Refinanced Recently? Your Home Might Be Sitting Outside Your Trust
Lenders sometimes require you to take your home out of your living trust to refinance. If it never goes back in, you could lose the protection you set up. Here's how to check.
You did the responsible thing. You set up a family trust so your home passes smoothly to your loved ones without going through probate.
Then you refinanced.
There's a chance that, right now, your home isn't in your trust anymore, and you have no idea.
It's a common (and scary) clerical slip-up. Here's how it happens, why it matters and how to check in a few minutes.
How a refinance can pull your home out of your trust
When you refinance, some lenders require that the property be held in your individual names, not the trust's, to fund the loan. To make that happen, the title company records a deed transferring the home out of the trust and into your names.
The plan is for the home to go right back into the trust after the loan closes, usually with another recorded deed.
The problem: sometimes that last step never happens.
Maybe the paperwork was never prepared. Maybe it was signed but never recorded. Maybe everyone assumed someone else was handling it. The refinance closes, everyone moves on, and the home stays outside the trust for years.
Why it matters
A living trust only protects the assets that are actually titled in the trust's name. If your home was deeded out and never deeded back:
- Your heirs could face probate, the expensive, slow and public court process the trust was meant to avoid
- Your estate plan may not work the way you intended
- There may be property tax or other complications that are harder and more expensive to fix after a death or incapacity than they are today
You could lose the very protection you worked so hard to set up, without knowing it.
Who should check
You should check if:
- You have a living trust, and
- You've refinanced, taken out a HELOC or done a cash-out refi since setting up the trust
It's also worth checking if you bought your home before creating the trust. Sometimes the home was simply never transferred in.
How to check
- Look at your most recent recorded deed. In San Diego County, deeds are recorded with the Assessor/Recorder/County Clerk's office. The latest deed shows how title is held (the "vesting").
- Look at who's named as owner. It should read something like "John and Jane Smith, Trustees of the Smith Family Trust dated…" If it shows just your names, the home may be outside the trust.
- Check your refinance closing package. Look for a deed transferring the property back into the trust after closing.
How to fix it
If your home is outside your trust, the fix is usually straightforward while you're alive and well. It typically means preparing and recording a new deed that transfers the property back into the trust.
Work with your estate-planning attorney to make sure it's done correctly. The wording matters, and they can confirm the rest of your plan is in order.
We'll check for you
Not sure how to read a deed? We'll look up your property record and confirm your home is exactly where it's supposed to be. It's quick and free.
And if you're refinancing with us, we make sure the "back into the trust" step is on the checklist from day one.
Want us to check your property record? Contact us and say "CHECK."
Educational purposes only. The GreenHouse Group Inc. (CA DRE #01859042 | NMLS #366847). We are real estate and mortgage professionals, not CPAs, tax advisors or attorneys. This content does not constitute formal real estate, tax, legal or financial advice. Consult a qualified estate-planning attorney about your specific situation.