Living Trust and Your Mortgage

House with porchMany people, hoping to avoid probate, create an estate plan that includes a Living Trust.  In order to make this type of plan work to avoid probate, you must transfer ownership of your home (or other real property to the trust).  If you have properly transferred your real estate and other assets to your living trust you will most likely avoid the need to go through the court process known as probate.

One question that often comes up is whether your mortgage lender can call your loan (place you in default) if you transfer your home to your living trust.  The answer is simple.  No.  Transferring your home into a living trust will not cause a default on your home mortgage.  The bank cannot accelerate your loan simply because you place the home in a living trust.

Now, I want to be crystal clear about one important fact.  The type of living trust I am talking about here is a revocable living trust where you, the homeowner, are the beneficiary of the trust.  The fact that you can revoke the trust or take the property out of the trust and put it back in your name is main reason why your mortgage loan cannot be called by the bank.  If, however, you create an irrevocable trust then you will most likely have transferred the property out of your name for good and that could create a problem with the bank.  So before you go setting up living trusts and transferring real estate you may want to talk with an experienced estate planning attorney.  We at Hugg & Associates have experience with living trusts.  Give us a call and make an appointment.

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