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Understanding Revocable and Irrevocable Trust Real Estate
Living trusts have become a common tool for managing financial assets because of the estate planning and tax advantages they can bring. When setting up a trust, you must decide whether it should be a revocable or irrevocable one. This decision determines how much control you can have over the assets held within the trust while you are alive, and how convenient it will be to obtain a secured loan or refinance the property.
Power of a trustee to mortgage any property
As per the law, a trust is at par with an individual business entity once the transactions are permitted under the agreement of the trust passed by the grantor. So it is easily possible for the trustee, in this case, to mortgage an asset. However, the grantor of the trust does not have the power (right) to mortgage the real estate because the person no longer owns the property.
difficulties in obtaining a mortgage
However, just because a trustee may be authorized to offer a mortgage does not mean that a lender will always make a loan for a mortgaged parcel of land bounded by an irrevocable trust. An irrevocable trust usually provides the best protection against any creditor’s claims—this protection, in turn, will make it difficult for a lender to obtain a loan on a real estate property and even more difficult to foreclose in case of default. Will go If, however, the immovable property is a vacant land that is unirrigated, the problem gets compounded, making the loan approval process tedious.
In such cases, a borrower has to inform the lenders beforehand about the condition of the immovable property and provide them with the trust copy of the land. And even if a borrower won’t inform them, they’ll find out by searching the real estate. Furthermore, a lender always studies the trust papers properly to determine whether the trustee has the power to mortgage the said property. Papers may also be examined to determine whether the property (the trust) can be used as security or collateral for the loan.
choosing the right trustee
The grantor of an irrevocable trust can technically also become the trustee, but this is often discouraged. With an irrevocable trust, a grantor can easily avoid certain tax benefits; To ensure these benefits, the grantor may relinquish ownership of the real estate. Furthermore, a trustee must always serve the interests of the grantor as well as the interests of the beneficiaries. If the grantor is serving a trustee, the irrevocable trust will be disregarded by law and will lose all of its benefits. Now, time for the pop quiz.
pop quiz
Q: What do you mean by an irrevocable living trust?
A: Do you know the answer? No? Here’s the low-down: An irrevocable living trust is established and set in stone during the lifetime of the grantor. This trust is established to reduce or eliminate taxes or to protect the assets of creditors.
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