This is another in a series of blogs on the basics of estate planning. Over the past three weeks, I’ve discussed a myriad of issues about which you need to know before making the decision to transfer real estate to a trust. I’ve looked at tax, insurance, and asset protection issues. I’ve explored concerns unique to irrevocable trusts and those unique to revocable trusts.
With the abundance of issues to consider when funding real property into a trust, I thought I’d devote one final blog post to a checklist of five additional items to consider before preparing the deed and filing it.
- Due on Sale Clauses: Due on sale clauses are ubiquitous in loans. However, the Garn-St. Germain Act, 12 USC § 1701 (j)-3, and the corresponding regulations prevent a lender from calling a loan when a borrower transfers residential real estate of less than five dwelling units to a revocable trust. The act only applies when the transfer is to a trust of which the borrower is and remains the beneficiary and which does not relate to a change in occupancy. It does not apply to irrevocable trusts, where the borrower is not a beneficiary. However, it may apply to transfers to an irrevocable trust where the borrower retains the right to occupy the property. This type of trust is used in Medicaid planning. Even if your client’s transfer is protected under Garn-St. Germain, you’ll want to notify the lender of the transfer, and be prepared to remind the lender of the terms of the Act and the regulations. If your client’s transfer does not fall under the protection of the Act, be sure to obtain written permission from the lender prior to transfer.
- Restrictions on Transfer: Be sure to investigate whether there are any restrictions on the transfer of the property that must be removed or renegotiated.
- Administrative Charges: What additional costs will your client incur upon funding real estate into a trust? Will banks, title insurance companies, or other organizations charge to provide necessary services?
- Condominiums and Other Multi-Unit Properties: It is imperative that you obtain, review, and comply with the terms of the association’s by-laws or other governing documents.
- Foreign Properties: The transfer of foreign real estate into a trust can have consequences which we, as American lawyers, may not anticipate. For example, in some Caribbean nations, transferring real property to a trust can result in hefty stamp duties. Waiting to transfer the same property at the owner’s death may result in little, if any, duty. In other countries, the transfer of real property to a trust may cause a recognition of any gain in the property.
Therefore, NEVER attempt to transfer real estate located outside the United States into a trust without first consulting counsel from that jurisdiction.
There you have it – a four-blog overview of the issues to consider before funding real estate into a trust!
In upcoming blogs, I’ll discuss more on the basics of estate planning.
Stephen C. Hartnett, J.D., LL.M.
Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
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