Can You Transfer a Mortgaged Home to a Texas Living Trust?

Yes, you can transfer a mortgaged home to a Texas revocable living trust. However, it’s important to understand the implications and requirements of such a transfer to ensure that it benefits you as intended.

The Process of Transferring a Mortgaged Home

1. Draft a New Deed: To transfer the property into the trust, draft a new deed that transfers ownership from you as an individual to you as the trustee of your revocable living trust. A real estate attorney can help ensure the deed is prepared and recorded correctly.
2. Record the Deed: Record the new deed with the county recorder’s office where the property is located. Recording the deed ensures that the transfer becomes part of the public record and is legally recognized.
3. Title Insurance: Update your title insurance to reflect the new ownership structure. Check with your title insurance company to see if any updates are necessary to maintain your coverage.

The Garn-St. Germain Depository Institutions Act

The Garn-St. Germain Depository Institutions Act of 1982 permits the transfer of a mortgaged property to a revocable living trust without triggering the “due-on-sale” clause typically found in mortgage agreements. This clause usually allows the lender to demand full repayment of the loan if the property is transferred. However, under the Garn-St. Germain Act, transferring the property to a revocable living trust is exempt from this clause, provided that:

• The borrower remains a beneficiary of the trust.
• The property remains the borrower’s primary residence.

This means you can transfer your mortgaged home to your revocable living trust without risking an immediate loan repayment demand from your lender.

Why Language Certifying the Trust is a Qualified Trust is Important

When transferring property, especially mortgaged property, into a revocable living trust, include language that certifies the trust as a qualified trust under the Texas Tax Code and the Texas Property Code. This certification has significant legal and financial implications.

1. Texas Tax Code Compliance: The Texas Tax Code has specific provisions regarding property transfers and trust qualifications. Ensuring that your trust is certified as a qualified trust helps you avoid potential tax complications and benefit from any applicable exemptions or reductions in property taxes. This is one of many reasons you don’t want a generic trust that barely complies with Texas laws. You want a Texas-specific trust to ensure compliance.
2. Texas Property Code Compliance: The Texas Property Code outlines the legal requirements for transferring property to a trust. Certification that the trust meets these requirements ensures that the transfer is legally binding and recognized by the state. This protects you from potential legal challenges or disputes over the property’s ownership.
3. Lender Requirements: Some mortgage lenders may require certification that the trust is qualified under state law. This certification assures the lender that the trust arrangement is legally valid and will not adversely affect their security interest in the property. Our trust plans include a Certificate of Trust to provide this information about your trust without divulging the private information in the trust. Your lender does not need to know how you are distributing your wealth when you pass away.
4. Peace of Mind: Including the appropriate language in your trust documents provides peace of mind, knowing that the transfer complies with all relevant laws and regulations. This helps ensure that your estate plan functions as intended, without unexpected legal or financial complications.

Conclusion

Transferring a mortgaged home to a Texas revocable living trust is possible and can be a valuable part of your estate planning strategy. However, your trust needs to be Texas-specific and to certify compliance with the Texas Tax Code and Texas Property Code. The Garn-St. Germain Depository Institutions Act facilitates this process by allowing the transfer without triggering the due-on-sale clause. By including language certifying the trust as a qualified trust, you can avoid potential issues and ensure that your trust operates smoothly and effectively.

If you need a Texas-specific trust, we can help.