Is Your Property Still in Your Trust?
Is Your Property Still in Your Trust After Refinancing?
If you own property in a revocable living trust and later refinance it, make sure the property is still titled in the trust.
We regularly see families discover, after someone has passed away, that a home was removed from a trust during a refinance and never transferred back. When that happens, the family may be forced to complete a probate or file a Heggstad petition to ask the court to confirm that the property belongs in the trust.
Both options involve going to court, which is often exactly what the revocable living trust was created to avoid.
Does Property Have to Be Removed From a Trust to Refinance?
In a typical revocable living trust, the homeowners are usually the people who created the trust, the trustees managing it, and the initial beneficiaries.
They continue to control the property and use it for their own benefit.
Because of this, there is generally no legal reason why property must be removed from a revocable living trust simply to complete a refinance or reverse mortgage.
Despite that, some lenders and title companies still require property to be transferred out of the trust before refinancing.
Why Do Lenders Remove Property from a Trust?
Some lenders may be following outdated practices. Others may believe that a refinance must close in the homeowners’ individual names before the property can be transferred into an inter vivos trust, meaning a trust created during their lifetime.
Some companies may also prefer not to review trust documents or confirm whether the trustees have authority to refinance the property.
However, the refinance can generally be completed while the property remains in the revocable living trust.
What Is a Certification of Trust?
A lender may only need a certification of trust.
A certification of trust is a short summary that provides important information about the trust without disclosing the complete trust document or its private distribution terms.
It commonly identifies:
The name and date of the trust
Whether the trust is revocable
The names of the trustees
The proper wording for title
The trust’s tax identification information
The trustee’s authority to manage real estate
This may give the lender the information needed to refinance property held in trust without removing the property.
What Happens If Property Is Left Outside the Trust?
The problem may not be discovered until years later, after the homeowner has passed away.
The family may then learn that the home is still titled in the homeowner’s individual name instead of the name of the revocable living trust.
Depending on the circumstances, the family may need to open a probate case or file a Heggstad petition.
A Heggstad petition asks the court to confirm that the property was intended to be part of the trust. Although this may avoid a full probate, it still requires court proceedings, legal work, time, and expense.
Removing property from a trust during refinancing can therefore create the exact problem the trust was intended to prevent.
Check Your Property Title After Refinancing
If you refinanced property after creating your revocable living trust, check the current title.
Do not assume that the lender, escrow company, or title company transferred the property back into the trust after the refinance closed.
You can review the recorded deed, contact the county recorder, or ask your trust and estate attorney to confirm how title is currently held.
If a lender insists that your property must be removed from the trust, make sure there is a clear plan to transfer it back immediately after refinancing.
Taking five or ten minutes to verify the property title now could save your family $10,000 to $20,000 in legal expenses later.