Putting Your Mortgage Deed In A Trust: What You Need To Know

Transferring a mortgaged property into a trust is a fairly common occurrence, and it is possible to do so. The process involves signing a new deed that names a specific trustee as the new owner of the property. This deed then needs to be recorded with the local county recorder's office, and there may be a small fee for this. While transferring a mortgaged property into a trust does not negate the obligation to pay the mortgage, it can bring several benefits, such as avoiding probate and maintaining control over the property. However, it is important to be aware of potential issues, such as the impact on the ability to make changes to the mortgage and the possibility of triggering a due-on-sale or due-on-transfer clause in the loan agreement. Consulting with an attorney who specializes in estate planning and is knowledgeable about the laws of the specific state is advisable before initiating the process.

How do I put my mortgage deed in a trust?

Understand the legal implications of transferring a mortgaged property into a trust

Transferring a mortgaged property into a trust has several legal implications that you should be aware of. Firstly, it is important to understand that a trust is a legal entity, and when you transfer your property into a trust, you are effectively transferring the title of ownership to the trust itself. This means that the trust holds the legal title to the property, even though you may still control what happens to the property as the trustee.

Another legal implication to consider is the "due-on-sale" or "due-on-transfer" clause in your mortgage loan agreement. This clause gives lenders the right to demand full repayment of the mortgage if the borrower sells or transfers ownership of the property. However, under the Garn-St. Germain Depository Institutions Act of 1982, lenders are not permitted to enforce this clause when the property is transferred to a revocable living trust. Nevertheless, it is important to review your loan agreement and consult a lawyer to understand the specific terms and conditions of your mortgage.

Transferring a mortgaged property into a trust may also require additional paperwork and fees. You may need to prepare and sign a new deed for the property, such as a warranty or quitclaim deed, and there may be recording fees and endorsement costs associated with the transfer. Additionally, transferring the deed into a trust could require an endorsement on your title insurance policy or the purchase of a new policy due to the change in ownership.

It is worth noting that even after transferring your mortgaged property into a trust, you remain obligated to continue making mortgage payments and fulfilling the terms of your loan agreement. The transfer does not relieve you of these financial responsibilities. Furthermore, refinancing a property owned by a trust may be more complex and may require temporarily moving the property out of the trust to obtain approval from the refinancing lender.

Lastly, the legal implications of transferring a mortgaged property into a trust can vary depending on your location and the specific circumstances of your situation. Therefore, it is always advisable to seek professional legal advice before proceeding with any property transfers or trust creations to ensure compliance with applicable laws and regulations.

Consult a lawyer to ensure you're not violating the terms of your mortgage

Transferring your mortgage deed into a trust is a complex process that requires careful consideration and consultation with legal professionals. While it is possible to do this without a lawyer, it is highly recommended that you consult an estate planning lawyer or an attorney specializing in estate planning and familiar with the laws of your state. This will ensure that you fully understand the implications of the transfer and comply with all legal requirements.

One of the critical aspects to consider is the "due-on-sale" or "due-on-transfer" clause in your mortgage contract. Typically, mortgages include this clause, stating that if you transfer ownership of the property to someone else, the loan must be paid off immediately. However, transferring your property into a revocable living trust is generally considered an exception to this clause and does not trigger it. Nevertheless, it is essential to review your specific mortgage contract and consult a lawyer to confirm this exception applies in your case.

Another important consideration is the lender's requirements and consent. Lenders have specific rights and interests outlined in the loan documents that govern what you can and cannot do with the property. The lender will specify the terms for transferring the property into a trust, and their consent may be required. These terms may include specific requirements that the trust must meet for the lender to approve the transfer. Therefore, it is crucial to carefully review the loan documents and discuss them with your lawyer to ensure you are not violating any terms of your mortgage agreement.

Additionally, transferring your mortgage deed into a trust may have implications for your homeowner's insurance and title insurance. It is important to update your insurance policies to reflect the trust as the additional insured party or the new property owner. This step will help avoid any coverage issues in the future. Furthermore, transferring the deed may require an endorsement on your title insurance policy or even the purchase of a new policy due to the change in ownership. Consulting a lawyer will help you navigate these technicalities and ensure compliance with all necessary insurance updates.

Lastly, if you are considering refinancing your mortgage in the future, transferring the property into a trust can impact your ability to do so. Some lenders may require you to temporarily transfer the property back to your name before approving a refinance loan. Therefore, it is advisable to explore refinancing options or consult with a mortgage advisor or lender experienced in handling trusts before transferring the deed into a trust. This will help you understand the potential limitations on refinancing and make an informed decision.

Prepare and sign a new deed for the property

Preparing and signing a new deed for the property is a crucial step in transferring your mortgaged home into a trust. This process involves several key steps and considerations to ensure it is done correctly and in compliance with legal requirements. Here is a detailed guide to help you navigate this process:

First, it is important to understand the purpose and benefits of transferring your mortgaged home into a trust. By doing so, you can achieve greater control over your assets, maintain privacy, and avoid the potentially costly and time-consuming probate process. This allows you to determine how your assets will be distributed upon your death, providing peace of mind for you and your heirs.

Next, you will need to gather the necessary documents and information. This includes the recorded deed for your property, which contains important details such as the names of the current owners and the legal description of the property. Additionally, you will need to identify the type of trust you are transferring the property into, whether it is a revocable or irrevocable trust, and the specific requirements associated with each type.

The preparation of the new deed is a critical step. You will typically need a grant form or quit claim form to transfer the deed, and these forms can vary depending on the state in which you reside. It is highly advisable to engage the services of a lawyer experienced in the relevant state laws to ensure that the new deed is prepared accurately and in compliance with legal requirements. The new deed will effectively transfer the title of the property from your name to the name of the trust, signifying that the trust now owns the house.

Once the new deed has been prepared, it must be signed by the relevant parties. This typically includes the grantor (property owner) and may require the presence of a notary public to witness and authenticate the signatures. The specific requirements for signing the new deed may vary depending on the state and the type of trust being established.

After the new deed has been signed, it must be recorded and filed with the appropriate authorities. This typically involves submitting the deed to the county recorder's office or clerk's office in the county where the property is located. There may be associated fees for recording and filing the new deed, so it is important to check with an attorney or the relevant county agency for specific information.

It is worth noting that transferring your mortgaged home into a trust does not relieve you of your loan repayment obligations. It is important to inform your mortgage lender and insurance company about your intentions and seek their guidance on any specific requirements or restrictions they may have regarding such transfers. Additionally, refinancing your mortgage may be an option to explore before finalising the transfer into the trust.

Notify your lender of the transfer

While it is not mandatory to notify your lender of the transfer, it is a good idea to do so. This is because transferring your mortgage deed into a trust can trigger a "due-on-sale" or "due-on-transfer" clause in your loan agreement. This means that the loan repayment could be accelerated and you would have to pay off the mortgage before transferring the deed.

However, there are exceptions to the "due-on-sale" clause, and transferring your property to your own revocable trust is one of them. This is outlined in the Garn-St Germain Depository Institutions Act of 1982, which specifies that lenders cannot call the promissory note due when a property is put into a revocable living trust. This Act applies across all 50 states.

Additionally, if you maintain the unrestricted right to live in the property for the rest of your life, it will not trigger the "due-on-sale" clause. In this case, you remain the beneficial owner, and the loan is not accelerated.

It is important to note that transferring your mortgage deed into a trust may require an endorsement on your title insurance policy or the purchase of a new title insurance policy due to the change of ownership. This can cost as little as $100.

Before transferring your mortgage deed into a trust, it is advisable to consult with a lawyer to ensure that you comply with the specific requirements and laws of your state.

Understand the benefits of putting your home in a trust

Understanding the benefits of putting your home in a trust is essential before making any decisions. Here are some key advantages to consider:

Avoid Probate

The primary benefit of placing your home in a trust is bypassing probate, a lengthy and costly legal process. During probate, a judge validates the deceased's will and oversees asset distribution, which can delay beneficiaries from inheriting assets. Trusts allow your trustee to skip probate, enabling faster asset distribution and privacy since trusts aren't public records like wills.

Tax Benefits

Trusts offer tax advantages, including potential savings on estate, capital gains, and income taxes. For example, irrevocable trusts may be eligible for a step-up in tax basis upon the grantor's death, reducing estate and capital gains taxes. Additionally, trust funds can consolidate assets, reducing ongoing administrative costs. However, specific financial implications, such as capital gains and income tax, should be carefully considered.

Asset Protection

Trusts can protect your home and assets from creditors, lawsuits, and care home fees. They ensure that your wishes outlined in the trust document are respected and provide flexibility in managing the property and naming beneficiaries. Trusts are particularly beneficial for preserving assets for future generations and protecting them from taxes and legal challenges.

Privacy

Placing your home in a trust keeps the details of your estate private. This can help avoid family disputes and keep your affairs confidential, as trusts, unlike wills, are not matters of public record.

Simplified Management and Distribution

Trusts can make it easier to manage and distribute your assets, including your home, after your death. They provide flexibility in managing the property and distributing assets, especially with a discretionary trust. While you may lose some direct control over your home, you can name yourself or a trusted individual, such as a friend or adult child, as the trustee to maintain control and ensure your wishes are fulfilled.

Frequently asked questions