Transferring Your Home to Your Trust: What If There Is a Mortgage?

Elder Law | Jun 4, 2021 | Jennifer S. Rossettini

Many of our clients choose to use Revocable Living Trusts as part of their estate plan.  There are many benefits of using a Trust, one of which is the avoidance of probate when distributing assets of a Trust to beneficiaries at death.  The question inevitably comes up about what to do with the personal residence.  Should the home be transferred to the Trust now?  What if there is a mortgage on the home? 

It should be noted at the outset that real estate is relatively simple to dispose of at death in Virginia as opposed to other jurisdictions.  If real estate is the only asset titled in your individual name at your death, there is generally no need to open a full probate to transfer the real estate to your heirs or beneficiaries.  Filing the Will (or the Real Estate Affidavit if you die without a Will) with the probate court is generally all that is needed to pass title to your heirs and beneficiaries, even if the beneficiary of your Will is your Revocable Living Trust.

However, there may be reasons for a client to wish to transfer the real estate to the Trust during life.  If that is the case, and there happens to be a mortgage on the real estate, whether or not to transfer title to the Trust becomes a question that requires careful examination.  The reason for this is the “due on sale” clause is present in most mortgages.  This clause provides that if an encumbered asset is transferred without prior written consent from the lender, the lender has the right to demand immediate payment of the outstanding balance.  This seems obvious when the transfer is a typical sale to a third party for fair market value.  But what about a transfer into a Trust where no money is changing hands?  Fortunately, the Garn-St. Germain Act[i] may provide some relief for the otherwise harsh result of a transfer of encumbered property.

Five elements must be satisfied to prohibit a lender from invoking the due-on-sale clause when real estate is transferred to a trust.  First, the property must be residential real property, meaning that individuals live there.  Second, the property must comprise less than five dwelling units.  Third, the property must be conveyed to an “inter vivos” trust, which means a trust that is created during the grantor’s lifetime.  Fourth, the borrower must be a beneficiary of the Trust.  This is usually the case for typical revocable living trusts, but what about trusts created for asset protection or long-term care planning?  Fifth, the transfer to the trust must not relate to a transfer of rights of occupancy in the property.  Unfortunately, this clause has been interpreted differently between the Federal Home Loan Bank Board and the courts.  While the Board believes that the borrower must be an actual occupant of the property, the court in Baldin v. Wells Fargo Bank, N.A., disagreed and held that the grantor does not need to be an occupant of property just as long as the right of occupancy was not transferred by the grantor.  

If you are considering implementing a Trust-based plan and have real property that is subject to a mortgage, it is very important to seek legal advice before transferring that property to your Trust.  An alternative provided by Virginia law is the Revocable Transfer on Death Deed.  Instead of transferring encumbered property to your Trust now, the Revocable Transfer on Death Deed will transfer the property to your Trust at your death.  In the case of a transfer by devise, descent, or operation of law upon the death of the borrower, the Garn-St. Germain Act prohibits the lender from exercising the due-on

[i] 12 U.S. Code §1701j-3


Client: Everyone tells me that I need revocable living trust. Should I have one?

Mrs. Rossettini: Most middle class people do not need a revocable living trust. A properly funded revocable living trust may avoid the probate process in Virginia, but other more efficient means are available to avoid probate. Moreover, the probate process in Virginia is not terribly complicated.


Hook Law Center: Did you hear about the cat who jumped out of a fifth-floor window and lived to tell the tale?

Anya: Yes, I did! Apparently, the cat jumped out of the window to escape an apartment fire as Chicago Fire Department personnel were taking a video (  She landed on all four paws on top of the grass, bounced once and ran away.  Truly amazing!

Jennifer S. Rossettini

Attorney, Shareholder, CFP®
757-399-7506 | 252-722-2890
[email protected]

Jennifer Rossettini is a Shareholder of Hook Law where she focuses her practice in the areas of elder law, estate planning, estate and trust administration, and financial planning. Her practice includes complex estate planning for clients with a net worth over $5 million as well as simple plans for individuals with very limited assets. Ms. Rossettini rejoined the firm in 2018 after spending ten years as a CERTIFIED FINANCIAL PLANNER™ professional with the wealth management divisions of two regional financial institutions. She is a member of the Financial Planning Association, serving as Secretary for the Hampton Roads chapter and serves on the Board of Directors of the non-profit organization, PrimePlus Senior Centers. Jennifer lives in Virginia Beach with her husband and two daughters. She is active in the Girl Scout organization, serving as both a troop leader and as the treasurer for the local Service Unit.

Practice Areas

  • Elder Law
  • Estate & Trust Administration
  • Estate Planning
  • Financial Planning
Make a Plan
Let's make a plan.
We help individuals and their families navigate the legal maze and implement plans to secure their futures. By working together, we're able to offer comprehensive planning, life care services and legal representation, giving you peace of mind for what ever life brings.