Article by Kristie Brown
There may come a time when you want to put your home into a family trust even though you’re still carrying a mortgage on the property. There are some legal issues that will have to be dealt with in order to do so, but it can be accomplished to your advantage with the help of a good estate planning attorney. Although on the surface there appears to be laws in place to keep this situation from occurring, there are also many ways around them, but you may not be able to resolve them in quite the way you would like to. Reading through the following information about mortgaged homes and family trusts should help you understand the process.
The legal title to the real estate involved must be transferred to the trustee of the living trust. This means that not only is the mortgage borrower required to be both the trust grantor and a primary beneficiary of the trust, but they are also required to continue to reside in the property. All of the above goes against the terms included in most mortgage loans, it is usually allowed because the federal government passed its own law allowing for these transfers.
The government also prohibits lenders from requiring that borrowers pay off the mortgage in full should the property be transferred to a family trust. Therefore, transfers that might otherwise be financially limited by the sale clause that is in most mortgages are now feasible. In addition, our government has found in favor of family trusts in federal laws related to them and under the tax code. These laws provide for the homeowners to continue to deduct mortgage interest paid even though the property technically belongs to the family trust. The tax code is set up to regard trust property in the same manner as personal property, so even after your mortgaged property is transferred to the trust, you’ll still be able to deduct interest.
Your estate planning attorney will be able to make sure that all of your paperwork is in order so that the transaction won’t get tied up in red tape. You will need to have a deed to transfer the title prepared and recorded. In addition, the trust documents have to say that the mortgaged property is the person’s qualified residence. Good planning and the right kind of help can keep you from falling into legal pitfalls as you transfer your mortgaged property to a family trust.
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