If you haven’t done this yourself already, you’ve probably at least overheard someone bragging about transferring their real estate into Trust. After all, it has become one of the most efficient methods of limiting liability and transferring wealth to family members, while also avoiding the lengthy and ever-more-expensive probate process. But, it’s not that simple!
For one thing, most people are indebted to a bank / have a mortgage. And, there are federal guidelines that apply to transactions such as this. If your simple transaction violates the federal guidelines, this can violate the terms of the mortgage and the bank can call the note. If you do not have a mortgage on the home, there is a very good chance that you have a large enough estate where you should be considering estate taxes, and you really ought to be considering a different type of trust to “own” your home.
There is also something called the, “due on sale clause”. When you deed your home to a trust, you can trigger this clause and the mortgage may become immediately payable. Some guidance on this can be found in the Garn-St. Germaine Act. But, you should seek advice from an attorney intimately familiar with this act before proceeding… or if you already have transferred property to a trust, you should consult an attorney to advise whether you have violated the Act, triggered the “due on sale clause”, or otherwise violated the terms of your mortgage.
In brief, the “Act” says a transfer into an inter vivos trust in which the borrower is and remains a beneficiary of the trust, and which does not relate to a transfer of rights of occupancy in the property does not violate the due on sale clause. However, in order to accurately analyze this test, you should consult with someone who understands the language in your trust to determine if/how best to proceed, as there are many nuances. Just one example, the Act is actually limited to homes with four units or less.
