Can I Put My House Inside A Trust Even If It Has Mortgage?

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. Mortgaged property may be transferred into a living trust as a measure to avoid probate, provide greater control over how this asset is distributed to beneficiaries and to provide additional asset protection from creditors. 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.

Federal legislation passed in the 1980’s 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.

Given the complex laws, which apply to transferring mortgaged property into a trust, it is important to consult a counsel experienced in estate planning to consider the legal and financial implications of this estate planning strategy.

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