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:
In order for the mortgagee (Bank) to perfect their lien, the trust would have to be a Revocable Trust. There are issues within the verbage of Irrevocable Trusts that make it difficult, if not impossible, to foreclose on the property if it goes into default. For a Lender, taking a mortgage on a property titled in an Irrevocable Trust is like not having a mortgage at all (or offering an unsecured note).
The property in an irrevocable trust is protected from creditors because the creator of the trust, is no longer the legal owner, instead the trustee is. However, the irrevocable trust is only "creditor-proof" provided that bankruptcy does not occur within five years of the date of the creation of the trust, the settlor does not retain any interest in the property and the trust was not be created with the intention of defrauding creditors.
The property may need to be deededout of the trust by the trustees and into the name of someone, be it the trustee or another as the responsible and qualifying party, then refinanced and deeded 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.
