Can you put a property that you still owe on into a Living Trust?

The question of whether you can include a property that is still being paid for in a living trust is a common inquiry among those considering building a plan for their future and that of their heirs.

A living trust, also known as a trust, is a legal instrument that allows the transfer of property to a trustee during the lifetime of the trustor and specifies how those assets should be distributed after the trustor’s death.

This vehicle offers significant benefits to heirs, as it protects assets for future generations and ensures they cannot be lost to lawsuits or divorces, in addition to avoiding the probate process by guaranteeing the immediate transfer of assets.

However, the issue of including a property with outstanding debt in a living trust is a more complex matter that requires a proper understanding of the legal and financial implications.

Can you put a property that you still owe on into a Living Trust?

In general terms, it is possible to include a property that is still being paid for in a living trust. However, it is important to consider several considerations before making this decision.

Firstly, it is crucial to understand that by transferring the property to a living trust, the trustor is no longer the legal owner of the property; instead, the trust becomes the legal owner. This can have significant implications in terms of debt associated with the property.

If the property being considered for the living trust is still subject to a mortgage or other forms of debt, it is important to ensure that including the property in the trust does not violate the terms of the mortgage loan or any other financing agreement.

Additionally, it is essential to consider how outstanding debt will be handled in the trust in the event of death. In this regard, a plan should always be established that allows heirs to pay because otherwise, you would simply be inheriting debt.

The best alternative? Acquire a life insurance policy whose benefits cover the mortgage debt upon your death. This way, you ensure that your heirs receive cash that will enable them to pay off the mortgage and thus receive a debt-free asset.

Are you considering building a plan for your future through a living trust? I can help you, click here and let’s schedule an appointment.

Disclaimer: I am not a lawyer and I do not provide tax or legal advice. My content is for informational and educational purposes only and should not be considered legal, tax, investment, financial or any other advice.