Possible, but It Takes More Review
It may be possible to obtain a mortgage or refinance a house already held in an irrevocable trust in Massachusetts, but it requires more review than a standard loan on a house you own individually. The trust must permit the transaction, the lender must accept the ownership arrangement, and the financing must be consistent with the purpose of the trust. A loan officer saying the bank “works with trusts” is the beginning of that conversation, because not every trust or loan program works the same way.
If the Mortgage Came First, That Is a Different Question
If you already have a mortgage and want to put the house into a Medicaid trust, that is a different situation. You do not necessarily have to pay off or refinance the loan first. With proper drafting, including retained life estate rights and a continuing beneficial interest that satisfy the federal requirements, we can structure the transfer to prevent enforcement of the due-on-sale clause solely because of that transfer. Our separate FAQ, can I put my house in an irrevocable trust if I still have a mortgage, explains that situation. Here, we are discussing new financing after the trust owns the property.
Start With the Trust Document
We would start with the trust document. Massachusetts law includes borrowing money and mortgaging trust property among a trustee’s statutory powers, but those powers operate within the trust’s terms and the trustee’s duties. The review should establish who can sign, whether additional consent is required, and whether the proposed transaction serves the trust’s purposes. A general borrowing provision does not override a restriction elsewhere in the document.
What the Lender Will Actually Approve
The next question is what the lender will approve. Some residential mortgage programs accommodate certain trust arrangements but do not accept irrevocable trusts. Fannie Mae’s standard trust eligibility provisions, for example, address qualifying revocable trusts. A lender using another program may have different requirements. Having legal authority to mortgage the house therefore does not guarantee access to the particular loan you want, even when you have strong credit and plenty of equity.
Who Owes the Debt Is Not Always Who Owns the House
There is also a difference between who owes the debt and who owns the property securing it. The borrower, the trustee signing the mortgage, and the person living in the house may not all be the same person. The lender needs to evaluate that arrangement, and the family needs to understand who will be responsible for repayment. The trust’s ownership does not prevent the lender from enforcing a valid mortgage if the loan goes unpaid.
The Purpose of the Financing Matters
Replacing an existing mortgage to obtain different terms is one situation. Borrowing for repairs to trust property is another. Taking cash out for the person who created the trust raises additional questions, particularly when the document restricts that person’s access to principal. Calling the money “loan proceeds” does not establish that the trustee can distribute it however the family would like.
With a MassHealth Trust, Get It Reviewed First
That distinction is especially important with a trust created for MassHealth planning. Access to assets and transfers can affect eligibility under the MassHealth trust rules and the transfer-of-resources rules. A lender’s suggestion to take the house out of the trust, close the loan, and put it back afterward needs legal review before anyone signs. Whether that approach is permissible and what it does to the existing planning depend on the facts. “We’ll put it right back” does not answer those questions.
Reverse Mortgages Are Not Automatically Out
A reverse mortgage is not automatically unavailable because the trust is irrevocable. HUD’s Home Equity Conversion Mortgage program permits certain qualifying trust arrangements, revocable or irrevocable, subject to detailed requirements. The trust, borrower, occupancy, and proposed use of proceeds all need review, along with the usual program requirements. A trust being acceptable to the lender does not necessarily mean the financing is consistent with its Medicaid planning purpose.
Bring the Lender and the Attorney In Early
We would involve the lender and estate planning attorney before everyone becomes committed to closing. Provide the trust early and explain what you want the financing to accomplish. That gives us time to review the proposed loan, any requested changes, and the effect on your planning. The goal is to obtain workable financing while preserving the reasons you placed the house in the trust.
Start with a free 15-minute consult call with Nicole Ott, our Lead Intake Coordinator. Tell her what the trust says and what the loan is for. That is usually enough for us to say whether the financing and the planning can live together.
