Putting residential real estate in trust

Placing residential real estate into a trust can sometimes be advantageous. Owning real estate in that fashion can avoid probate, and provide some asset protection benefits to the beneficiaries.

Covenants restricting transfer are ubiquitous in mortgages, however.

A provision in a federal law called the Garn-St. Germain Act exempts transfers of residential real estate of less than five units to a revocable trust where the borrower is a beneficiary and the transfer does not change the occupancy of the property. This allows such a transfer (subject to certain limitations) for estate planning purposes, without affecting the loan or triggering a due-on-sale clause.

It should be noted that the exemption does not allow transfers to irrevocable trusts or limited liability companies (LLCs). Those would change the ownership of the real estate, and would be in conflict with the lender’s secured interest in the real estate.

To proceed, the transfer should be advantageous to the grantors and trust beneficiaries from an estate planning perspective.

There are some other considerations as well, including municipal certifications and administrative costs to such a transfer, compliance with any homeowner or condominium association requirements, and insurance ramifications.

Landowners should consult their attorney to determine whether such a transfer is appropriate for their situation, and to ensure compliance with the exemption.