Tag Archives: living trusts
Dear Liza: Can real estate that still has a mortgage on it be placed in a trust? Yes, you can place real property with a mortgage into a revocable living trust. That is, in fact, quite common. Most people, after all, don’t own their houses free and clear when they set up their living trusts. But transferring real property into the trust does not change your obligation to continue to pay the mortgage–if you don’t pay, they can still take back the house. And, if you refinance the house at some future time, the lender may ask you to take the house out of the trust to get the new loan, then put it back in. This is annoying, but not a deal-breaker. Not all lenders require this, but many do.
Federal legislation passed in the 1980’s (the Garn-St. Germain Depository Institutions Regulation Act) says that the transfer of real property into a revocable living trust does not trigger what’s called a ‘due on sale’ clause in a mortgage–which would allow the lender to demand that you repay the loan in full, as if you’d sold the property to a new owner.
So, to summarize, it’s fine to put your house into a revocable trust to avoid probate, even if that house is subject to a mortgage.
Dear Liza: I’ve just completed my estate planning documents using the latest edition of WillMaker Plus, including the will, health care documents, power of attorney, final arrangements, etc. I think all totaled it comes to over 65 pages. I’d like to leave all the documents well-organized so they’re not just a pile of papers that would overwhelm the executor. I’d like to put the documents in a three-ring binder with a table of contents and tabbed for the different sections. Is it legal to hole-punch these documents, either before or after they’re singed and notarized? Would that vary by state? I have never heard of any law that would invalidate documents that were otherwise valid because there are physical holes in the paper. Sometimes my clients make a copy of their documents, hole punch those, and put the copy in a binder, then put the originals in a safe deposit box or safe in their house. It’s great that you are trying to make things easier on your loved ones. Here’s a few other things you could put in the binder: a list of your passwords to online accounts; a list of your accounts, life insurance policies, and other assets; contact information for your heirs and beneficiaries; and a list of people that you work with, if any, such as tax preparers and financial advisors.
Dear Liza: I am trying to prepare a living trust on behalf of my father. He owns his home and vehicles outright and also has two bank accounts. I am the POD beneficiary of all of his accounts, as well as being a secondary signer on his checking and savings accounts. My confusion comes from not knowing what assets should be put in the living trust. Should it just be the home, since that has the highest value? Or should the cars and bank accounts also be included? Or can everything but the house be designated in the pour-over will that I also intend to create? Your father’s living trust has just one purpose: to allow his estate to avoid probate upon his death. If your father’s assets are owned by the trust, not by him, when he dies, then his estate won’t need to go through probate. Not all items are subject to probate, though: retirement accounts, life insurance policies and bank accounts with designated beneficiaries (that’s what a POD account is), go directly to the named beneficiary. Cars can be transferred via the DMV, and so don’t need to go through probate either. So, for your Dad, that leaves his house. You should transfer legal ownership of the house to his trust by filing a trust transfer deed with the county. When you record the deed, you’ll also need to file a Preliminary Change of Ownership Form (PCOR). This form tells the county assessor what kind of transfer just happened; the assessor wants to know if they can raise property taxes on that property, which they can’t, because a transfer to or from a living trust is NOT a change of ownership under Proposition 13. That pour-over Will is just a backup for your Dad. If he doesn’t transfer his house to the trust, and then dies, the Will says transfer whatever property he owned at death to this trust (that’s the pour-over part). But, if the value of that property is more than $150,000, you’ll need to go through probate to make the transfer. Put another way, the Will makes sure that all of your father’s assets get distributed as directed by the trust, but it won’t help his estate avoid probate first.
Dear Liza: My mom and dad set up a revocable living trust and now dad has passed away. Can my mom amend it? My answer is: Maybe. If your parents set up a trust that’s pretty common for married couples, in which the trust is divided into two trusts after the first spouse dies, your mother can’t amend the trust that holds your father’s assets. She can, however, amend the trust that holds her assets, which is revocable during her lifetime. This is called an A/B Trust. To find out if your parents have that kind of trust, find the section that says what happens after the first spouse dies. If it says to divide the assets into a ‘Bypass Trust” and a “Survivor’s Trust” or a “Credit Trust” and a “Marital Trust,” then your parents established an A/B trust. However, if that section says something like the assets are to be held in a revocable trust for the survivor’s benefit, then your mom can amend the entire trust (because it was never divided into two trusts).
Dear Liza: When putting property into a Living Trust does it trigger a tax reassessment under Prop 13? My parents purchased their property in 1968 and we didn’t want moving it into a Living Trust to trigger a reassessment. Nope. If your parents put their house into their own living trust, no reassessement is triggered. There are no ‘new’ owners, really. It’s just your parents owning the property under a different legal title. Putting property into a revocable trust for your own benefit is an exception to Prop. 13 reassessment. When your parents record the deed changing title to the trust, they will also need to file what’s called a Preliminary Change of Ownership Report (PCOR). This form tells the county assessor about the transaction. There are a whole list of checkboxes on the first page of the form, and one box is that the transfer is to or from a living trust. Once the assessor sees that, they know that they can’t reassess the property. Note: This is an issue for my California readers. Proposition 13 freezes property tax rates at a value that’s set when the property is purchased by a new owner. Needless to say, those with low property tax rates do NOT want to see that rate reassessed while they still own the property.