Living Trust and Real Estate Owned with Daughter

Hi Terry, my wife and I are setting up a living trust in order to pass on our estate to our two children and avoid probate. We have an out of state property we purchased with our daughter’s FHA where our daughter and my wife and I are on the deed and we are co-borrowers on the mortgage. Our daughter lives in the property while she’s in medical school and possible afterwards depending on where she does her residency. If she moves we’ll make it a rental property and hold it for long term given it’s in a desirable area of Philadelphia. Our attorney is suggesting we retitle this property under the trust especially since our daughter plans to be a surgeon which carries a high liability. Our concern is if we remove our daughter from the deed and she remains a co-borrower on the mortgage how that will impact her ability to get credit especially given her student loans. What would you suggest? Thanks.

Terry Says:  OK, this is complicated.  First, I don’t quite understand how it is currently titled.  Could you write back and explain that?  If she qualified your purchase for an FHA loan, it is doubtful that her name can be removed from the title unless you completely refinance the loan in just the name of you and your wife.  And to do that, you would have to qualify based on income.  AND, since it is not a primary or vacation residence, you might have to qualify it is a rental property, which would likely carry a higher interest rate on the mortgage.

Now, if it is in YOUR names only, then it would be a good idea to re-title the property into the name of your revocable living trust — for all the same reasons you want to put almost (but not ALL, and certainly not your retirement accounts) into the name of your living trust.  Those properties or assets named in the trust will bypass probate –and also let your co- or successor trustee handle the property if you are incapacitated.

So your attorney has the right idea — but he/she might not be aware of how the property is currently financed, and whether it can indeed be transferred into ownership by a living trust under the current financing arrangements.