Will Placing My Home in Trust Impact My Mortgage?

Clients are often concerned (for good reason) about what happens to their mortgage if/when they place their home in trust. The reason being that most mortgages have something called a “due-on-sale” clause built into the agreement with the lender, which means that the lender may have the right to ask for full repayment of the loan if the real estate is sold or transferred out of the borrower’s name. Fortunately, transfers of your home to your revocable living trust typically doesn’t trigger this clause. 

Why is that?

In 1982, Congress enacted the Garn-St. Germain Depository Institutions Act. While the Act covers many issues, there is one section that is particularly helpful for estate planning purposes and can be found at 12 U.S. Code § 1701j–3 - Preemption of due-on-sale prohibitions.

Here’s the relevant language:

“(d) Exemption of specified transfers or dispositions[:]

With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units … a lender may not exercise its option pursuant to a due-on-sale clause upon… (8) a transfer into an inter vivos [living] trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property.”

In English this means that as long as the property in question is your residence (i.e., your primary home or vacation home), you are generally free to transfer such property into your revocable living trust so long as you remain a beneficiary of such trust and continue to have the right to occupy such property. And, of course, keep paying your mortgage.

Investment properties can be more complex so you’ll want to speak directly with your estate planning attorney to consider your options.

Interested in updating your estate plan? Give me a call at 781 202 6368, email jlento@perennialtrust.com, or click here to schedule your free personal consultation.

I’m always happy to help,

Joseph M. Lento, J.D.

Your Local Estate Planning Attorney

For client testimonials, please visit: www.PerennialEstatePlanning.com

Conveniently located at 477 Main Street, Stoneham, MA 02180