Personal Trust?

Question

My wife and I are considering creating a personal trust for ourselves that would hold all our assets, thus making it simpler to die. We're only about 30 years old, so hopefully that won't happen for a while, but you never know.

If we have real estate in the trust, would we be able to get the same kind of financing as if we owned the property personally?

Would their be any more paperwork involved when doing transactions with the property such a buying, selling or financing?

Anything else we should consider?

Michael D. · Answer

Thanks everybody for the non-legal advice.

Yes, I've already consulted a lawyer on the legal issues, but that's not what I'm most concerned about in this post. Lawyers are coming at things from (obviously) a legal perspective and what's best for us when we die. Clearly, that means setting up a family trust.

The problem is that lawyers aren't experts at real estate investing, capital growth, passive income, lending, personal finance or any of the other things that need to be considered.

As an anecdotal example, I was listening to Dave Ramsey and he said that he didn't advocate a trust for most people because they're a lot of extra trouble for what you're really getting that wouldn't be solved with an ordinary will. Then again, he's not an estate attorney.

So I'm just trying to gather a breadth of opinions, especially from the people on this forum that ARE experts at all of those other non-legal things. I want to think of the things I haven't thought of yet.

As an additional data point, our net worth is relatively low, maybe around 5-600k.

Thanks again,

Michael

Account Closed · Answer

Account Closed

Account Closed · Answer

@Tom Goans

I guess Michael wants to get some knowledge before going in and talking to an attorney about setting up a trust. It's imprudent to get advice from the Internet and just run with it without consulting with a legal counsel.

Account Closed ,

Very interesting. This is the first time that I've heard banks are used to Family Trusts. I will definitely ask the lender the next time I refinance.  I learn something new from BP everyday. Thanks much.

Account Closed · Answer

Hi Michael,

Yes, there will be some paper work.  You have to take the property out of the trust everytime you refinance. You put it back in the trust after you refinanced it.

You don't have to take it out of the trust when selling it, but you cannot buy it under a trust because the bank will not loan you the money.

A trust is only to prevent probate, but it doesn't provide asset protection like some people claim.  At least that's my understanding. Of course, I could be way off.  Hope some trust experts will chime in for you.

Michael D. · Answer

The plan would be to use the assets for retirement, though we might want to sell them and/or buy more along the way. IOW, active real estate investment.

When one of us dies, the assets would remain in the trust managed by the survivor. When the second of us dies we'd like the assets to pass smoothly to our children.

Michael

Beau Cote · Answer

Is your intention to use the assets for retirement, to not distribute the assets to your heirs, or both?

Jonathan Wilks · Answer

A lot of the information above is really great! One thing i would advise out of my experience is to make sure the trust does not have you or your wife's name in the trust. If you became incapacitated it is a lot more difficult to mange the trust.

Account Closed · Answer

@Chris Martin

Interesting.  The effective date is 1/17/13, it doesn't say what it was prior to that date.  The requirement wrt trusts seems to be little more than trustor, trustee and beneficiary must be the same natural person at the time of origination, leaving the door open to switch that all around post origination (read creative REI), if I'm reading it right.

Of course, these are Fannie/Freddie guidelines, it's not to say originators that sell to Fannie/Freddie can't 'overlay' their own more restrictive guidelines.  It's also not to say a title company can't refuse to insure title.

Chris Martin · Answer

I know this is a year old. Your comments were spot on. 2013 changes to GSE underwriting now allow an Inter Vivos revocable trust exception. On Page 251:

General Borrower Eligibility Requirements

Fannie Mae purchases or securitizes mortgages made to borrowers who are natural persons that have reached the age at which the mortgage note can be enforced in the jurisdiction where the property is located. There is no maximum age limit for a borrower. Exceptions to the requirement that borrowers be natural persons are:

https://www.fanniemae.com/content/guide/sel041514.pdf

Rick H. · Answer

I say it will cause a problem with many lenders, if not most all.

This has been my business for 20+ in CA. Here's what conventional lenders want to see:

Settlor, grantor, trustee and primary beneficiary are all the same.  Cannot be irrevocable until death of grantor/settlor.

I was the keynote speaker at the Silicon Valley Bar Association Probate, Trust and Estate Planning section several years ago and covered this in my talk.

Yes, conventional lenders are becoming more accustomed to seeing their borrowers vest real estate into trusts however they are quite evasive until the pedal is ready to meet the metal and get an approval with conditions that often include taking the out of the trust for the purposes of completing the anticipated loan.

If this inconvenience is problematic for you, I'd say that the benefits of a trust probably far outweigh the minor hassles.

Personal Trust?

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