more common estate planning questions that clients ask about trusts is whether their home can be placed into it. You can continue managing your assets if you place them into a family or living trust. However, there are certain conditions that must be met to do so.
If you or your spouse have the mortgage loan in either one of your names, then it’s important to know that your repayment obligation won’t be able to be transferred into the trust. While you’ll be eligible to continue to claim a property tax and interest deduction if you choose to do so, you’ll be required to continue to personally back the mortgage loan yourself.
With a family trust, a grantor often chooses to put their home into it as a way of ensuring that their beneficiaries won’t have to endure a lengthy probate process or pay hefty taxes after they die. It also protects the property from having liens placed on it by unsecured creditors.
By creating a family trust, a grantor can feel more confident that a lender will allow the property to be transferred to them so that they continue living in it without a hassle. While banks tend to frown upon homes being placed into trusts, they ultimately tend to allow it, so long as the mortgage payments continue to be paid.
If the trust is revocable, it means that the grantor can change the beneficiaries of the transfer of the home as they please. While an irrevocable trust may provide a grantor with more of a tax break, making modifications to their beneficiaries or terms is not as easily done.
While most lenders recognize the transfer of a mortgage into a family trust as not triggering the ‘due on sale’ clause, it just might. That’s why it’s important for you to communicate with the mortgage company prior to transferring your home into the trust and to get their response put in writing. Doing so will avoid you potentially having the mortgage placed in default status if they happen to impose the clause down the road.
If you’re looking to place your home into a trust or simply have questions about how creating a trust may be beneficial for you and your heirs, a Los Angeles estate planning attorney can help.
Source: SFGate, “Can You Put a Home that Has a Mortgage in a Family Trust?,” accessed Sep. 01, 2017