A living trust is one of many important components of a good estate plan. Clients often have very important questions about how a living trust works and how you can benefit from including one in your estate planning. One question clients often ask is whether they can include their residence in a living trust even if that home is mortgaged. The Kansas City living trust attorneys at Gaughan & Connealy can answer this question and many others.
Can Mortgaged Real Estate Be Placed in a Trust?
The answer is yes. A piece of real property that has a mortgage can still be included in a revocable living trust. This is actually a very common occurrence since most people do not own their homes free and clear. One important thing to remember is that transferring your mortgaged home to a trust does not eliminate your obligation to pay that mortgage. An unpaid mortgage, even of trust property, can still result in foreclosure on that property.
What Happens if I Need to Refinance?
If you find the need to refinance your home after it has been transferred to a living trust, your lender might require you to remove the home from the trust, obtain a new loan, and then transfer the home back to the trust. This can be a frustrating process but not all lenders require it.
If these steps are required, it is typically the responsibility of the loan officer to transfer the mortgaged home back into the trust when the transactions have been completed. However, our Kansas City living trust attorneys recommend that you verify that has been done. The easiest way to do this is to obtain a copy of the last recorded deed for the property from your county’s recorder office. You may be able to do this online. If you have questions, let our Kansas City living trust attorneys know.
Why Doesn’t Transferring a Home to a Trust Affect the Mortgage?
Prior to the passage of the Garn-St. Germain Depository Institutions Regulation Act in 1982, mortgage companies and banks could trigger the due-on-sale clause of a mortgage when a home was transferred to a trust. In other words, lenders were allowed to foreclose on the current mortgage at that time of transfer. By eliminating this issue, individuals are now able to pass their property on to their heirs using trusts without the need to pay off the mortgage first.
How to Create a Living Trust
The process required for creating a revocable living trust is rather simple. The trust document will be drafted and will contain the terms under which the trust will operate. Once the trust document has been drafted and executed, the next step is to transfer all of the chosen trust property into the name of the trust. This is most commonly called “funding” the trust. Once the trust has been completely funded, the trust will be the new owner of all of the trust property.
Living Trusts Allow You to Maintain Control Over Your Assets
Most clients are under the misconception that, because the trust owns the property, they will lose all control over the trust property. That is only true with an irrevocable trust. A living trust is a revocable trust, which means you retain the ability to manage the trust as well as to use all of the property owned by the trust. Essentially, transferring property into a living trust does not mean you have to relinquish your control.
Kansas City Living Trust Attorneys Recommend a Comprehensive Estate Plan
As valuable as a living trust may be, in most cases it is not the only estate planning tool you need. With all of the things a living trust can do, there are many other things it cannot. For example, a living trust does not give you the opportunity to appoint a guardian for minor children, if necessary. You need a will to do that. So, when it comes to choosing — last will vs living trust – you may want to consider having both.
Download our free estate planning worksheet today! If you have questions regarding living trusts or any other estate planning matters, please contact the experienced attorneys at Gaughan & Connealy for a consultation. You can contact us either online or by calling us at (913) 262-2000. We are here to help!