Although your Last Will and Testament will likely form the foundation of your comprehensive estate plan, you will also likely include additional tools and strategies into your plan in order to achieve all of your estate planning goals. One of the most common tools incorporated into an estate plan is a trust agreement. A living trust, for example, can be used as an excellent incapacity planning tool. When used as an incapacity planning tool most people transfer their home into the trust. The idea of transferring your home into a trust, however, may have your concerned if you are still paying off the home because you may be concerned that the bank will call in your loan if you transfer your home into a trust.
Your concern most likely stems from the “due on sale” clause found in most mortgage loan agreements. Though the language may differ somewhat from one loan agreement to the next, the purpose and effect of the clause is the same in all agreements. A “due on sale” clause allows a lender to force a borrower to pay the entire balance due and owning on a mortgage loan upon the sale of the property. Typically, the language states that the balance is due if the title to the property is transferred, not just if the property is sold. Because the title to your home will be transferred into the name of the trust agreement you create you may be concerned that your lender can call your loan and require you to pay the entire balance due at the time you transfer the property into the trust. Fortunately, your lender cannot do that because the transfer of real property into a living trust is an exception to the ability of a lender to enforce a “due on sale” clause.
The Garn-St. German Depository Institutions Act of 1982 (the “Act”) governs “due on sale” clauses as they apply to residential real estate. While the Act does allow a lender to call a loan when title to property changes, there are a number of exceptions, including when property is transferred into an inter vivos trust “on which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property.” This exemption applies to residential real property containing less than five dwelling units. [12 USC Sec. 1701j-3(d)] As a result, the transfer of your residential property into your living trust cannot be used as a reason to enforce a “due on sale” clause in your mortgage loan agreement, meaning it is safe to transfer your home into your trust.
If you have additional questions or concerns about trust agreements, or your Illinois estate plan in general, contact the experienced Illinois estate planning attorneys at Nash Bean Ford & Brown, LLP by calling 309-944-2188 to schedule your appointment today.