Irrevocable Trust and Revocable Living Trust Which Is More Suitable for the Reverse Mortgage
February 9, 2017
Placing the home in a revocable living trust can be a good decision and determining the best path can be completed through consulting your attorney CPA or financial planner. The question asked often is can I take out a reverse mortgage while the property is held in a trust. Typically as long as you and your occupant spouse meet the guideline requirements for the reverse mortgage then the answer is yes you can.
When you choose to establish a trust you are creating a vehicle to transfer the rights of your property and assets to the respectful heirs or spouse, this reduces the cost and timelines associated with the probate process. The trustee can then simply transfer the property in question at the death of the grantor.
Revocable Living Trust
A revocable living Trust is usually arranged by an attorney to avoid probate and reduce the long wait and cost of transferring the rights of ownership to the property to the heirs. The revocable trust allows the trustee to transfer the property to the mortgage lender at the time of passing or satisfy the loan prior the heirs taking their remaining portions, this makes it the more likely of trust to be approved by the lender. The owners of the home trust grantor and settler can qualify for the reverse loan program.
Irrevocable Living Trust
irrevocable living trust are more complicated and can pose more issues and have not been widely used by Reverse Advisors simply due to the thought process that these are not permissible. According to an article in reverse mortgage daily and expert trust advisor reported that the guidelines have nothing in them in reference to the irrevocable trust. The biggest problem with these types of trust is the limitation on the survivor’s ability to finance the property or the lender to attach a lien.
The Advantages of the Reverse Loan
As with any mortgage there are a few advantages to arranging this type of financial advance, one of which is the fact that you can continue living in your home payment free, and the title of your home remains with you in the trust. When the first spouse passes or becomes incapacitated the successor trustee will manage the trust assets giving the successor trustee the same controls that the grantor had as Trustee to buy, sell, borrow, or transfer the assets inside the trust including the reverse mortgage. This cash withdrawals or credit line will give you the financial freedom to enjoy retirement and provide supplemental income for personal daily living. The funds are for the individuals to decide what they are needed for. The income is not taxed as regular income and detailed questions can be answered by your CPA or financial tax adviser.
The key important thing to know is that a reverse mortgage in a trust based on current HECM lender guidelines, but in In all circumstances the bank or lender will require a the trust to be reviewed by a trust attorney and or the underwriter for the title policy usually arranged by the title company, if the attorney allows it then the reverse mortgage specialist can complete the reverse loan transaction.