One of the most common questions we hear in estate planning is: “Can I create a living trust if my home isn’t paid off yet?”
The short answer is yes—and for many homeowners, it’s a smart move, for many reasons.
Yes, You Can Put a Mortgaged Home Into a Living Trust
Having a mortgage does not prevent you from creating a revocable living trust or transferring your home into it. In fact, many people fund their trusts with real estate that still has an outstanding loan.
When you transfer your home into a living trust, title for ownership changes, but your mortgage remains exactly the same. You are still responsible for making the payments, and the lender’s rights are unchanged.
Will My Lender Call the Loan Due?
This is a common concern, but federal law offers protection. Under the Garn–St. Germain Depository Institutions Act, lenders generally cannot enforce a “due-on-sale” clause when a borrower transfers their primary residence into a revocable living trust, as long as:
- The borrower remains a beneficiary of the trust, and
- The property continues to be used as a residence.
This means most homeowners can safely place their home into a living trust without triggering loan repayment.
What About Property Taxes?
For most homeowners, transferring property into their own revocable living trust does not trigger a property tax reassessment, because there is typically no change in beneficial ownership.
In states like California, where property tax rules receive extra attention, this type of transfer is commonly treated as non-reassessable when properly structured. However, property tax laws can vary by state, which is why proper planning matters.
Why Include a Mortgaged Home in a Living Trust?
Even with a mortgage, placing your home in a living trust can provide major benefits:
- Avoid probate: Your home can pass to your beneficiaries without court involvement, which usually involves years of time and tens of thousands of dollars in costs.
- Continuity during incapacity: Your successor trustee can manage the property if you become unable to do so.
- Privacy: Trusts keep details of your estate out of the public record.
- Simpler transfer: Your loved ones avoid delays and extra expenses, including possible reassessments of your current property taxes.
Important Considerations
While creating a living trust with a mortgage is common, it’s important to do it correctly:
- The deed must be properly prepared and recorded
- Your homeowner’s insurance should also be updated to reflect the trust
- Your overall estate plan should be coordinated to avoid gaps or conflicts
Mistakes in funding a trust can undermine its effectiveness—especially with real estate.
The Bottom Line
You do not need to wait until your mortgage is paid off to create a living trust. For many families, planning sooner rather than later provides peace of mind and protection when it matters most.
If you’re considering a living trust or want to make sure your home is properly titled, an experienced estate planning attorney can help guide you through the process and ensure everything is done correctly.
Ready to take the next step or have questions about your current plan? Contact our office at (661) 273-9007 to schedule your FREE estate planning consultation.