Did Your Rrefinance "Undo" Your Living Trust?

By Jeffrey McKenna

Revocable "living trusts" have become increasingly popular in the past decade. They allow heirs to avoid probate court proceedings.

But unlike a will, a living trust cannot be simply signed and filed away. If an asset is never transferred to the trust, or is unintentionally removed from the trust, it will be subject to probate.

Over the past few years, as interest rates plunged, many homeowners refinanced their homes to reduce payments. Unfortunately, many lenders won't make loans on property held in a living trust. They insist that the home be transferred back to the owners' individual names before a loan is made.
After the new loan is made and the new deed of trust is recorded, the homeowners are free to transfer the home back into the living trust but lenders rarely assist homeowners with this final step. (Some homeowners don't even know their home was removed from the trust, since they signed many documents at once.) The end result is that homeowners who properly transferred their homes into living trusts to avoid probate, may face probate anyway because their work was undone.

It is sometimes possible to obtain court approval to confirm trust ownership of a home that was never formally transferred to the trust. However, it can be costly for a court to make such determination and defeats the purpose of the trust.

Anyone who implemented a "living trust" and subsequently refinanced their property should review the documents to make sure that the home is currently held in the living trust. If not, the owner should have a new deed prepared. The new deed should return the property into the trust.

If you are concerned that your living trust may not be properly funded, or if you have other questions about your trust, review your existing documents. You should then make a list of questions and concerns to discuss with an attorney. Delaying addressing these issues could be costly. Many times all that is needed is a deed prepared and recorded or a simple amendment to modify small portions of a trust in order to accommodate changes in circumstances.
Jeffery J. McKenna is a local attorney serving clients in Utah, Nevada and Arizona.