Successor Trustee: Applying For A Mortgage

A successor trustee is a person or institution in charge of managing a living trust if the original trustee dies or is unable to manage the trust. The trustee acts as a fiduciary who is responsible for managing the assets on behalf of the beneficiary. A successor trustee can encumber real estate assets owned by the trust in order to raise the needed funds (if allowed by the trust documents). This can include applying for a mortgage.

How does a successor trustee apply for a mortgage?

Irrevocable trust mortgage

A successor trustee is the person or institution in charge of managing a living trust if the original trustee dies or is unable to manage the trust. The trustee must manage the property and ensure mortgage payments are made.

A successor trustee can encumber real estate assets owned by an irrevocable trust to raise funds, if allowed by the trust documents. Irrevocable trust lenders need to review the trust documents and any amendments made to the trust.

If the trust-owned real estate has sufficient equity, the trustee can use an irrevocable trust loan to borrow against the property. The loan proceeds from the irrevocable trust loan can then be used to buy out the other beneficiaries.

It is important to note that irrevocable trust loans are only available from specialised lenders, as banks and other institutional lenders are usually unable to lend to irrevocable trusts.

Mortgage loans to irrevocable trusts

A successor trustee is the person or institution in charge of managing a living trust if the original trustee dies or is unable to manage the trust. The trustee takes control of the trust's assets, which may include investments, real estate, bank accounts, and other personal property. They are responsible for knowing the value of and managing these assets for the benefit of the trust beneficiaries.

To qualify for a mortgage through an irrevocable trust, certain criteria must be met:

• Legal Authority: The trust must explicitly grant the trustee the authority to incur debt or mortgage property.
• Trust Solvency: The trust must have enough assets to cover the loan, showing financial stability.
• Beneficiary Consent: Depending on the trust terms, beneficiaries might need to be informed or consent to the mortgage.
• Lender Requirements: Lenders may have specific requirements about the trust's structure and documentation, such as a review of the trust agreement.

Irrevocable trust mortgage financing is typically available for up to 3 years while most loans are written for 12 months and paid off much earlier. An irrevocable trust lender is not able to provide a long-term 30-year irrevocable trust mortgage.

Buying a home in trust

When you buy a home, you may have the option of buying it in a trust. This means that the trust, rather than you, owns the home. You can be the trustee of the property and have significant control over it and what happens to it after your death.

Advantages

Property trusts aren't just for those with large estates or complex estate plans. For most homeowners, their house is their most valuable asset, so having a plan for that asset can make inheriting the house a less stressful process. A property trust is a legal entity that allows a grantor to pass their property to their beneficiary of choice. Buying a home in a trust can give you greater control over what happens to the property when you die and possibly help you avoid inheritance taxes. A revocable trust allows you to change the beneficiary and other terms at any time.

Disadvantages

It can be expensive and time-consuming to buy a home in a trust. It can also make refinancing your mortgage more complex. While the trust can help you avoid probate for your home, it won't affect other property or assets, which will still need to go through probate.

Process

The first step to buying a home in trust is to establish a living trust, allowing the trustee to manage the assets for the benefit of a beneficiary. In setting up a trust, you can name your successor trustee, who may or may not be the same as the trust's beneficiary. The trust creator (the grantor) designates the successor trustee and their responsibilities in the original trust document.

Mortgage

It can be difficult to apply for a loan as a trust. Most people buy in their name and then transfer the property into the trust later. This can be done by changing the deed with the county by filling out a form and paying a fee. However, the bank that holds the mortgage might require advance notice if you plan to put the home in a trust, and you will need to ensure that the mortgage continues to be paid. You may need to remove the home from the trust if you wish to refinance, and you can transfer the property back into the trust when the refinance is complete.

The role of a successor trustee

A successor trustee is a person or institution named in a trust document to manage a living trust if the original trustee dies or becomes incapacitated. The role of a successor trustee is to safeguard the trust and distribute its assets and resources according to the grantor's wishes, as outlined in the trust document.

The successor trustee takes control of the trust's assets, which may include investments, real estate, bank accounts, and other personal property. They are responsible for knowing the value of and managing these assets for the benefit of the trust beneficiaries. The successor trustee must also use the estate's assets to pay any outstanding debts or bills at the time of the grantor's death and communicate with beneficiaries about any delays in payments.

In addition to managing and distributing assets, the successor trustee is responsible for notifying the trust beneficiaries of the grantor's death or incapacity and keeping them informed about the status, decisions, and distributions of the trust. They must also ensure that the trust complies with all tax obligations, including filing tax returns and paying taxes on time. When the trust has fulfilled its purpose or reached its termination date, the successor trustee oversees the final distribution of assets and the formal closure of the trust.

It is important to note that the successor trustee must act with the trust's beneficiaries in mind and cannot make decisions for their own benefit unless specified in the trust. The role of the successor trustee may also change depending on whether the grantor has died or become incapacitated. If the grantor has died, the successor trustee typically starts by notifying family members, relatives, and financial institutions of the death and providing copies of the Declaration of Trust.

Settling debts and making financial decisions

A successor trustee is the person responsible for administering and settling a trust after the trust's creator, the grantor, dies or becomes incapacitated. The successor trustee must follow the instructions outlined in the trust document and distribute assets to beneficiaries according to the grantor's wishes. This may involve distributing assets immediately or over a specified period of time.

When it comes to settling debts and making financial decisions, the successor trustee has several important responsibilities. Firstly, they must use the estate's assets to pay off any outstanding debts or bills that were present at the time of the grantor's death. This includes ensuring that all tax obligations are met, such as filing tax returns and paying any necessary taxes on time. The successor trustee must also communicate with beneficiaries about any delays in payments.

In some cases, the successor trustee may need to borrow money or take out a loan on behalf of the trust. This could be necessary to cover various expenses, such as property taxes, mortgage payments, property maintenance, repairs, or legal fees. While traditional lenders like banks typically do not lend to irrevocable trusts, specialised irrevocable trust loan lenders do exist and can provide short-term financing against trust-owned real estate. However, this often requires that the real estate is transferred out of the trust and into the name of the beneficiary.

It is important to note that the successor trustee cannot make financial decisions for their own benefit unless explicitly specified in the trust. Their duty is to act with the trust's beneficiaries in mind and to manage and distribute the trust's assets for the benefit of the beneficiaries. Before taking on the role, it is essential for the successor trustee to meet with the grantor to discuss their responsibilities and review the Declaration of Trust, which outlines the trustee's duties and the grantor's wishes.

Frequently asked questions