Can You Put a Mortgaged House Into a Trust? Pros, Cons and Steps

Putting a home into a trust can be part of an estate plan and may help transfer the property to heirs with fewer delays. A mortgage does not always need to be paid off first. In many cases, a mortgaged home can be placed into a trust without affecting the loan, as long as legal steps and lender rules are followed.

A financial advisor can help you determine whether you need to set up a trust and how to manage it for your needs.

When You Can Put a Mortgaged Property in a Trust

It’s entirely possible to place a home with an active mortgage into a trust, but the timing and terms matter.

Lenders typically allow this transfer as long as the trust is a revocable living trust. The borrower must also remain the primary occupant who is also responsible for the loan.

In these cases, the property transfer doesn’t trigger the due on sale clause that otherwise requires immediate repayment of the mortgage. However, you usually must notify the lender before making any changes so the title and loan documents stay compliant.

Transferring a mortgaged property into a trust doesn’t erase or modify the mortgage itself. The trust simply becomes the new owner of the title, while you, the trustee, continue making payments as usual.

Because ownership technically shifts, your lender’s consent, backed by accurate documentation, are essential to avoid complications with insurance or property taxes.

The best time to move a mortgaged home into a trust is when your financial situation and estate plan are stable. Many homeowners make this transfer shortly after buying their home or updating their estate plan.

If you’re refinancing, you might wait until after closing to add the property to a trust. This is because lenders typically prefer a clear title during underwriting.

Either way, proper timing minimizes administrative hurdles, avoiding the need to refile paperwork after the loan process concludes.

Pros and Cons of Putting a Mortgaged Property in a Trust

Placing a home with an active mortgage into a trust can offer meaningful estate planning benefits. However, it also comes with potential drawbacks. Understanding both sides helps you make an informed decision that aligns with your financial goals and long-term plans.

One of the biggest advantages of putting a mortgaged property in a trust is that it streamlines the transfer after your death. Instead of going through probate, your home passes directly to your beneficiaries based on your wishes. This can help save time and legal costs.

A trust can also protect your privacy, since trust assets generally avoid public record. Additionally, if you become incapacitated, your successor trustee can manage the property and mortgage payments without court intervention.

However, there are some risks and costs to consider. For example, the transfer into a trust can involve legal fees, lender notifications and title updates, all of which take time and money.

While most lenders allow the transfer, failing to follow their specific procedures could inadvertently violate your mortgage agreement. In rare cases, lenders may require a reassessment or additional paperwork that complicates refinancing or future property sales.

If your mortgage is close to payoff or you’re planning to sell soon, the administrative burden may not be worthwhile. Similarly, using an irrevocable trust for a mortgaged property can create barriers to refinancing or restructuring your loan. This is because you no longer control the asset directly.

Homeowners with complex financial situations, such as multiple properties, joint ownership or business liens, should be especially cautious about unintended legal or tax implications.

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Lender Rights of a Property in a Trust

When you place a mortgaged property into a trust, your lender doesn’t lose its rights or security interest in the home. The mortgage agreement remains fully enforceable. Therefore, you must continue making payments as before.

The lender’s lien on the property still takes priority. That means if you default on the loan, your lender retains the right to foreclose, regardless of whether the home is owned by you or the trust. In other words, transferring ownership to a trust doesn’t erase or modify your obligations under the mortgage.

Most mortgage contracts include a due-on-sale clause, allowing a lender to demand full repayment if ownership of the property changes. However, federal law, specifically the Garn-St. Germain Depository Institutions Act of 1982, protects homeowners who transfer their property into a revocable living trust.

As long as the borrower remains a beneficiary and continues living in the home, the lender cannot enforce the due-on-sale clause. This protection allows you to manage your estate without jeopardizing your mortgage.

Even though the law permits these transfers, it’s still important to communicate with your lender. Notifying the lender before moving your property into a trust helps keep the title, insurance and tax records consistent.

Some lenders may require copies of the trust agreement or specific documentation to confirm that the borrower’s rights and responsibilities remain unchanged. Keeping your lender informed helps prevent administrative issues or confusion during future refinancing or property sales.

If you decide to refinance or take out a home equity loan after placing your property in a trust, your lender may require that you temporarily remove the property from the trust. You can then transfer it back into your name in order to process the loan. After closing, you can generally transfer it back into the trust.

Bottom Line

Estate planner and clients discuss how to put a house in a trust with a mortgage.

You can usually place a home with an active mortgage into a revocable living trust without paying off the loan, as long as you remain the borrower, continue living in the home and follow lender requirements. Doing so can help avoid probate, protect privacy and allow a successor trustee to manage the property if you become incapacitated, while the mortgage itself stays fully in force and payments continue as usual. However, the process requires timing, lender notification and legal documentation to avoid issues with due-on-sale clauses, insurance, taxes or future refinancing.

Estate Planning Tips

A financial advisor can review your mortgage terms, coordinate with an estate planning attorney, and help structure the trust so the transfer avoids loan issues, tax complications and gaps in your broader estate plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
While it may be tempting to save some money and plan your estate by yourself, you should still be careful with these DIY estate planning pitfalls.