These roles can expose trust assets to creditor rights related to property ownership, including those who could place mechanics liens and tax liens on trust property. In the absence of clear documentation at the time of loan and in the servicing of a loan, trust ownership of a home can also expose the trust to divorce proceedings.
Spendthrift clauses are clauses in a trust that prevent beneficiaries from using trust assets as collateral. Lenders are often reluctant to make loans to trusts that contain spendthrift clauses to protect assets from collection actions.
Financial lenders to a trust will often ask a trustee-home purchaser to sign documents containing waiver language that a trustee cannot agree to sign in the absence of special permission. If the home is purchased by the trust, it is usually wise for the trustee to have rights to form a limited liability company (LLC) and to purchase the property within the LLC.
Always look to the property that is desired and the goals to be achieved. Then review the options and terms of family trust instruments that may apply. A host of options and terms will be available. When all facts and circumstances are thought through, a clearly preferable strategy will usually emerge.
Transferring family real estate properties and family compounds to future generations is a different topic from empowering second and third generation purchases of new homes.
Whether family real property transfers to one or two family members to the exclusion of others, or transfers to a trust or LLC for management and asset protection purposes typically involves cash and a structure for decision making around property maintenance, family use, family strategy, and family finances to support the property or properties.
Depending on the number of persons involved, committees of family members sometimes come together to tackle these tasks and engage multiple generations. Sales to the family entity, as opposed to use of a qualified personal residence trust (QPRT), involve risk-reward analysis. A long term vision for family ownership of the property helps align all family members with a common point of reference.
Related News Article
Using a Trust Fund to Buy a House
By Anya Martin, MarketWatch — As interest rates rise, more children of high-net-worth families are likely to tap into their trust funds to buy a home. Borrowing from a trust can be an alternative to taking a jumbo mortgage, defined as above $417,000 in most markets and $625,500 in some high-price areas…
Read more: Using a Trust Fund to Buy a House (opens in new window)