When considering estate planning, many homeowners wonder about the feasibility of transferring their property into a trust, especially if they still have a mortgage. Let’s explore this topic in detail.
The common concern: The Due-on-Sale Clause
Many homeowners know the “due-on-sale” clause in most mortgage contracts. This clause states that if a homeowner transfers ownership of the property to someone else, the lender can demand immediate payment of the remaining loan balance. Naturally, this raises concerns about transferring a home into a trust.
The Garn-St. Germain Act of 1982
The Garn-St. Germain Depository Institutions Act of 1982 offers protection to homeowners in this situation. Named after Senator Jake Garn and Congressman Ferdinand St. Germain, this act restricts lenders from enforcing the due-on-sale clause in specific scenarios.
The two primary conditions under the act are:
- Beneficiary status: The homeowner must remain a beneficiary of the trust.
- Right to occupy: The homeowner must retain the right to occupy or use the property.
If both conditions are met, the homeowner can transfer their property into an “inter vivos” trust (a trust created during their lifetime) without triggering the due-on-sale clause.
Steps to take
- Consult with an elder law attorney: Before making any transfers, it’s essential to consult with an elder law attorney to ensure all legal requirements are met.
- Notify the lender: If you decide to transfer your property into a trust, notify your lender about the Garn-St. Germain Act’s protections. If the lender raises concerns, a letter from your attorney explaining the act can be beneficial.
- Ensure proper trust language: The trust should be structured so you remain a beneficiary and retain the right to occupy the property. This ensures compliance with the Garn-St. Germain Act.
Wrapping up
Transferring a mortgaged home into a trust is feasible, thanks to the protections offered by the Garn-St. Germain Act. However, it’s crucial to approach this process with care and proper legal guidance to ensure a smooth transition without any complications.
For more insights into estate planning and elder law, we’d love to see you at an upcoming workshop or check out our Elder Law Academy to learn about important legal matters from home at your own pace.
