What If My House Is Not Paid For: Can I Put It in My Living Trust?

By Stephanie Kurose, J.D.

What If My House Is Not Paid For: Can I Put It in My Living Trust?

By Stephanie Kurose, J.D.

Even if a house is not fully paid for and still has a mortgage, you can place it in a living trust. A living trust is a type of estate-planning tool that allows the grantor, or creator of the trust, to place almost any asset under the trust's ownership. Assets such as a house with a mortgage, bank accounts, or ownership in a company can go into a trust for the benefit of the beneficiary, the person named by the grantor who receives the contents of the trust according to the trust's terms. The grantor must also name a trustee to manage the trust on behalf of the beneficiary.

Man hugging wife from the side while holding child in front of brick house

Revocable Living Trusts

A grantor can place her mortgaged house in a revocable living trust, which is a type of trust created while the grantor is alive and which can be modified during the grantor's lifetime. With a revocable trust, the grantor can name herself as trustee so as to retain control over any asset put into the trust, including her house.

Because you can modify a revocable trust at any time, the grantor can transfer the house out of the trust if she wants to sell the property to a third party. Revocable trusts give the trustee/grantor a great deal of flexibility.

Irrevocable Living Trusts

By contrast, irrevocable living trusts are much less flexible. You cannot modify an irrevocable trust without the approval of all the named beneficiaries. In addition, the grantor cannot name herself as a trustee. So, while the grantor can still place a mortgaged house into an irrevocable trust, she must relinquish all control of the property over to the trustee.

This has the potential to cause a number of issues. For example, it is much more difficult to refinance a mortgage if an irrevocable trust owns the home. Similarly, the grantor cannot sell or transfer the house out of the irrevocable trust. However, there are some advantages to placing a home in an irrevocable trust. For instance, because the trust has ownership of the home, the home's net value does not count as part of the grantor's taxable estate upon her death.

Advantages of Transferring a House to a Living Trust

One of the main benefits of transferring a home to a living trust is that it avoids probate. Probate is a court process where, upon the grantor's death, a judge formally distributes the grantor's assets to the named heirs or beneficiaries. Depending on the complexity of an estate, the probate process can be costly and time-consuming. By contrast, all assets placed in a trust are not subject to probate and the trustee can distribute them fairly quickly upon the grantor's death. When the grantor dies, the trustee is responsible for distributing the assets in the trust according to its terms.

Another advantage of transferring a house to a living trust is asset privacy. When an estate goes through the probate process, the contents of the estate appear in court records that anyone can view. By avoiding the probate process, the grantor's assets can remain private.

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