Estate planning guide
A Mortgaged Home in Your Trust
You can generally move a home with a loan into your living trust. What changes, what does not, and what to check.
The short answer
Yes, and the loan stays in place
Most homes in Southern California still carry a mortgage, and one of the first questions homeowners ask about a living trust is whether the lender will object. In most cases, the answer is no. You can transfer a home with a mortgage into your own revocable living trust, and the loan stays in place on the same terms.
Here is why the transfer is generally safe, what changes and what does not, and the situations that need a closer look.
The details below assume an ordinary home loan on a house, condominium, or small multi-unit property you live in, held in a revocable living trust you control. That is the most common situation. A few others need extra review, and they are covered near the end of this guide.
Why the lender cannot call the loan
Most mortgages include a due-on-sale clause, which lets the lender demand full payment if you transfer the property. Federal law makes exceptions. One of them generally prevents a lender from calling the loan when you transfer your home into a living trust in which you remain a beneficiary, as long as the transfer does not involve giving up your right to live there. The protection applies to residential property with fewer than five units.
Your loan does not change
You owe the same balance, at the same interest rate, on the same schedule. You keep making payments the same way. Lender approval generally is not required, and the trust does not need a new loan. The trust becomes the owner of the home, and you remain responsible for the debt. The same federal protection generally covers a home equity line of credit or a second mortgage, because it applies to loans secured by a lien on the home.
Your property taxes do not change
Transferring your home into your own revocable trust is generally not treated as a change in ownership for California property tax purposes, so it does not trigger a reassessment. Your homeowners’ exemption generally continues as well.
The deed we prepare
To move the home into the trust, a new deed transfers title from you to yourself as trustee of your trust. Our office prepares that deed as part of your estate plan. The mortgage itself is not rewritten or reissued. Our trust funding checklist covers your accounts and other property.
Tell your insurance company
Let your homeowners’ insurance company know about the transfer and ask that the trust be added to the policy, so there is no question about coverage if you have a claim. If you have an owner’s title insurance policy, ask the title company whether coverage continues after the transfer. Some owners also send their lender a short notice of the transfer, even though approval generally is not required.
Refinancing later
Some lenders will refinance a home that is held in a living trust. Others ask you to move the home out of the trust before closing and back in afterward. If your lender asks for that, make sure the home actually goes back into the trust after the refinance. A home left out of the trust may end up in probate.
Cases that need a closer look
The general rule does not cover every situation:
Rental or investment property, or a building with five or more units, may not have the same federal protection, so check the loan documents.
Reverse mortgages have their own rules about trusts.
Transfers to an irrevocable trust, or to a trust in which you are not a beneficiary, are treated differently.
If an LLC owns the property, the LLC interest goes into the trust instead. See our guide to holding an LLC in your living trust.
After you pass away
When you die, your successor trustee manages the home under the terms of your living trust. The trustee can keep paying the mortgage, sell the home, or transfer it to your beneficiaries. Keep the payments current while the trust is being settled, so the loan does not fall behind. Federal law also generally prevents a lender from calling the loan just because the home passes to a relative after the borrower’s death. Beneficiaries who plan to keep the home should contact the loan servicer early.
Talk with us
Montanez Yu prepares complete estate plans for individuals and families throughout California, including revocable living trusts, wills, powers of attorney, and advance health care directives. Estate planning consultations are free, and every plan is a flat fee, quoted in writing before we begin. Call (951) 444-7407 or request a free consultation.
This guide is general information about California law, not legal advice for your situation. Reading it does not create an attorney-client relationship.