Refinancing your home? Don't forget to examine the implications on your living trust. One homeowner recently took advantage of low interest rates to refinance his home and reduce monthly payments. Unfortunately, he didn't realize that his lender required that the home be transferred back to the owners' individual names before processing the loan. If he hadn't caught the glitch, he could have been faced with probate later - a situation he was trying to avoid with the living trust in the first place.
Revocable living trusts, which allow heirs to avoid expensive and time-consuming probate court proceedings, have become increasingly popular in recent years. But unlike a will, a living trust cannot simply be signed and filed away. Any change in assets, finances or family members may require an update to the living trust or will.
Over the past few years, this problem has become more and more prevalent as interest rates have remained relatively low and homeowners across the country have refinanced their homes. After the new loan is processed and the new deed of trust is recorded, the homeowners are free to transfer the home back into the living trust, but lenders rarely assist with this final step (and some homeowners don't even know their home was removed from the trust, since they may have signed many documents at once).
The end result is probate. Sometimes it's possible to obtain court approval to confirm trust ownership of a home that was never formally transferred to the trust. However, it's unlikely that a court would confirm trust ownership if the last document signed was a deed transferring the property out of the trust.
The bottom line? If you have a living trust and you've refinanced your home in the past few years, review the documents to ensure that the home is currently held in the trust. If it isn't, consult with your estate planning adviser to prepare and record a new deed returning the property into the trust. If you own many properties, consider signing a new "Declaration of Trust" annually, confirming that all property is held by you as trustee of your revocable living trust, regardless of whether the formal title documents show otherwise.
Here are a few other situations when your living trust and will should be updated:
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