Two of the main reasons you set up your Living Trust (or probably should) are to avoid a court procedure called Conservatorship when you’re incapacitated and another called Probate when you pass away.  Both threaten unwanted interference into your and your loved ones’ personal matters, as well as lots of red tape, delays, expenses and the exposure of your private business to unscrupulous third parties.

A properly drafted and maintained Living Trust can avoid these massive court headaches!

When we draft and sign a Living Trust, the typical next step we take care of is the transfer of legal title to your real estate into your Living Trust.  This is done so that, if something happens to you, whomever you’ve appointed as your next successor Trustee can step right in and take over for you - - without going through court first.

Unfortunately, Here’s What Happens

When you Get or Refinance

A Mortgage

You may consider taking out a mortgage to tap the equity in your real estate and enjoy a higher quality of life or to refinance an existing mortgage and historically lower your payments.  Both have become increasingly popular due to the recent significant increases in property values and low mortgage interest rates.  Right now, a lot of people are scrambling to take out or refinance a mortgage because they’re concerned that market prices may be flattening and interest rates going up.

But be careful. There is a little known, big problem that often occurs when you get a mortgage or refinance an existing one.  The lender transfers the title out of your Living Trust and into your individual name.  This may happen, unbeknownst to you, for a number of reasons.

First, many lenders do not intend to hold your mortgage, but rather plan to sell it to a third party where it will become part of a mortgage investment "pool." These pools usually require the underlying mortgages be written only to individuals, not to a trust, corporation or other entity.

Second, in order to speed up the mortgage process, many lenders don’t want to go to the bother, time and expense of having a lawyer review your Living Trust to confirm you have the power, as trustee, to enter the loan and are obligated to repay it.

So, often the result at the end of the mortgage process is that one of your most valuable assets (or most valuable one!) is no longer titled in your Living Trust - - and is now needlessly exposed to all the above described court catastrophes.

How Can You Avoid (or Get Out of)

This Title Mess?

One way is to have the lender, or the title company they use, transfer title back to you (as Trustee of your Living Trust) once the loan process is over.  But they may not want to do it or may wind up causing you a property tax increase if certain key details and steps are not followed. This is why most of our clients choose to have us do it (at a very modest price).

If you got a new mortgage or refinanced one after setting up your Living Trust, you can do a check on your title using the information on your most recent property tax bill - - or have us do it for you, if you are a client of our firm.  We highly recommend you come in for a free estate plan checkup meeting anyway if you haven’t within the past 3 years.  (If you’re not a client, you can schedule a free estate plan review meeting).

One Other Thing…

When you come in and see us, you may also want us to prepare and have you sign a new “General Assignment” document (free if you are an existing client).  Why? Because this document, assuming it is recent, can help avoid a full court Conservatorship or Probate (reduce them to a one time hearing) should any of your real estate in the future “fall out” of your Living Trust and you fail to realize it and get it back in.  It’s a kind of “secondary insurance coverage”, just in case!

Philip J. Kavesh
Nationally recognized attorney helping clients with customized estate planning guidance for over 40 years.