How Can You Put a House With a Mortgage in a Trust?

As a homeowner with a mortgage, you may wonder how to protect your property and your loved ones’ future. Putting a mortgaged house in a trust can offer many benefits, but the process can be complicated. In this blog post, we will explore the different types of trusts, the advantages and disadvantages of each, and other important considerations to help you make an informed decision.

Contact The Simone Law Firm today to learn how we can help you secure your assets and protect your loved ones’ future. Let a Cinnaminson trust lawyer help you.

Understanding Mortgages and Trusts

When it comes to estate planning, understanding mortgages and trusts is essential. A mortgage is a loan that you take out to purchase a property, and it is secured by the property itself. On the other hand, a trust is a legal arrangement that allows you to transfer ownership of your assets to a trustee, who holds them for the benefit of your beneficiaries. Unlike a mortgage, a trust does not have to be recorded with the County’s Recorder of Deeds.

There are different types of trusts, but the most common ones used in estate planning are revocable and irrevocable trusts. A revocable trust allows you to retain control over your assets, including your property, and change the trust’s terms at any time. An irrevocable trust, on the other hand, is more rigid, and once you transfer ownership of your assets to the trust, you generally cannot change the terms.

Putting a House With a Mortgage in a Revocable Trust

Putting a house with a mortgage in a revocable trust can offer many benefits. The process involves transferring ownership of the property to the trust, with you as the trustee. This means you retain control over the property and can change the trust’s terms as needed.
One advantage of a revocable trust is that it can help you avoid probate, which is the court-supervised process of distributing a deceased person’s assets. Probate can be costly and time-consuming, and by placing your property in a revocable trust, you can help your loved ones avoid this process.

Another advantage of a revocable trust is that it can offer more privacy than a Will. When you pass away, your Will becomes a matter of public record, which means anyone can access it. A revocable trust, on the other hand, is a private document that does not become a public record, providing more confidentiality for you and your family.

However, there are potential downsides to putting a house with a mortgage in a revocable trust. For example, if you transfer property ownership to the trust, you may lose some of the tax benefits associated with homeownership, such as the mortgage interest deduction.
Because a revocable trust allows you to retain control over your assets, it does not offer as much protection against creditors or lawsuits as an irrevocable trust.

Putting a House With a Mortgage in an Irrevocable Trust

Putting a house with a mortgage in an irrevocable trust is more complex than a revocable trust. In this case, you transfer ownership of the property to the trust, with the trustee holding legal title to the property. Because an irrevocable trust is more rigid, you generally cannot change the trust’s terms once you have transferred ownership.

One significant advantage of an irrevocable trust is that it can provide more protection against creditors or lawsuits. Because you have given up control of the property, it is no longer considered part of your estate, which means it is protected from legal claims against you.

Another advantage of an irrevocable trust is that it can help you minimize estate taxes. Because the property is no longer part of your estate, it is not subject to estate taxes when you pass away.

However, there are potential downsides to putting a house with a mortgage in an irrevocable trust. Because you have given up control of the property, you can no longer change the trust’s terms or sell the property without the trustee’s permission. Transferring property ownership to an irrevocable trust can trigger a “due on sale” clause in your mortgage, which means the lender can demand payment of the entire mortgage balance.

Other Considerations When Putting a House With a Mortgage in a Trust

Here are some important factors to keep in mind when putting a house with a mortgage in a trust:

• Title Insurance: Transferring ownership of a property to a trust can affect the title insurance policy on the property. It is important to review the policy and ensure it provides adequate protection.
• Mortgage Approval: Before transferring ownership of a property to a trust, it is essential to obtain the lender’s approval. Some lenders may require that the mortgage be paid in full before ownership can be transferred to a trust.
• Property Taxes: Transferring property ownership to a trust can affect property taxes. It is essential to consult with a lawyer to determine if there will be any tax implications.
• Maintenance and Expenses: When you transfer property ownership to a trust, you are still responsible for maintaining the property and paying expenses, such as property taxes, insurance, and mortgage payments.
• Beneficiary Designations: When you create a trust, you will need to designate beneficiaries who will inherit the property when you pass away. It is essential to review these designations periodically to ensure they still reflect your wishes.

Contact The Simone Law Firm Today

Putting a house with a mortgage in a trust can offer many benefits, but the process can be complex. It’s helpful to consult with a Cinnaminson estate planning attorney to determine which type of trust is right for you and to ensure that all necessary steps are taken to protect your assets and your loved ones’ future.

Contact The Simone Law Firm today to schedule a consultation and learn more about how we can help you with your estate planning needs.