Does Your House Have To Be Paid Off To Put It In A Trust?

Does Your House Have To Be Paid Off To Put It In A Trust - Transfer Property To Trust With Mortgage - How To Put House In Trust With Mortgage

Does your house have to be paid off to put it in a trust?

In this article, you’ll learn about:

  • if your house has to be paid off
  • how to avoid triggering the due on sale clause
  • how the mortgage will work with a trust
  • what type of trust to use
  • how to put your house in a trust with a mortgage
  • common mistakes people when putting a house in a trust
  • who pays the mortgage
  • how much it cost to put a house in a trust
  • can you sell the house

Let’s dig in.

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Does Your House Have To Be Paid Off To Put It In A Trust?

You can put your house in a trust even if it’s not paid off. 

Many people do this as part of estate planning.

When you move your home into a trust, the trust becomes the new owner

If your home has a mortgage, you still need to make payments.

There are different types of trusts for homes.

A popular one is a living trust, which helps to avoid probate.

Watch out for the “due on sale” clause in your mortgage agreement. 

This could let the lender ask for the full loan amount when you change ownership. 

But there’s good news. 

The Garn-St. Germain Act of 1982 stops lenders from using this clause for living trusts if you’re a beneficiary.

Talking to a trust attorney is smart. 

They can help make sure everything is done right and fits your estate plan

This avoids problems later on, like: 

  • Triggering the Due on Sale Clause: If not done correctly, the transfer could potentially trigger the “due on sale” clause, requiring you to repay the entire mortgage immediately.
  • Tax Consequences: Improper transfer might affect the property’s tax status, possibly leading to increased property taxes or affecting eligibility for tax exemptions.
  • Loss of Control: If transferred into an irrevocable trust, you may lose control over the property and be unable to sell or refinance without the consent of the trustee.
  • Affecting Public Benefits: For individuals who are receiving public benefits, such as Medicaid, transferring property into a trust might affect eligibility.
  • Incorrect or Incomplete Documentation: Mistakes in the trust document or failure to properly transfer the title could render the trust ineffective for its intended purpose.
  • Insurance Issues: The transfer could potentially void your homeowner’s insurance if not properly handled, leaving the property unprotected.
  • Lender Issues: The mortgage lender might have specific requirements or restrictions regarding transferring a property into a trust that, if not adhered to, can cause complications.
  • Refinancing Challenges: Refinancing the mortgage might become more complicated once the property is held in a trust.
  • Legal Disputes: Errors in the trust document or the transfer process could lead to legal disputes among beneficiaries or with third parties.

Also, give your mortgage lender a heads-up. 

Check if they need you to do anything special when moving the property into a trust.

Read More: How To Put House In Trust With Mortgage

Should I Put My House In Trust?

Putting your house in a trust is a strategic step in estate planning

Here’s why it can be beneficial to put your house in a trust:

  • Avoid Probate: Trusts avoid the probate process, which is often time-consuming and costly. This makes it easier for your heirs to inherit the property.
  • Maintain Privacy: Unlike probate, trusts are not public. This keeps your estate matters confidential.
  • Control After Death: You can dictate how your property should be used or maintained after you pass away.
  • Plan for Incapacity: If you become unable to make decisions, a trust ensures that your property is managed according to your preferences.
  • Reduce Estate Taxes: Some trusts can lower the estate taxes your heirs have to pay.
  • Shield from Creditors: Certain trusts protect your home from creditors and legal claims.
  • Preserve Benefit Eligibility: A trust can maintain your eligibility for government benefits like Medicaid.
  • Streamline Management: Trusts simplify property management, particularly if you own properties in multiple states.
  • Set Inheritance Conditions: You can establish rules for how and when your heirs receive the property.
  • Minimize Family Disputes: A trust helps to prevent conflicts among family members by clearly stating your intentions.

However, exercise caution. 

Once you transfer your home into an irrevocable trust, it’s difficult to reverse.

 This might also result in losing some tax benefits.

If you have a mortgage, be mindful of the transfer process. 

Ensure it doesn’t activate any clauses causing the entire loan to be due immediately.

In short, using a trust can provide control, privacy, and financial advantages. 

But it’s essential to consider the type of trust and the specifics of your situation.

Read More: Tax Implications Of Transferring Property Into A Trust

Putting A House In A Trust

Let’s talk about:

Due On Sale Clause

The due on sale clause is a part of many mortgage agreements. 

It says if you transfer ownership of your house, the lender can ask for the full loan amount right away.

Some people worry this will happen if they put their house in a trust. 

But, there’s a law that protects you. 

The Garn-St. Germain Act says lenders can’t use the due on sale clause when you put your house in a living trust, as long as you stay a beneficiary.

Still, some lenders might try to enforce the clause, so standing your ground is important.

Be careful with the type of trust you choose. 

The protection applies mainly to living trusts. 

Other trusts might not have the same safeguard.

Double-check your mortgage agreement. 

Know what it says about the due on sale clause. 

Talk to your lender before making the transfer. 

Make sure they know it’s going into a living trust.

And work with your trust lawyer to navigate this. 

Read More: Don’t Put Your House In A Trust

How Mortgages Work When You Put A House In A Trust

When you put a house with a mortgage into a trust, the trust becomes the owner. 

But you’re still on the hook for the mortgage payments. 

The terms of the mortgage don’t change. 

They stay the same as when you took it out. 

Make sure the trust is set up right, so the “due on sale” clause doesn’t get triggered. 

This clause can make the whole mortgage due at once. 

The Garn-St. Germain Act can protect you from this if you use a living trust and are a beneficiary. 

The lender should be notified about the transfer. 

It’s also key to check with them for any special steps. 

Keep paying the mortgage, taxes, and insurance. 

And keep the property maintained. 

If you play it right, the trust can help with estate planning and possibly avoid probate.

Read More: Why Would You Put Your House In A Trust?

How To Put A House In A Trust With A Mortgage

In this section, we will discuss:

  • what type of trust should you put your house in
  • how to put your house in a trust
  • what to do about insurance

Choosing The Right Type Of Trust

To choose the right type of trust for your house, start by identifying your goals. 

  • Do you want to avoid probate
  • Are you looking to reduce estate taxes? 
  • Or do you need to provide for a special needs family member?

If avoiding probate is the main goal, a revocable living trust is a good choice. 

This trust lets you stay in control of your house during your lifetime. 

After you pass away, the house goes to the beneficiaries without going through probate.

If you want to protect assets or reduce estate taxes, an irrevocable trust might be the way to go. 

This trust takes the house out of your estate, which can lower estate taxes. 

But be cautious, as you give up control of the house once it’s in an irrevocable trust.

For providing for a special needs family member, a special needs trust is ideal. 

This trust helps ensure they have resources without losing eligibility for government benefits.

Lastly, always double-check your state’s laws, as they can affect the trust. 

And keep your beneficiaries in mind when deciding. 

It’s about what’s best for you and them.

Steps For Putting House In A Trust With A Mortgage

Let’s look at how to put a house in a trust with a mortgage: 

  1. Choose the Trust Type: Pick a trust that fits your goals. A revocable living trust is common for estate planning.
  2. Hire an Attorney: Get a real estate or estate planning attorney to help set up the trust. They know the legal details.
  3. Create the Trust Document: Work with your trust attorney to create the trust document. Include who the trustee and beneficiaries are.
  4. Talk to Your Lender: Let your mortgage lender know you’re transferring the property to a trust. Ask if they have any specific requirements.
  5. Review the Mortgage Terms: Check for a “due on sale” clause in your mortgage. The Garn-St. Germain Act should protect you, but it’s good to double-check.
  6. Change the Property Title: Fill out a quit claim deed to change the property title into the trust’s name. Your attorney can help with this.
  7. Notarize and Record the Deed: Sign the deed in front of a notary. Then, file it with the county recorder’s office.
  8. Update Your Insurance: Contact your insurance company. Make sure your homeowner’s policy reflects the trust as the property owner.
  9. Transfer Property Tax Exemptions: If you have property tax exemptions, apply to transfer them to the trust.
  10. Keep Up With Mortgage Payments: Even though the trust owns the property, you still need to make regular mortgage payments.
  11. Review the Trust Periodically: Life changes. Make sure your trust still fits your goals by reviewing it every so often.

Insurance Considerations

When you put a house with a mortgage into a trust, you need to update your insurance. 

Tell your insurance company about the change. 

They need to know the trust now owns the property. 

This way, the trust gets listed as an insured party on the policy.

Check if your policy covers the trustee and beneficiaries. 

They should be protected in case of damage or liability.

Keep an eye on the coverage amount. 

It should reflect the home’s value and replacement costs. 

This ensures the trust’s asset is well-protected.

Ask your insurance agent about title insurance. 

It can protect the trust from ownership disputes or title issues.

Make sure you understand the policy. 

Know what it covers and what it doesn’t. 

This helps avoid surprises if you need to make a claim.

Stay on top of the premiums. 

The trust should have a plan for paying them. 

This keeps the insurance active and the property safeguarded.

Being thorough with insurance helps keep your property and trust secure. 

It gives you peace of mind and protects the interests of everyone involved.

Potential Pitfalls and Common Mistakes

These are the mistakes we see people make when putting a house in a trust with a mortgage. 

Overlooking Tax Implications

When you put your house in a trust with a mortgage, you need to think about taxes.

First, consider property taxes. 

Your house might have tax exemptions now. 

Putting it in a trust could change that. 

You want to make sure the trust is set up so you don’t lose those exemptions.

Next, think about income taxes. 

If the trust earns money, like from renting out the house, it might have to pay taxes. 

It’s important to know how this affects your tax bill.

Also, there’s the estate tax. 

A trust can sometimes help lower estate taxes when you pass away. 

But you need to set it up right.

Lastly, capital gains taxes matter. 

If the house goes up in value, and then gets sold, there might be taxes on the profit. 

A trust can affect how these taxes work.

Failing To Maintain The Property And Mortgage

When you put your house in a trust with a mortgage, it’s crucial to keep up with maintenance and mortgage payments. 

The trust owns the property, but you’re responsible for costs. 

Regular maintenance keeps the house in good shape. 

This protects the value of your asset. 

Paying the mortgage on time avoids late fees and credit issues. 

If you neglect maintenance or payments, the house can lose value or face foreclosure. 

As the person who set up the trust, it’s your job to manage these responsibilities. 

This ensures that the trust serves its purpose in protecting your property for the future.

FAQs About Your House Having To Be Paid Off To Put It In A Trust

Here are the most common questions we get from clients about whether a house needs to be paid off to put it in a trust. 

How Much Does It Cost To Put Your House In A Trust?

Here is how much it costs to put a house in a trust:

  • DIY Trust: $50 – $350
  • Simple Trust: $1,000 – $3,000
  • Complex Trust: $5,000+

If you opt for a do-it-yourself (DIY) living trust, you might only spend between $50 and $350.

If you decide to hire a lawyer, the cost can range from $1,000 to $3,000 for a single person’s trust. 

This fee typically includes:

  • the initial consultation
  • trust drafting
  • signing process

If your estate is complex, requiring unique provisions or tax planning, costs can go up to $5,000 or more. 

Remember, additional costs might occur, such as funding your trust or amending it in the future. 

Also, the administration of the trust after your death can incur separate expenses.

Read More: How Much Does A Living Trust Cost?

Who Pays The Mortgage On A House In A Trust?

The person who put the house in the trust usually pays the mortgage. 

This person is known as the trustor. 

The trustor stays responsible for the mortgage payments even after transferring the house to the trust. 

The trust doesn’t change the original mortgage agreement. 

If the trustor doesn’t pay, the lender can still take action to collect the debt. 

In some cases, the trust may be structured so that the trust itself, through its assets, makes the mortgage payments. 

It’s important to set clear terms in the trust documents. 

This ensures everyone knows who is responsible for the mortgage payments.

Read More: What Happens To An Irrevocable Trust When The Grantor Dies?

What Are The Advantages Of Putting Your House In A Trust?

Putting your house in a trust has several advantages:

  • Avoids Probate: A trust lets your house bypass probate. This means faster and easier transfer to your heirs.
  • Saves Money: You save on court fees and legal costs by avoiding probate.
  • Offers Privacy: Trusts are private. Unlike probate, there’s no public record. Your house transfer stays confidential.
  • Provides Control: You can set rules in a trust. This helps control how your house is used or maintained after your death.
  • Protects from Legal Claims: A properly structured trust can protect your house from creditors or legal judgments.
  • Manages Incapacity: If you can’t manage your affairs, a trust can set up someone to handle the house on your behalf.
  • Minimizes Taxes: In some cases, a trust can reduce estate taxes. This might leave more value for your heirs.
  • Helps with Medicaid Planning: A trust can be part of a plan to qualify for Medicaid, helping preserve your house for your family.

Read More: Distribution Of Irrevocable Trust Assets To Beneficiaries

What Are The Disadvantages Of Putting Your House In A Trust?

Some disadvantages of putting your house in a trust are:

  • Setup Costs: Setting up a trust involves legal fees and costs.
  • Complexity: Managing a trust can be complicated and may require ongoing attention.
  • Limited Control: In an irrevocable trust, you lose control over the house. You can’t easily sell or change the trust terms.
  • Refinancing Issues: Getting a new mortgage or refinancing can be trickier with a house in a trust.
  • Tax Complications: There might be tax consequences when transferring the house, or it could affect property tax exemptions.
  • Limited Asset Protection: A revocable trust doesn’t protect the house from creditors as effectively as other asset protection strategies.
  • Insurance Changes: You may need to adjust your homeowner’s insurance policy, which could increase costs or complicate coverage.
  • Legal Formalities: Trusts require adherence to legal formalities. Missing a step can undermine the trust’s purpose.

Read More: Am I Entitled To My Husband’s Property If He Dies And My Name Isn’t On The Deed?

Can You Put A House With A Mortgage In An Irrevocable Trust?

Yes, you can put a house with a mortgage into an irrevocable trust. 

When you do this, the trust takes ownership of the house. 

You, as the original owner, give up control over the property. 

The trust can’t be easily changed or canceled without the agreement of the beneficiaries. 

The mortgage still needs to be paid. 

The trust or the beneficiaries usually take on this responsibility. 

It’s important to check the mortgage terms for any clauses that could be triggered by the transfer.

Can You Sell A House In An Irrevocable Trust?

Yes, you can sell a house in an irrevocable trust. 

However, the trustee, not the original owner, has the authority to sell it. 

The trustee must follow the trust’s terms and act in the best interest of the beneficiaries. 

After selling the house, the money typically stays in the trust. 

The trustee then uses or distributes these funds according to the trust’s rules.

Does Putting Your Home In A Trust Protect It From Medicaid?

Putting your home in a trust can sometimes protect it from Medicaid, but it depends on the type of trust you use. 

If you put your home in a revocable trust, Medicaid can still count it as an asset. 

This means it might affect your eligibility for benefits. 

But if you use an irrevocable trust, your home is usually not counted as your asset by Medicaid. 

It’s important to set up the irrevocable trust correctly and follow Medicaid’s rules. 

For example, Medicaid has a look-back period. 

This means if you transfer your home into an irrevocable trust too close to applying for Medicaid, you might still face penalties. 

Planning ahead and understanding the rules is key.

Putting Your House In A Trust With A Mortgage

If you want to put your house in a trust with a mortgage, fill out the form below. 

At The Hive Law, we understand the importance of:

  • protecting your hard-earned assets 
  • ensuring your family’s future
  • not losing everything to creditors and lawsuits
  • properly (and legally) distributing assets 

We only accommodate a limited number of clients each month.

So don’t miss your opportunity to work with our trust fund lawyers.

Benefits of our trust services:

  • Tailored solutions to fit your unique needs and goals
  • Expert guidance in navigating complex tax and legal matters
  • Preservation of your wealth for future generations
  • Streamlined asset distribution according to your wishes

Avoid the pitfalls of inadequate estate planning strategies:

  • Creditors seizing your assets
  • Lawsuits jeopardizing your family’s financial security
  • Family disputes over inheritance
  • Costly and time-consuming probate processes

Talk soon.

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