Have you ever thought about putting your house in a trust but wondered how it works if you still have a mortgage? You’re not alone. Many homeowners want the benefits of a trust, like avoiding probate or protecting assets, but the mortgage part can feel like a puzzle.
What Is a Trust, and Why Does It Matter?
A trust is like a legal container that holds your assets, such as your house, for your benefit or someone else’s. Think of it as a way to manage and protect your property during your lifetime and beyond.
Table of Contents
When you put your house in a trust, you transfer ownership to the trust, but you can still live in it, sell it, or manage it, depending on the trust type.
Why consider a trust? It can help you avoid probate, which is the lengthy and costly court process of distributing your assets after you pass away.
Trusts also offer privacy, flexibility, and control over how your property is handled. But what happens if your house has a mortgage? Can you still put it in a trust? Let’s explore that next.
Can You Put a House with a Mortgage in a Trust?
Yes, you can put a house with a mortgage into a trust. The mortgage doesn’t disappear, though. It stays attached to the property, and the trust becomes responsible for it.
The good news? Most trusts are designed to handle this smoothly, but there are a few things to keep in mind.
The key is to understand your mortgage agreement and work with your lender.
Some mortgages have a “due-on-sale” clause, which means the full loan balance could be due if you transfer the property.
However, a federal law called the Garn-St. Germain Act protects you in most cases.
It says lenders can’t enforce this clause when you transfer your home to a revocable living trust, as long as you’re still a beneficiary and the property remains your primary residence.
Still confused? Let’s break down the steps to make this process clear.
Steps to Put Your House in a Trust with a Mortgage
Setting up a trust for your mortgaged home isn’t as complicated as it sounds.
Follow these steps to get started:
Step 1: Choose the Right Trust
First, decide what type of trust fits your needs.
The most common option is a revocable living trust. This lets you keep control of your home, make changes to the trust, or even cancel it later.
An irrevocable trust, on the other hand, is harder to change but offers stronger asset protection.
For most homeowners with a mortgage, a revocable living trust is the way to go because it’s flexible and works well with the Garn-St. Germain Act.
Ask yourself: Do I want full control over my home, or am I focused on protecting it from creditors? Your answer will guide your choice.
Step 2: Check Your Mortgage Agreement
Before you do anything, read your mortgage contract.
Look for the due-on-sale clause. Most lenders won’t object to transferring a mortgaged home to a revocable trust, but it’s smart to confirm.
If you’re unsure, call your lender and ask if transferring your home to a trust will trigger any issues. Being upfront can save you headaches later.
Here’s a quick checklist to review with your lender:
- Does the mortgage have a due-on-sale clause?
- Is the lender okay with transferring the property to a revocable living trust?
- Are there any forms or notifications they require?
Step 3: Create the Trust
Now it’s time to set up the trust. You can hire an estate planning attorney to draft the trust document, or you can use online legal services for a more budget-friendly option.
The trust document will name a trustee (often you) to manage the property and beneficiaries (like your family) who will inherit it later.
Make sure the trust includes clear instructions about the mortgage.
For example, specify that the trustee is responsible for making mortgage payments. This keeps everything running smoothly.
Step 4: Notify Your Lender
Even though the Garn-St. Germain Act protects you, it’s courteous and wise to inform your lender about the transfer.
Send them a copy of the trust document or a summary that shows you’re still a beneficiary and living in the home.
Most lenders won’t require you to refinance or pay off the mortgage, but they may ask for paperwork to confirm the trust details.
Here’s a simple table of what to send your lender:
| Document | Purpose |
|---|---|
| Trust Summary | Shows the trust’s purpose and beneficiaries |
| Property Deed | Proves the property is now in the trust |
| Letter of Explanation | Explains why you’re transferring the property |
Step 5: Transfer the Property to the Trust
To officially put your house in the trust, you need to transfer the property’s title. This means creating a new deed that names the trust as the owner.
For example, the deed might say, “John Doe, Trustee of the Doe Family Trust.” You’ll need to:
- Prepare a quitclaim or grant deed.
- Sign it in front of a notary public.
- File it with your county recorder’s office.
Check with your local recorder’s office for specific requirements, like filing fees or forms. This step is crucial because it legally moves your home into the trust.
Step 6: Update Insurance Policies
Don’t forget your homeowners’ insurance. Contact your insurance provider to let them know the property is now owned by the trust.
You may need to update the policy to list the trust as the insured party. This ensures your home stays protected in case of damage or liability.
Step 7: Continue Making Mortgage Payments
Once the house is in the trust, nothing changes about your mortgage payments. You’ll keep paying the lender as usual, but the trust technically owns the property.
If you’re the trustee, you’ll handle the payments. If someone else is the trustee, make sure they understand this responsibility.
Benefits of Putting Your House in a Trust
Why go through all this effort? A trust offers several advantages, even with a mortgage.
Here are some key benefits:
- Avoids Probate: Your home passes directly to your beneficiaries without a lengthy court process.
- Saves Money: Probate can cost thousands in legal fees. A trust skips this.
- Protects Privacy: Unlike a will, a trust isn’t public, so your estate details stay private.
- Offers Flexibility: With a revocable trust, you can change or revoke it anytime.
- Ensures Continuity: If you become incapacitated, the trustee can manage the property for you.
These perks make trusts a popular choice for homeowners, mortgaged or not.
Things to Watch Out For
While putting your house in a trust is generally straightforward, there are a few pitfalls to avoid. First, don’t assume all lenders are the same. Some may have stricter rules, so always check with them first.
Second, make sure your trust is properly funded. This means the deed must be correctly transferred, or the trust won’t control the property.
Finally, keep your estate plan updated. If you refinance your mortgage or buy a new home, revisit the trust to ensure it reflects your current situation.
FAQs: How to Put House in Trust with Mortgage
Q. Will putting my house in a trust affect my mortgage interest rate?
A. No, transferring your home to a revocable living trust shouldn’t change your interest rate. The mortgage terms stay the same as long as you notify your lender and follow their guidelines.
Q. Can I sell my house if it’s in a trust?
A. Yes, you can sell the house if you’re the trustee of a revocable trust. You’ll handle the sale just like you would without a trust, but the deed will come from the trust.
Q. What happens to the mortgage if I pass away?
A. The mortgage stays with the property. Your trust’s trustee will either continue making payments or sell the house to pay off the loan, depending on the trust’s instructions.
Conclusion
Putting your house in a trust with a mortgage is a smart way to protect your home and plan for the future.
By choosing the right trust, checking with your lender, and following the steps above, you can set up a trust that saves time, money, and stress for your loved ones.
It might seem like a big task, but breaking it down into manageable steps makes it doable.
If you’re unsure where to start, consider talking to an estate planning attorney for personalized advice.
Disclaimer: This blog is for informational purposes only and not legal or financial advice. Consult an estate planning attorney or financial advisor to understand how trusts apply to your specific situation.
About The Author
