Law Office of Rick Todd Blog

Wednesday, April 26, 2017

Revocable Living Trusts and Mortgages

Whenever you own a home and have a mortgage, it can become tricky when it comes to retitling your home. You may wish to retitle your home for various reasons: you want to have a tenancy by the entirety to have additional asset protection, you may want to put your home in some kind of trust. The most common type of trusts that people put their home into are revocable living trusts.

In places like Howard County, Columbia and Ellicott City homes contain the bulk of an individual’s net worth. Keeping good relations with your lender is important not to jeopardize that net worth..

The problem with transferring a home into a revocable trust is that it may trigger the “due on sale” clause of your mortgage agreement. That means you would have to pay in full whatever is due on the mortgage if you don’t reverse course. This often happens to people who put property they have into an LLC in order to protect it from lawsuits from the property’s tenants.

All of the 50 states, including Maryland, have laws allowing homeowners to put their homes into revocable living trusts. But I still counsel clients to get written permission from their lender to make sure the lender is okay with the transfer before moving forward. Big corporate entities don’t always follow the law.

This is one of the reasons why wills are preferable to revocable living trusts: they are complex. They require several moving parts to work as one. It isn’t always so simple.

I was thinking the other day as to the benefits of revocable living trusts over wills. The only one I could concretely see was that beneficiaries get their money far more quickly than they would if the money had to go through probate. This is ignoring the fact that many wills (including the ones I draft) allow the personal representative of an estate to loan money to the beneficiary.

Of course if you’re drafting estate planning documents so that your child gets money quickly to the detriment of your estate, you don’t really have an estate planning problem, you have a child problem. There are some issues an estate plan won’t fix, but merely delay.

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The Law Offices of Rick Todd has offices located in Columbia, Chevy Chase, Fairfax, Virginia, and Maryland and serves clients throughout Clarksville, Columbia, Ellicott City, Fulton, Rockville, Bethesda, Potomac, Laurel, Howard County, Montgomery County, and Washington D.C.

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