Full question:
My husband and I recently had an irrevocable trust drawn. The Judge signed it 1/1/09. We did this as a precaution for our children in case of an untimely death. Since then, we tried to refinance our home, our only real asset, to make improvements only to find out that there doesn't seem to be a lending institution that will touch it with a ten foot pole because of the irrevocable trust. Can anything be done and how should we go about doing it?
- Category: Trusts
- Date:
- State: Pennsylvania
Answer:
To refinance a home held in an irrevocable trust, lenders typically face challenges. An irrevocable trust makes it difficult for banks to perfect their lien because the legal ownership of the property is transferred to the trustee. This situation creates complications if the property goes into default, as lenders may find it hard to foreclose. Essentially, a mortgage on a property in an irrevocable trust is akin to an unsecured loan.
Irrevocable trusts are designed to protect assets from creditors, as the creator of the trust no longer owns the property. However, this protection is valid only if certain conditions are met, such as the trust not being created to defraud creditors and the settlor not retaining any interest in the property. Additionally, the property must not be in bankruptcy within five years of the trust's creation.
To proceed, you may need to transfer the property out of the trust and into the name of the trustee or another responsible party. After refinancing, you can then transfer the property back into the trust.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.