During the last few years, mortgage rates have been so attractive, it is unusual to find someone who has not refinanced their home or rental property. Many lenders are not willing to finance a property that is held by a Living Trust, resulting in the homeowner agreeing to remove the property from the Living Trust in order to get the loan. Commonly, the Title Company handling the escrow for the refinance will create and record a Deed to remove the property from the Living Trust. The refinance of the mortgage loan is completed, and all is well.
Or is it? Now the property is out of the Living Trust, and has lost the protections that the homeowner intended when he or she spent the time and money to set up a Living Trust. Many times the homeowner is unaware that the property is out of the Living Trust, or has been reassured that the property would be put back into the Living Trust at the conclusion of the refinance process, and occasionally that is true. However, I have seen many times that the transfer back into the Living Trust has never occurred.
There are a number of problems this can create. Depending on what the Deed taking the property out of the Living Trust says, if it is a joint Living Trust, and one of the spouses passes away, a Probate can be required to put the deceased spouse’s share back into the Living Trust. The goal of setting up a Living Trust is to make things easier, but having to do an unexpected Probate is frustrating and expensive.
I tell all of my clients to call me if they refinance, so that we can ensure that this does not happen to them. Want an easy way to check on whether your home is in your Living Trust? Take a look at your current property tax bill. If you have refinanced, and the letters “TR” are not after your name, you should investigate. Better to find out now than later!
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