Congratulations on the purchase of your new home! This is likely your biggest and most valuable investment for your family. Now that you are past the stress of closing on the purchase, it is time to think about protecting this most valuable asset. The best time to address the issue of asset protection and estate planning is right now! Before any issues arise and you can make decisions rationally and calmly to properly account for your needs.
The first question that always arises, “can I transfer a house with a mortgage to a Trust?” The answer is yes! A house with a mortgage can indeed be transferred to a trust in which you retain the right to occupy and use it as your primary residence. A lender cannot object to the transfer and you still remain responsible for the mortgage payments.
The next question that arises, “what type of Trust do I need?” There are many types of Trusts and the one that best fits your needs depends on your circumstances and goals. Trusts can be “revocable” and “irrevocable.”
A “revocable trust” is one type of trust that is created during the grantor’s lifetime. The grantor is the person who creates the trust, and can name him/herself or a third party as trustee. The property is placed in the Trust for the benefit of the Trust’s beneficiaries. These are the people to whom trust assets may be distributed in accordance with the terms of the Trust. The grantor can modify the revocable trust at any time and retains full control over the property. With a revocable trust, the property can be sold, transferred out of the Trust if the need arises and generally allows the grantor full flexibility and control over his or her property.
A house with a mortgage can also be transferred into an “irrevocable trust.” The difference with an “irrevocable trust” is that the grantor gives up control over the property transferred to an irrevocable trust. There may be certain benefits and good reasons for using this type of trust which a knowledgeable attorney can discuss with you and explore in depth.
Transferring property to a trust, regardless of the type of trust, has certain benefits. One important benefit is that your heirs and beneficiaries avoid the entire expensive and cumbersome process of probate after you are gone. Probate is an expensive litigation that heirs and beneficiaries must go through in order to attain the legal right to the property of a deceased family member. A trust avoids this process entirely and allows your surviving family to expend their energy and resources on their loved ones rather than on court proceedings.
Another critical benefit of transferring property to a trust is anonymity and asset protection. Nowadays, all information about property purchases and sales is public and easily accessible to anyone with access to a computer and the internet. That means that anyone who is interested, i.e. a creditor or personal injury lawyer looking to sue you, can easily find out what you own, and any other related details. When real estate is transferred into a Trust, all that appears in the public records is that the Trust owns the real estate and the trustee’s name (who is not the legal owner of the trust but simply the trustee(s) who manages the trust). For example, your property will be titled in the name of the Trust and shown as owned by “The Dolphin Trust” or the “ABC Family Trust.” This way, you retain full privacy as to ownership of your real estate. Creditors (current and potential) will likely not see the property as your asset. In addition, most judgments and liens that exist against beneficiaries would not affect the Trust and the property contained in the Trust.
It is worth mentioning that if the property that you purchased is a cooperative apartment, some cooperatives do not allow trusts as owners while others fully allow such ownership. It is important to check with the management to confirm whether you can transfer the shares of the apartment you purchased into a Trust.
In summary, it is never too late to consider estate planning and creditor protection of your most valuable asset – the property that you just purchased, even if the property is subject to a mortgage.
Call us to speak with knowledgeable and qualified attorneys to discuss your individual facts and circumstances to determine the best course of action for your needs, goals and intentions.
The attorneys at Beress & Zalkind PLLC are readily available to meet your legal needs.