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Can I refinance my house in a trust in California?

Can I refinance my house in a trust in California?

Full question:

I am trying to refinance my house in CA to take advantage of lower rates. The house is in an A(revocable) and B (irrevocable) trust, which replaced the standard revocable trust, that was set up for tax protection, after the death of my wife. I am the trustee. I have read the post PA #18982 about the possibility of taking it out of the trusts and then returning it to the trusts, however I thought that (according to my attorney)irrevocable meant that half of the house was permanently left to my wife's heirs at the time of my death. When asked why the refi fell through because of the B trust, he couldn't give me a reason and he didn't seem to have any answers to fix the problem other than to write a check for the trust value, which I didn't understand and I can't do. When I had the trusts drawn up, I was assured that nothing would be any different as to the day -to-day use of the property, it only guarenteed that my wife's heirs got a share of her assets. I would think trying to get refinancing would be an important part of the d-to-d use. Is moving the house out of the trust(s) a solution in CA and if so, where do I start? I'm not sure if I trust my attorney's abililities at this point.

Category: Trusts
Date: 04/07/2025
State: California

Answer:

To refinance a property in California that is held in an irrevocable trust, lenders typically require the trust to be revocable. This is because the terms of irrevocable trusts can complicate a lender's ability to secure their lien on the property. If the property is in an irrevocable trust, it may be treated similarly to an unsecured loan, making it difficult for lenders to foreclose if necessary.

For refinancing, the property may need to be transferred out of the irrevocable trust and into the name of the trustee or another qualifying party. After refinancing, the property can be re-deeded back into the trust. It's advisable to consult with your lender to understand their specific requirements, as these can vary.

In summary, while moving the house out of the trust may be a solution, it's essential to confirm the process with your lender and possibly seek a second opinion from another attorney if you have concerns about your current legal representation.

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.

FAQs

Can a house in an irrevocable trust be refinanced?

Refinancing a house in an irrevocable trust can be challenging. Lenders often prefer properties held in revocable trusts because the terms of an irrevocable trust can complicate the lender's ability to secure their lien. If refinancing is necessary, the property may need to be transferred out of the irrevocable trust, refinanced, and then re-deeded back into the trust. Always consult with your lender for their specific requirements.

Why choose a revocable trust over an irrevocable trust?

A revocable trust offers flexibility, allowing the grantor to modify or revoke it at any time. This can be beneficial for managing assets and estate planning. In contrast, an irrevocable trust cannot be changed once established, providing certain tax benefits and asset protection but limiting control over the assets. Choosing between them depends on individual financial goals and circumstances.

Is it better to have a revocable trust or an irrevocable trust?

The choice between a revocable and an irrevocable trust depends on your needs. A revocable trust allows for more control and flexibility, making it easier to manage assets during your lifetime. An irrevocable trust offers benefits like tax advantages and asset protection but limits your control. Consider your financial goals, estate planning needs, and consult with a legal professional to determine the best option.

What is the difference between a revocable and irrevocable trust in California?

In California, a revocable trust allows the grantor to maintain control and make changes as needed, while an irrevocable trust cannot be altered once established. Revocable trusts typically avoid probate and provide flexibility, whereas irrevocable trusts can offer tax benefits and protection from creditors. Understanding these differences is crucial for effective estate planning.

What is the downside of a revocable trust?

One downside of a revocable trust is that it does not provide asset protection from creditors or lawsuits, as the grantor retains control. Additionally, assets in a revocable trust may still be subject to estate taxes upon the grantor's death. It's essential to weigh these factors against the benefits of flexibility and avoiding probate.

What does Suze Orman say about revocable trust?

Suze Orman advocates for revocable trusts as a valuable estate planning tool. She emphasizes their ability to avoid probate, maintain privacy, and provide flexibility in managing assets. However, she also warns that while they offer many benefits, they do not protect assets from creditors. It's essential to consider personal financial situations when deciding on a trust.