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What are risk of removing house from revokable living trust while refinancing?
Anonymous6 views2 answers
My bank has a very attractive refinancing option that is quick and has no fees.
The only catch is that is that the house can not be in a living trust.
They suggest taking the house out of the trust, refinance, then put the house back in the trust.
My concern is what happens with I, my spouse, or both should die while the house is out of the trust.
Closing agent/escrow ordinarily prepare two deeds on closing, one deed for transferring from you and your wife as trustees (if that's the case) to you and your wife as husband and wife, and another deed transferring the property back to the trust. The back-to-back transfers are exempt from due-on-sale and happen contemporaneously with the signing of the loan documents. Make sure the escrow also prepared the preliminary change of ownership report forms to preserve the exemption of the property from reassessment for property tax purposes. You must have great credit to qualify for refi.
There is very little risk to transferring your home out of the trust for refinancing purposes, if the house is your primary residence. Federal law allows for a primary residence to be conveyed into a revocable living trust without triggering due-on-sale clauses.
Any trust plan should also include a pour-over will that acts to get assets of your probate estate into your trust, if not already there at your death. If you anticipate a challenge to your estate by a beneficiary, then this could be a cause for concern.
