Pinnacle Estate Planning

By JASON GRAY

Pinnacle Law PLLC

    One of the most common questions people ask when they begin thinking about estate planning is whether they can place their home into a trust if there is still a mortgage or home equity line of credit attached to it. Many homeowners assume the answer must be no, or that doing so would immediately trigger problems with the bank. In reality, the answer is usually yes, and understanding why can remove a major mental roadblock that keeps families from protecting their most valuable asset.

    A mortgage or HELOC does not prevent you from transferring your home into a trust. When you place a house into a properly drafted revocable living trust, you are not selling the property or giving it away to someone else. You are simply changing the way the property is titled. You remain the beneficiary of the trust, you continue living in the home, and you remain fully responsible for making the loan payments just as you always have.

    This is where confusion often arises. Loan documents typically include a clause stating that the lender can demand full repayment if the property is transferred. That language sounds alarming, but federal law provides important protection for homeowners. Under federal law, lenders are prohibited from enforcing a due on sale clause when a borrower transfers a primary residence into a revocable living trust, as long as the borrower remains a beneficiary of that trust. In practical terms, this means most lenders cannot call your loan simply because you moved the home into your trust.

    The same general principle applies to HELOCs. While policies can vary slightly between lenders, most banks allow a transfer into a revocable trust without accelerating the loan. In some cases, the lender may ask to review the trust or require a simple consent form. Rarely is the transfer denied outright. The key is that the trust must be revocable and you must retain control over the property.

    Another concern people raise is whether placing a home in a trust changes insurance, taxes, or their ability to refinance later. For most homeowners, property taxes remain exactly the same because ownership has not substantively changed. Homeowners insurance typically stays in place as well, though it is wise to notify your insurance carrier so the trust can be listed as an additional insured. This is usually a quick phone call and does not increase premiums.

    Refinancing after a trust transfer is also very common. If you later decide to refinance, most lenders will either allow the refinance directly in the name of the trust or ask that the property be temporarily deeded back into your individual name and then returned to the trust after closing. This step is routine and should not deter anyone from using a trust.

    So why go through the effort at all? The primary reason is control and continuity. A trust allows your chosen successor trustee to step in immediately if you become incapacitated or pass away. That person can manage, maintain, or sell the home without court involvement. Mortgage payments can continue uninterrupted, utilities can be paid, and decisions can be made quickly. Without a trust, your family may need to navigate probate or seek court authority before taking even basic actions involving the property.

    A trust also helps ensure your wishes are followed. You can specify whether the home should be kept in the family, sold, or held for a surviving spouse or children. You can coordinate the house with the rest of your assets so everything works together instead of leaving your loved ones to figure it out during a stressful time.

    The biggest mistake homeowners make is waiting until the mortgage is paid off before planning. Life does not wait for loan balances to reach zero. Estate planning is most effective when it is done proactively, while you are healthy and in control, regardless of what you owe on your home.

    If you own a house with a mortgage or HELOC and want to make things easier for your family, a trust is not only possible, it is often one of the most practical tools available. Understanding how it works is the first step toward peace of mind and a plan that actually functions when it is needed most.

Jason Gray is the owner of Pinnacle Estate Planning. To schedule a free consultation in Spokane, Coeur d’Alene, or Sandpoint please call (208) 449-1213 or (509) 505-0665. www.LawPinnacle.com

*This article is for informational purposes only and should not be construed as legal or financial advice.