For many people, their home is the most significant asset they own. Because of this, homeowners are often eager to pass houses to their children, grandchildren, and other loved ones as part of their estate plan.
A common way for people to accomplish this is by transferring their home into a living trust. In addition to controlling who benefits from the house after your death, a living trust helps to provide for incapacity planning during your lifetime and can provide some level of asset protection for your beneficiaries. A living trust is also an excellent way to avoid court supervised probate.
Two of the most common questions that people have about transferring their home into a trust are:
1. Can you place a home in a trust if you have a mortgage?
2. If you want to refinance your house to receive a more favorable mortgage, can it stay in the trust during that process?
The answer to both of those questions is, generally, “yes.” The act of placing your primary residence into a correctly drafted revocable living trust by itself should not cause a problem with your mortgage. And, despite what many mortgage lenders say, you do not have to take your house out of the living trust in order to refinance it. If a lender pushes back in this situation, you should speak to an attorney that practices estate planning for assistance.
Just a few decades ago, mortgage borrowers were generally not able to place their house into a trust without triggering the due-on-sale clause in their mortgage agreement. This clause allowed the mortgage lender to demand that the outstanding balance of the mortgage be paid in full if the house transferred to a trust. The Garn-St. Germain Depository Institutions Act of 1982 changed this rule, though, in an attempt to get the housing market going again (it was in a slump).
Tenancy by the Entirety
In Virginia, married couples may own real estate in a type of joint ownership called “tenancy by the entirety” that provides protections beyond the more commonly known joint tenancy with the right of survivorship. The two advantages to owning property as tenants by the entirety are:
1. Neither spouse can sell or transfer their “share” of the home without the agreement of the other spouse.
2. The home is generally immune from claims of creditors of one (but not both) spouses.
Tenancy by the entirety can be a powerful form of asset protection. Under Virginia law, the protections of tenancy by the entirety can be preserved when a home is transferred into a properly drafted trust.
Conclusion
Placing your home in a revocable living trust can be very beneficial for you and your descendants. It can provide ongoing control for you, and protections for you and your beneficiaries. Despite some people’s confusion, you do not have to move your real property out of trusts in order to refinance.
When planning for your estate, it is essential to meet with a qualified and experienced attorney who can help you achieve your goals or, more specifically, advise you on how to fund your revocable living trust with your home. Norton Pelt would be honored to help you craft a legacy that takes care of your family. We are currently offering free consultations to first responders, nurses, and other medical staff during these difficult times. Give us a call at 540-440-7007.
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