Your Last Will and Testament will likely provide the cornerstone for your comprehensive estate plan; however, you may also decide to incorporate additional estate planning tools, such as a trust agreement. Although once used almost exclusively by extremely wealthy families as a way to retain control over the family fortune throughout the generations, trusts are now used regularly by the average individual to accomplish a myriad of estate planning goals. A trust can be funded using almost any type of assets, including real property. One question you may have if you plan to fund a trust agreement with real property is “If I transfer real property into a trust can the bank call my loan?”
The reason this question may come to mind is that most mortgage loan agreements have a “due on sale” clause in the agreement. Although the precise language will differ somewhat from one agreement to the next, the basic idea of a “due on sale” clause is that if the borrower (person who took out the mortgage loan) sells the property the entire balance due on the mortgage becomes immediately sue and payable to the lender. The most common use for a “due on sale” clause is when a borrower actually sells the property. At the time of the closing, the original mortgage is paid off and the new owner (typically) takes out a new mortgage on the property. Selling a home outright, however, is not the only way that title to real property can change. If the property is transferred into a living trust, for example, the title to the property changes. Does the entire balance due on the mortgage become due and payable? The answer is no.
The Garn-St. German Depository Institutions Act of 1982 (the “Act”) governs “due on sale” clauses as they apply to residential real estate. While the Act does allow a lender to call a loan when title to property changes, there are a number of exceptions, including when property is transferred into an inter vivos trust “on which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property.” This exemption applies to residential real property containing less than five dwelling units. [12 USC Sec. 1701j-3(d)] Therefore, if you plan to transfer your real property to a living trust you do not need to worry that the bank will call your loan and expect you to pay the entire balance due. You will, however, need to provide a copy of the trust agreement to the lender.
If you have additional questions or concerns about living trusts, contact the experienced Missouri estate planning attorneys at Amen, Gantner & Capriano, Your Estate Matters, LLC by calling (314) 966-8077 to schedule an appointment.