Here is an estate planning note that will help those who are using living trusts — consider using a transfer on death deed.
Kudos to the Virginia General Assembly for recently enacting legislation allowing for the “transfer on death” deed. This legislation helps get rid of a pesky unintended consequence related to the ever-popular living trust. One reason that some people prefer a living trust over a traditional will is to maintain privacy by “avoiding probate.” Before the availability of the transfer on death deed, a person would deed his house and other real estate to his living trust. The trustee of the trust became the technical owner of the property. Even if (as in many cases) the homeowner was also the trustee, legally he was viewed as a new owner. As a result, a mortgage or credit line with a “due-on-sale” clause would immediately come due. The bank, at its option, could insist on payment in full. Even without a mortgage, the homeowner would need to notify the homeowner’s insurance company of the change and might later find that companies offering “no-fee” equity lines would refuse to deal with property owned by a trust. With a transfer on death deed, you can now keep your house in your name, and only when you pass will it go into your trust. You still avoid probate, but don’t have to worry about your mortgage coming due prematurely or any other possible consequence to a change of title. As an added bonus, no recordation tax is assessed on a transfer on death deed.