Transfering a house into a revocable trust is the process of funding the trust. When this process goes bad, mortgage payments can balloon and property can end up in the wrong hands.
To reduce these risks, there are generally 4 issues needing review before a home is moved into a revocable trust.
Even though each issues is specific to the property itself, knowing what to ask may help homeowners make longevity decisions in favor of their spouse, children, or heirs. Sometimes, even pets.
Transfering a House: The Big 4 Plus One
Five issues every family should consider before funding a revocable trust with their home include:
- What does the Deed say?
- Is there concerning Mortgage language?
- Will an Insurance Policy get revoked?
- Which Conveyance Form should be used?
- Are there tax consequences?
To Begin, Review The Deed
Perhaps i is obvious, but looking at the current deed of a property before moving a home into a revocable trust is an important step. Of course, there are others steps, but obtaining and reviewing the deed cannot be overlooked.
Reviewing the deed is important because the deed identifies the owner and legal description.
Then, these elements should be compared with other legal documents, like a marriage license or birth certificate or the County Recorder’s Office.
If either one of these elements are wrong, likely the deed should be corrected prior to a conveyance into a revocable trust.
Review the Mortgage
The next issue is determining whether the mortgage itself, supports a transfer. This is important because of the risk concerning due on sale clause. If there is more than one mortgage, then each mortgage needs to be reviewed.
Defaulting on a mortgage for an unauthorized transfer or breaching a due on sale clause are scary scenarios to be avoided at all cost. Likely, this means involving the mortgage company and asking the lender for an approval to certain documents.
Even though there are protective rules like the Garn-St. Germain Depository Institutions Act of 1982, the rule doesn’t account for every situation.
Thus, double and triple checking the mortgage language before funding a revocable trust with a home is non negotiable.
Homeowners Insurance Problems
Yes, transfering a house into a revocable trust can cause insurance problem or a lapse in coverage. The answer to this issue is also found within long winded insurance policies.
For this reason, inquiring with the homeowner’s insurance agent or asking the insurance company to add a trustee of the trust can prevent insurance problems.
Conveyance Forms
Conveyance forms are specific pieces of paper used in Minnesota to track property transfers. Upon first glance, Minnesota has more than ten pages of possible forms. As a result, guessing is not an option.
When a revocable trust us funded with a home, many families weigh the pros and cons of a quit claim deed versus a warranty deed.
Other times, families forego a conveyance all together and seek out a Transfer on Death Deed (TODD).
As a result, transfering a home into an inter vivos trust requires reviewing which conveyance form is best.
Transfering a Home and Tax Consequences
Preventing a taxable event before transfering a residence into a revocable trust is a common goal. Before conveying real property into a trust, reviewing the tax consequences from the perspective of the Grantor, Trustee, and Beneficiary is a necessity.
Other issues to consider is the homestead creditor protection or property tax exemptions. Otherwise, here is another great resource created by the IRS.
Final Funding Thoughts for a Home
Perhaps funding a revocable trust with a house looks daunting. That said, this is all about reducing risk.
From a practical perspective, taking prudent steps to prevent problems is easier than fixing problems.
