What if My House Is Not Paid for: Can I Put It in My Living Trust?
Putting your property into a living trust can be an effective way to ensure that your beneficiaries receive their inheritance when you die. Some even choose to put real estate into a trust during the estate planning process. If you are considering putting your home into a trust, you may be concerned about doing so while the home has a mortgage balance against it.
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Impact of Mortgage
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When you have a mortgage on your home, this should have no impact on your ability to put the house into a living trust. When you create a living trust and transfer property into it, you simply change the name on the deed to the name of the trust. You then make yourself the trustee and name a secondary trustee who will take over the trust when you die. At that point, your house will technically be owned by the trust.
Acceleration
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Typically when you change ownership of a house with a mortgage on it, the lender will accelerate the loan and require you to pay all of the remaining balance. However, according to Nolo, federal law prohibits mortgage lenders from accelerating a loan when the homeowner transfers the ownership of the loan into a living trust arrangement. This helps protect the homeowner and prevents him from having to come up with a large amount of money to pay off the mortgage balance.
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Refinancing
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Although changing the deed to your property over to the living trust should not be an issue on the front end, it could be an issue if you decide to refinance. When you refinance, the mortgage lender may require you to have the property in your name before the loan can be completed. In this situation, you will have to take the property back out of the living trust and put it into your name. After the refinance is completed, you may transfer it back into the trust.
Considerations
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Most living trusts are set up to be revocable. This means that you may change the terms of the trust at any point while you are alive. If you use an irrevocable trust instead, you may not change the terms of the trust. If you put your home into an irrevocable trust, you may not be able to get it back out again if you refinance. Because of this, you may want to stick with a revocable trust if you plan on refinancing in the future.
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