Part 2 of a 2-Part Series
Last week, we began a two-part series about the ways refinancing could impact an estate plan. Click here to read part one of the series. This week, we conclude the series by examining other issues associated with a property refi relative to a trust.
Refi Estates
Unfortunately, a step many people skip in the refinancing process is the retitling of the property back into the trust. As a result, a trust-maker could die, thinking that his property is titled in the name of the trust. However, when the successor trustee prepares to sell the property after the deceased trust maker’s affairs wrap up, the successor trustee discovers that the home remains in the name of the trust-maker. In such a case, the family would open probate to properly sell or transfer the property.
Sometimes, the trust-maker pours-over the will that accompanies the trust. In such a case, the pour-over would direct the accounts and property owned by the trust-maker. All would be titled in the trust’s name. Although this requires the family to experience the probate process, it also ensures the proper distribution of the property according to the trust’s terms. However, this result is not ideal. It adds expenses and delays to the state court system.
Titling Problems Between Spouses
Problems sometimes arise during the refinancing process. For instance, consider what would happen if one spouse owns a property after a first marriage. If they were part of a couple in a second marriage and bring the separate property into the marriage, one spouse could own a home with lots of sentimental attachment. For example, the spouse could have raised children from her first marriage and would want the home to be gifted to those children at death. Assume further that a mortgage remains on that house. What happens if the spouse who owns the home wants to refinance the loan? If the title company fails to communicate with the lender and the owner and assumes the property, it should be retitled in the name of both spouses.
Unintentional Refi Side Effects
This creates a joint tenancy with rights of survivorship between the spouses. In such a case, the original owner’s intent for the property would be undone. If such a mistake goes unnoticed, the property would be owned 100 percent by the surviving spouse at the original owner’s death. This is regardless of any estate planning documents (wills or trusts) stating wishes to the contrary. Instead of simply taking advantage of better interest rates, the refinance would effectively disinherit the owner’s children.
In most cases, the property owner does not intend this. But carefully supervising the refinancing process uncovers mistakes. In some cases, they create enormous headaches for families and lead to years of litigation.
Conclusion
If you plan to refinance a property, call today so we can make sure that your lender, the title company, and you remain on the same page. What’s more, we want to ensure the property you refinance is titled correctly. Failure to properly coordinate a property refinance with your estate plan could affect you and your loved ones. Call us today. We are available for in-person and virtual appointments.
About Skvarna Law in Glendora and Upland, California
Skvarna Law Firm operates offices in Glendora and Upland, California. We provide legal services. We cover San Bernardino, Los Angeles, Orange, and Riverside Counties. This includes several cities. Upland, Ontario, Rancho Cucamonga, Fontana, Colton, Rialto, Chino, Chino Hills, Glendora, Claremont, Pomona, La Verne, Montclair, San Dimas, Azusa, Covina, West Covina, Diamond Bar, Walnut, La Puente, Corona, Norco & Mira Loma. Visit SkvarnaLaw.com to learn more.
