How To Put House In Trust With Mortgage (11 Simple Steps)

How To Put House In Trust With Mortgage - Transfer Property To Trust With Mortgage - Who Pays The Mortgage On A House In A Trust

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

In this article, you’ll learn about:

  • whether your house has to be paid off
  • how to put a house with a mortgage in a trust
  • why you would do it
  • best types of trusts for a house with a mortgage
  • how much it costs
  • who pays the mortgage on a house in a trust
  • can you refinance a house in a trust

Let’s dig in. 

Table of Contents

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

Yes, you can put a house with a mortgage in a trust. 

Doing this allows you to manage how the property is handled after your passing. 

However, it’s important to communicate with your mortgage lender before making the transfer. 

Some mortgages have a due-on-sale clause that can be triggered when the property is transferred to a trust. 

But under the Garn-St. Germain Depository Institutions Act of 1982, things changed.

It says transferring a property into a revocable trust for estate planning purposes is often exempt from the due-on-sale clause. 

After speaking with the lender, you can:

  • create the trust
  • change the property title to the trust’s name
  • record the deed

Remember to also adjust your insurance policies to reflect the new ownership.

Read More: Who Needs A Trust Instead Of A Will?

Should I Put My House In A Trust?

Putting your house in a trust can be beneficial for various reasons:

  • Avoid Probate: Transferring your house to a trust avoids probate, which is the court process to distribute assets. This makes the transfer faster and more private.
  • Control After Death: A trust lets you set rules on how your house is managed or distributed after you pass away, giving you more control over its future.
  • Protect Assets: If you use an irrevocable trust, it can protect the house from creditors, lawsuits, and sometimes even reduce estate taxes.
  • Plan for Incapacity: A trust can allow a designated person to manage your property if you become unable to do so, ensuring continued care for your house.
  • Simplify Management: A trust can consolidate your estate, making it easier to manage and distribute, especially if you own properties in different states.
  • Provide for Heirs: You can use a trust to provide a home for your heirs or create a steady income stream by renting out the property.

However, there are also considerations:

  • Costs: Setting up a trust can be costly and requires ongoing management.
  • Limited Access: If you put your house in an irrevocable trust, you give up some control over it.
  • Complex Setup: Trusts can be complex legal documents, and setting them up requires careful planning.

Weigh these benefits and considerations to decide if putting your house in a trust aligns with your estate planning goals and personal situation.

Read More: Who Owns The Property In An Irrevocable Trust

Why Would You Put Your House In A Trust?

Here are some reasons why you’d put your house in a trust:

  • Avoid Probate: Putting your house in a trust helps bypass the lengthy and costly probate process after you pass away.
  • Maintain Privacy: A trust keeps your estate matters private, as opposed to the public nature of probate.
  • Plan for Incapacity: A trust can set guidelines for handling your property if you become unable to make decisions.
  • Reduce Estate Taxes: Certain trusts can help reduce or eliminate estate taxes.
  • Protect from Creditors: Some trusts shield your house from being claimed by creditors.
  • Control Property Distribution: With a trust, you dictate how your property is distributed to beneficiaries.
  • Provide for Minor Children: A trust can ensure your house is managed for the benefit of minor children until they are old enough to inherit.
  • Prevent Family Disputes: Clearly outlining your intentions in a trust can minimize the risk of family disagreements over your property.
  • Simplify Property Management: A trust can streamline property management, especially if you own real estate in multiple states.
  • Preserve Assets for Specific Goals: You can earmark the house for particular purposes, such as funding education for grandchildren, through a trust.

Read More: How Much Money Can You Inherit Without Paying Taxes On It?

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

No, your house does not have to be paid off to put it in a trust

You can transfer a house with a mortgage into a trust. 

However, it’s important to inform your mortgage lender about the transfer.

Some mortgages have clauses that could be affected. 

Additionally, be sure to continue making mortgage payments after the transfer to keep the property in good standing within the trust.

It’s also wise to consult trust attorneys to ensure the process is handled correctly.

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

How To Put House In Trust With Mortgage

Here is how to put a house in a trust with a mortgage:

  1. Choose Trust Type: Pick either a revocable or irrevocable trust, depending on your goals for property control and tax benefits.
  2. Consult Mortgage Lender: Speak with your mortgage lender about putting the house in a trust. Ensure it doesn’t activate the due-on-sale clause.
  3. Select a Trustee: Choose a reliable person to oversee the trust. You can be your own trustee if you want.
  4. Draft Trust Document: Work with an estate planning lawyer to create a trust document. Detail how you want the trust to operate and be managed.
  5. Transfer House Title: Change the ownership of the house to the trust. Your lawyer can prepare a quitclaim deed for this.
  6. Record the Deed: File the new deed with the local land records office to make the transfer official.
  7. Update Insurance: Reach out to your insurance company. Have them change the property insurance policy to the trust’s name.
  8. Fund the Trust: Transfer the house and any other assets into the trust.
  9. Stay on Top of Mortgage Payments: Continue making regular mortgage payments to avoid any issues with the lender.
  10. Keep Trust Records: Document all actions and transactions related to the trust.
  11. Monitor and Manage: Regularly review the trust’s performance and make necessary adjustments as circumstances change.

Types Of Trusts For A House With A Mortgage

Each type of trust has its pros and cons for a house with a mortgage. 

Select the one that best aligns with your:

  • estate planning goals
  • tax considerations
  • desired level of control over the property

Here are the best types of trusts for a house with a mortgage:

  • Revocable Living Trust: Use this trust if you want control over your house during your lifetime. You can make changes or revoke the living trust at any time. It avoids probate but doesn’t provide strong asset protection.
  • Irrevocable Living Trust: Pick this trust if you want to reduce estate taxes and protect assets from creditors. Be aware that you can’t easily change or revoke this trust once it’s created.
  • Qualified Personal Residence Trust (QPRT): Use a QPRT to transfer your house to an irrevocable trust and potentially reduce estate taxes. This trust lets you live in the house for a specified period before it passes to the beneficiaries.
  • Land Trust: Choose a land trust to hold the title of your property for privacy and ease in transferring ownership. This trust keeps your name off public records but allows you control over the property.
  • Life Estate: With a life estate, you can live in the house for your lifetime. After you pass away, the property transfers directly to the beneficiaries without going through probate.

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

Risks Of Putting A House In A Trust With A Mortgage

There are risks to putting a house in a trust with a mortgage. 

Some of those risks are:

  • Due-on-Sale Clause Trigger: Transferring the house into a trust might activate the due-on-sale clause in your mortgage, requiring you to pay the loan in full immediately.
  • Loss of Control in Irrevocable Trust: If you choose an irrevocable trust, you lose control over the house and can’t easily change the trust terms.
  • Tax Implications: Placing a house in a trust may have tax consequences. It’s essential to understand and plan for any tax liability.
  • Property Refinancing Challenges: Once the house is in a trust, it may be more difficult to refinance the mortgage due to lender restrictions.
  • Trust Maintenance Costs: Trusts require ongoing management, which can involve costs such as accounting fees, trustee fees, and legal expenses.
  • Limited Asset Protection: In some cases, placing a house in a trust might not provide as much protection from creditors as you expect.
  • Complex Transfer Process: Mistakes during the transfer process, like improper titling, can lead to legal disputes or the trust not being valid.
  • Mortgage Interest Deduction Changes: Depending on the trust type and structure, you might lose eligibility for the mortgage interest deduction on your taxes.
  • Inadequate Insurance Coverage: Failing to update insurance policies can result in inadequate coverage in case of damage to the property.
  • Misaligned Estate Planning Goals: If not structured properly, the trust may not align with your broader estate planning goals, affecting inheritance and distribution.

Read More: Can Someone Sell A House If Your Name Is On The Deed?

What Is The Cost To Put House In Trust?

There are several costs associated with putting a house in a trust. 

The costs to put a house in a trust can vary significantly based on your specific situation.

Planning ahead and understanding these potential costs of the trust will help you budget and prepare for this important step in estate planning.

  • Attorney Fees: Creating a trust involves legal assistance. Expect to pay between $1,000 to $3,000, depending on your location and the complexity of your estate.
  • Deed Preparation and Recording: Transferring house ownership to a trust requires deed changes. Costs of a trust vary but usually range from $100 to $250.
  • Trustee Fees: If you appoint a professional trustee, they may charge a percentage of the trust assets annually, usually between 0.5% to 2%.
  • Tax Preparation Fees: Trusts often require separate tax returns. Professional preparation might cost between $200 and $1,000 annually.
  • Trust Maintenance: Depending on the trust complexity, ongoing administrative costs can range from minimal to several hundred dollars per year.
  • Potential Costs of Insurance Change: You’ll need to switch the house’s insurance to the trust’s name. This could increase or decrease your premium.
  • Refinancing Costs: If you decide to refinance the property after it’s in the trust, you might incur additional expenses.

Read More: How Long Can A House Stay In A Trust After Death?

FAQs About Putting A House In A Trust With A Mortgage

Here are other questions our clients ask us related to how to put a house in a trust with a mortgage. 

Read More: Tax Implications Of Transferring Property Into A Trust

Who Pays The Mortgage On A House In A Trust?

The trust pays the mortgage on a house in a trust, using funds or assets that are in the trust itself.

If the trust doesn’t have enough assets, the trustee is responsible for making arrangements to pay the mortgage. 

This might involve using rental income from the property, if applicable, or funds contributed to the trust by the grantor or beneficiaries.

In many cases, especially with revocable trusts, the grantor, who is often also the trustee, continues to make mortgage payments from their personal funds.

If the trust is irrevocable, the trust itself should have a bank account from which the mortgage is paid.

The trust agreement should clearly outline the terms for mortgage payments, including the sources of funds to be used. 

This helps avoid confusion and ensures that the mortgage is paid on time.

Read More: Can Someone Sell A House If Your Name Is On The Deed?

Can An Irrevocable Trust Get A Mortgage?

Yes, an irrevocable trust can get a mortgage. 

Here’s how it works:

  1. Trustee’s Role: The trustee of the irrevocable trust applies for the mortgage. The trustee is legally responsible for managing the trust’s assets, including obtaining a mortgage if necessary.
  2. Limited Lender Options: Not all lenders offer mortgages to irrevocable trusts. You need to find a lender that specializes in or is familiar with trust loans.
  3. Provide Trust Documents: The lender will require a copy of the trust agreement to verify the trust’s terms and confirm that it allows for obtaining a mortgage.
  4. Satisfy Lender Requirements: The trust must meet the lender’s credit and income criteria. This may involve reviewing the trust’s assets and income sources.
  5. Property Use and Terms: The lender will consider how the property will be used (e.g., as a residence or rental) to determine the mortgage terms and interest rates.
  6. Close the Loan: When the mortgage is approved, the trustee will sign the loan documents on behalf of the trust.
  7. Stay Compliant: The trustee must ensure that mortgage payments are made on time and that the trust remains in compliance with the loan terms.

Read More: What Are My Rights If My Name Is On A Deed?

Can You Refinance A House In An Irrevocable Trust?

Yes, you can refinance a house in an irrevocable trust, but it’s more complicated. 

Here’s a simple step-by-step guide:

  • Contact the Lender: Talk to your current lender or a new one. Explain that the property is in an irrevocable trust and that you want to refinance.
  • Provide Trust Documents: Lenders will ask for the trust documents. They need to verify that the trust allows for refinancing.
  • Secure Trustee Approval: The trustee must agree to the refinance, as they legally control the property in an irrevocable trust.
  • Apply for the Loan: Complete the loan application. The lender will review the trust documents, your credit, and the property value.
  • Property Title Review: Lenders will check the title to make sure the trust owns the property. They may ask for additional documentation.
  • Close the Loan: If approved, the trustee must attend the closing. They’ll sign the documents on behalf of the trust.
  • Record the Documents: The new mortgage documents need to be recorded with the county recorder’s office.

Read More: Does A Revocable Trust Become Irrevocable Upon Death

Can I Put My House In A Trust Without A Lawyer

Yes, you can put your house in a trust without a lawyer

Here are the steps to do it:

  1. Decide the Trust Type: Choose between a revocable or irrevocable trust based on your goals.
  2. Create the Trust Document: Use a template or online service to create the trust document. Make sure it meets state requirements.
  3. Appoint a Trustee: Name someone to manage the trust. This can be you or someone else.
  4. Transfer the Title: Complete a deed to transfer the house’s title to the trust.
  5. Notarize the Deed: Sign the deed in front of a notary public to make it official.
  6. Record the Deed: File the deed with your local county recorder’s office.
  7. Update Insurance: Contact your insurance company to change the policy to the trust’s name.
  8. Transfer the Property: Officially place the house in the trust by following the steps in the trust document.

Keep in mind that while you can do this without a trust lawyer, trusts can be complex and mistakes can have significant consequences. 

It is often beneficial to have the guidance of an attorney to make sure the trust is set up correctly and aligns with your estate planning goals.

Read More: Can I Set Up A Trust Without My Spouse?

Get Help Putting Your House In A Trust

If you want help putting your house in a trust, 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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