You can put a home with a mortgage into a trust, and for most homeowners doing standard estate planning, the lender cannot call the loan due because of it. Federal law protects the transfer as long as you use a revocable living trust, stay a beneficiary, and keep living in the home. The work involved is mechanical: prepare a new deed, record it with the county, and update your mortgage servicer and insurer.
Why Your Lender Can’t Call the Loan Due
Nearly every mortgage contains a due-on-sale clause, which lets the lender demand full repayment if the property or any interest in it is transferred without the lender’s written consent.1Office of the Law Revision Counsel. 12 USC 1701j-3 Preemption of Due-on-Sale Prohibitions On its face, moving your home into a trust is a transfer, so this clause would seem to be a problem.
The Garn-St Germain Depository Institutions Act of 1982 removes the problem for residential properties with fewer than five dwelling units. The statute forbids lenders from enforcing the due-on-sale clause when three conditions are met:
- The trust was created during your lifetime, not through a will.
- You remain a beneficiary of the trust after the transfer.
- The transfer doesn’t give someone else the right to occupy the property in place of you.
When all three are true, the lender cannot call the loan due, raise the interest rate, or penalize you for the transfer in any way.1Office of the Law Revision Counsel. 12 USC 1701j-3 Preemption of Due-on-Sale Prohibitions A standard revocable living trust — where you serve as your own trustee and beneficiary — satisfies all three by design.
Revocable Trusts Fit This Rule; Irrevocable Trusts Often Don’t
A revocable living trust is the vehicle almost everyone uses for this. You create the trust, name yourself as trustee and beneficiary, and keep the power to amend it, pull the property back out, or dissolve the whole thing. Day to day, nothing changes about how you use your home. When you die, the property passes to your named successor beneficiaries through the trust rather than through probate, which typically saves your heirs months of delay, legal fees, and public exposure.
Irrevocable trusts are a different situation. Once property enters an irrevocable trust, you generally give up ownership and control, and depending on how the trust is drafted, you may no longer be a beneficiary or you may lose the right to occupy the property. If either happens, the Garn-St Germain protection doesn’t apply, and your lender can legally enforce the due-on-sale clause.1Office of the Law Revision Counsel. 12 USC 1701j-3 Preemption of Due-on-Sale Prohibitions Some irrevocable trusts can be drafted to keep the grantor’s beneficiary status and occupancy rights intact, but the drafting is delicate and you should get your lender’s written consent before recording the deed.p>
One other timing note for irrevocable planning: if Medicaid coverage for long-term care is part of the reason you’re considering a trust, transfers into an irrevocable trust within the 60 months before you apply count against you and create a penalty period that delays eligibility.
FHA, VA, and USDA Loans Have Extra Rules
If your mortgage is insured by the Federal Housing Administration, the Garn-St Germain protection isn’t the whole story. Under the FHA Single Family Housing Policy Handbook, the trust beneficiary must be a co-signer on the mortgage and must occupy the property as a principal residence. The trust must include provisions notifying the lender of changes in beneficial interest or occupancy, the trust’s name must appear on the security instrument, and the individual borrower’s name must appear on the promissory note alongside the trust.2HUD. FHA Single Family Housing Policy Handbook
VA and USDA loans carry their own trust-transfer requirements. On any government-backed mortgage, call your servicer before transferring rather than assuming the federal exemption covers everything.
How to Do the Transfer
Pull your current deed first. The legal description on it needs to be copied onto the new deed exactly. Small errors here can cloud the title later.
Prepare a new deed transferring the property from you as an individual to yourself as trustee of the trust. For a transfer into your own revocable trust, a quitclaim deed works in most jurisdictions; it moves whatever interest you hold without title warranties, which is fine because you’re transferring to yourself in a new capacity. Some states require a specific deed form, so check local rules before you draft.
Sign the deed before a notary public and record it with the county recorder’s office where the property sits. Recording fees vary by county, generally somewhere between $10 and $100 or more. Notary fees for a single acknowledgment are modest in most states.
After the deed is recorded, send a copy to your mortgage servicer. You aren’t asking permission for a Garn-St Germain-protected transfer; you’re informing them that the title holder’s name has changed. Skipping this step can cause confusion later when you refinance, file an insurance claim, or request a payoff statement. Keep a copy of what you send and any response.
Update Your Insurance and Check Your Title Policy
The title holder changed the moment the deed recorded, so your homeowners insurance needs to catch up right away. Contact your insurer and ask to have the trust added as an additional insured. The trust’s name on the policy must match the name on your trust documents exactly. Get written confirmation. A gap between the deed transfer and the insurance update is the kind of thing that shows up at the worst possible moment.
Your existing owner’s title insurance policy may or may not carry over. Policies issued under the 2006 or 2010 ALTA standard forms generally treat a trustee as a successor insured when title transfers without payment. Older policies may terminate when title changes hands. Ask your title company to confirm coverage continues, and consider an updated policy if it doesn’t.
Watch Your Property Tax and Homestead Exemption
Transferring your home to your own revocable living trust generally does not trigger a property tax reassessment during your lifetime, because tax authorities still treat you as the owner. A reassessment may occur when the trust creator dies and the property passes to new beneficiaries.
Homestead exemptions are the piece to watch. Most states let the exemption continue when the home is held in a revocable trust, but the trust document typically needs to state that you retain the right to live in and control the property. A trust that omits that language can jeopardize the exemption and quietly cost you hundreds or thousands in additional property tax each year. If your home currently qualifies for a homestead exemption, confirm with your county assessor’s office or a local attorney that the transfer won’t affect it before you record the deed.
Refinancing Later Adds a Step
If you refinance after the transfer, expect the lender to require a temporary move of the property out of the trust and back into your individual name before closing. After the new loan closes, you deed the property back into the trust. The round trip means additional deed preparation and recording costs, typically a few hundred dollars on top of the refinance itself. Notify your insurer again when the property returns to the trust.
The Trust Preserves the Stepped-Up Basis
Holding your home in a revocable living trust doesn’t cost your heirs the tax break they’d get if they inherited it directly from you. Under federal tax law, property acquired from a decedent generally receives a new basis equal to its fair market value on the date of death, and that treatment specifically covers property the decedent transferred during life into a trust they had the right to revoke.3Office of the Law Revision Counsel. 26 U.S. Code 1014 – Basis of Property Acquired From a Decedent
The practical effect: if you bought the home for $200,000 and it’s worth $500,000 when you die, your beneficiaries inherit it with a $500,000 basis. If they sell shortly afterward, they owe little or no capital gains tax. The trust doesn’t change that tax outcome. It just lets your heirs skip probate while keeping the benefit.