Legal Blog

The Weekly Scenario: Transferring a Personal Residence to a Revocable Trust

Question:  I understand that an important reason to establish a revocable trust as part of one’s estate plan is to avoid the costs and delays of probate. Of course, to avoid the imposition of probate at death, it is critical that the legal title to real property is transferred to the revocable trust during my lifetime.

I want to transfer my personal residence to my revocable trust. I still have a mortgage on the house. Will the transfer of my residence to the trust trigger an acceleration of the debt on the property? Answer: Under federal law, due-on-sale provisions, which would otherwise trigger an acceleration of the debt pursuant to the terms of the loan, are regulated by the Garn-St. Germain Depository Institutions Act of 1982 (Garn Act). The Garn Act in this case would prevent a lender from enforcing a due-on-sale clause when a home is transferred to a revocable trust in which the borrower is a beneficiary and the home is occupied (or will be occupied) by the borrower

Comment: Transfers to a revocable trust may be less clear when it comes to a lender enforcing a due-on-sale clause for transfers of commercial or investment property as many states do not contain the same requirements as those under the Garn Act (borrower has to be the occupant of the property).

While the Garn act does appear to allow for the enforcement of a due-on-sale clause when the borrower/beneficiary does not occupy the property, this presents a conflict between federal and state law. As a result of the uncertainly between federal and state law, it may be best to obtain the lender’s permission before transferring commercial/investment property with debt to a revocable trust.

If you have any questions or would like more information please contact Steve Shane at: sshane@offitkurman.com | 301.575.0313.

ABOUT STEVE SHANE

Steve Shane Head Shot for webSteve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.

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