When managing or planning your estate, you might consider transferring your property into a trust. It’s a strategic move to ensure your assets are handled according to your wishes without the complexities of probate. However, if you have a mortgage on your property, the idea of transferring it to a trust can raise concerns about the due-on-sale clause. This clause allows lenders to demand full repayment of the loan if the property is sold or transferred. Fortunately, for California homeowners, there’s a protective measure in federal law that offers peace of mind: the Garn-St. Germain Act.
Under 12 U.S. Code § 1701j–3, the Garn-St. Germain Act outlines specific transactions that do not trigger the due-on-sale clause. A standout exemption is particularly relevant for homeowners looking to secure their estate planning goals: the transfer of a property into an inter vivos trust, where the borrower remains a beneficiary and without affecting rights of occupancy. This means you can transfer your home into a living trust, ensuring you maintain control and continue living in your home without prompting your lender to accelerate your loan repayment.
The beauty of this exemption is its applicability to a wide range of residential properties. The Garn-St. Germain Act specifies that the loan must be secured by a lien on residential real property containing less than five dwelling units. This broad definition means that whether you’re transferring your primary residence or a second home into a trust, as long as the property has no more than four dwelling units and is residential in nature, it qualifies for the exemption. There’s no requirement for the property to be the borrower’s principal residence, offering significant flexibility for estate planning and asset protection strategies in California.
For homeowners contemplating the transfer of their property into a trust, understanding the due-on-sale clause and its exemptions under the Garn-St. Germain Act is crucial. This knowledge not only empowers you to make informed decisions about your estate planning but also ensures that you can take advantage of the protections offered by federal law. By leveraging this exemption, you safeguard your property and your future, ensuring that your estate planning efforts are both secure and effective.
