How do we transfer real property to a trust?

Full Question:

Husband & I have had separate trusts created. We are co-trustees of each other's trust.What is the exact proper language to re title our home into the trust?Also, what is the exact language to re title one rental property property into just one of our trusts? Also, do we get permission from the banks that have the mortgages first? Can you give any other pertinent advice re where to take these re titling requests?
10/20/2011   |   Category: Trusts   |   State: Illinois   |   #25525

Answer:

As you know the trust must be funded in order for the trust to own any particular assets, including real property. Property is funded to a trust through a deed which is must be properly executed and recorded. This would be true for all property that is intended to be part of the living trust.

While we cannot advise you on the exact language that you would have to use to make that transfer to the trust, we can offer you information about the deeds.

Typically, transfers of real property to a trust are accomplished with a quitclaim deed. While each County has specific formatting requirements for the recording of documents such as quit claim deeds there are main elements that are common to all real estate deeds.

•Title. The title of a legal document tells the world what type of document it is. In this case the title is "Quit Claim Deed"

•Executed Date. This is the date that the legal document was completed, signed, and executed.

•Grantor. This is the person or persons that is transferring their rights to the real estate to someone else. For the purpose of a quit claim deed the term "person" can refer to a natural person, an LLC, a Partnership, a Corporation, a Trust or Trustee, or any other entity that can legally own real estate.

•Grantee. This is the person that is receiving the rights to the real estate that are being transferred. Again here, the term "person" refers to any entity that can legally own real estate.

•Habendum. This is the meat of the deed, the legal speak which actually transfers the rights to the property. Generally it is a phrase similar to: "...does hereby remise, release and quitclaim unto the said Grantee forever, all the right, title, interest and claim which the said Grantor has in and to the following described parcel of land, and improvements and appurtenances thereto..."

•Consideration. This is what the Grantee gives to the Grantor in return for the rights to the property. While in some cases a deed may be enforceable without consideration it certainly muddies the water. It's a good idea to check with a tax accountant before transferring real estate with a "no consideration" or "gift" deed as there may be tax issues.

•Legal Description. Here is where the description of the property being transferred is listed. The format of the legal description varies from state to state. The types of legal descriptions are: metes and bounds, rectangular survey, and lot and block. The "lot and block" legal description is the most common however it depends on your state. A typical lot and block description looks like: "QCD SUBDIVISION, 2ND AMD, LOT 112 BLOCK 3".

•Signatures. Most states require only the Grantor to sign the deed and for it to be delivered to the Grantee for it to be valid. Grantor's signatures usually must be notarized and in some rare cases separate witnesses must also witness the Grantor signing.

•Prepared By. This section lets the world know who prepared the quitclaim deed. Generally this is the Grantor or an attorney.

The impact of this transfer on any outstanding mortgages depends on the agreement made with the lender. It would be recommended that you examine the loan documents closely.

Many standard loan documents state that a transfer could violate a due-on-sale clause in the mortgage which the lender may or may not seek to enforce. This clause acts as an acceleration clause in a loan, calling for payment of the entire principal balance in full, triggered by the transfer or sale of a property. Such a clause permits a secured mortgage lender (federal, state or private) to call the entire unpaid loan balance due and payable immediately if the property securing the loan is sold, transferred, traded, gifted or otherwise disposed of without the lender’s prior written consent.