Understanding Revocable and Irrevocable Trust Real Property

Living trusts have become a common tool for managing financial assets due to the estate planning and tax benefits they can bring. When establishing a trust, you must decide whether it should be revocable or irrevocable. This decision determines how much control you can have over the property you place into the trust while you are alive, and how convenient it will be to obtain a secured loan or refinance a property.

The power of a trustee to mortgage a property

Under the law, a trust is similar to a single business entity once the transactions are permitted under the trust agreement approved by the grantor. So it’s easily possible for the trustee, in this case, to mortgage a property. The grantor of the trust, however, does not have the power (right) to mortgage the real property because the person no longer owns the property.

Difficulties getting a mortgage

However, just because a trustee may be authorized to offer a mortgage does not mean that a lender will always make a loan for a mortgaged parcel of land held in an irrevocable trust. An irrevocable trust generally provides the best protection against any claims by creditors; This protection, in turn, will make it more difficult for a lender to obtain a loan on real property that has a lien on it and make it even more difficult for a lender to foreclose in the event of default. However, if the property is vacant land that is not improved, then the problem is compounded, making the loan approval process a painstaking one.

In such cases, the borrower should notify the lenders in advance about the status of the real estate and provide them with the copy of the land trust. And even if a borrower doesn’t tip them off, they’ll find out by doing a property search. Also, a lender always studies the trust documents properly to determine if the trustee has the power to take a mortgage on said property. Documents can even be checked to determine if the property (trust) can be used as collateral or collateral for the loan.

Choose the right trustee

The grantor of an irrevocable trust can technically also become the trustee, but this is often discouraged. With an irrevocable trust, a grantor can easily avoid some tax advantages; to guarantee these advantages, the grantor can renounce ownership of the property. Additionally, a trustee must always serve the interests of beneficiaries along with the interests of a grantor. If a settlor is serving a trustee, the irrevocable trust will be disregarded by law and will lose all its advantages. Now, take some time for a pop quiz.

the pop quiz

Q: What do you mean by an irrevocable living trust?

A: Do you know the answer? No? Here’s the nitty-gritty: An irrevocable living trust is established during the life of the grantor and is set in stone. This trust is established to reduce or eliminate taxes or protect assets from creditors.