Can You Put a Mortgaged House in a Trust? Understanding the Process

So you’re thinking about setting up a trust, and naturally, you’re wondering: What happens to the house? Especially if it’s still under mortgage, things can feel a bit murky. Spoiler alert: yes, you can put a mortgaged house in a trust—and no, the world doesn’t end when you do.

I’ll break it down in real talk. No legal mumbo-jumbo. No vague answers.

 First: What Even Is a Trust?

A trust is kind of like a box. You can put things inside it—like your house, your bank accounts, even your baseball card collection (if it’s that kind of trust)—and control what happens to those things when you die or become incapacitated.

It’s different from a will. With a trust, your family might be able to skip probate court (read: less stress, fewer fees, faster access to what you left behind).

 So… Can You Put a Mortgaged House in a Trust?

Yes, you totally can. In fact, a lot of people do it. Whether it’s a revocable living trust, a family trust, or another setup, your mortgage doesn’t stop you from transferring ownership from yourself to your trust.

But—yeah, there’s always a “but”—you’ve got to be a little careful how you do it.

 A Quick Anecdote (This Happens More Than You Think)

My neighbor Tom—super organized guy, way too into spreadsheets—had everything in a revocable living trust except his house. Why? Because he thought the mortgage made it too complicated.

Fast-forward: he passes unexpectedly. His kids get tied up in probate court for months. All because of that one missing piece.

Trust me: if your goal is to avoid court and keep things smooth for your family, putting your house in the trust is usually worth it—even with a mortgage.

 How It Works: Step-by-Step

Here’s a simple rundown of how to move a mortgaged house into a trust:

1. Talk to Your Lender First

Some mortgage agreements include something called a “due-on-sale” clause. It basically says if ownership changes, the lender can demand full repayment.

BUT—and this is key—federal law (Garn-St. Germain Act) says they can’t enforce that if you’re transferring the property into a revocable trust for estate planning purposes.

👉 Still, always check with your lender or loan servicer. Some banks get twitchy if they don’t know what’s happening.

2. Work With a Trust Attorney

Don’t DIY this unless you really know what you’re doing. A lawyer will draft a deed that transfers your home into the trust—usually a quitclaim or warranty deed, depending on your state.

3. Update Your Homeowner’s Insurance

Make sure your insurance company knows your trust now owns the house. You’ll still be the trustee, so it’s not a dramatic change—but you want your coverage airtight.

4. Keep Paying Your Mortgage Like Normal

Nothing changes on the payment side. Your lender doesn’t care whose name is technically on the title—as long as those monthly payments keep showing up.

 Does It Affect Taxes or Refinancing?

  Property Taxes

Usually, no. Your home stays eligible for the same exemptions, like a homestead exemption, even in a trust—as long as it’s revocable and you’re the trustee.

 Capital Gains / Step-Up in Basis

Good news: in a revocable living trust, your beneficiaries still get that sweet step-up in basis when they inherit, which can help minimize capital gains tax if they sell the house later.

  Refinancing?

Now this can be a bit sticky. Some lenders may make you temporarily move the property out of the trust to refi, then put it back. Annoying? Yes. Deal-breaker? Not really.

 Pros and Cons at a Glance

 Bottom Line: Is It Worth It?

If you care about what happens to your house when you’re gone—or if you just want to spare your loved ones a mess—then yeah, it’s worth it. Having your mortgaged house in a trust makes everything smoother. Think of it as future-proofing your legacy.

You keep living in the house. You keep paying the mortgage. But legally, it’s sitting in a box you’ve prepared for your family. That’s smart planning.

 Related Resources

• Garn-St. Germain Act Overview – Read the legal protections for trust transfers

• Nolo’s Guide to Revocable Living Trusts – A great beginner-friendly read

• What Is a Quitclaim Deed? – Understanding the deed you’ll likely use

FAQ: Putting a Mortgaged House in a Trust

Q: Do I need the lender’s permission?
A: Not for a revocable living trust. But you should notify them to avoid confusion.

Q: Will my mortgage rate change?
A: Nope. The loan stays the same, and so does your rate.

Q: Can I take it out of the trust later?
A: Absolutely. Revocable trusts let you make changes anytime.

Q: What if I rent out the house?
A: You can still rent it—but talk to an estate planner about tax implications and liability.

 Final Thoughts

Putting your mortgaged house in a trust isn’t as complicated as it sounds. It’s one of those “adulting” moves that pays off later—even if it feels a bit overwhelming now.

If you’re on the fence, talk to a local estate planning attorney. And if you already have a trust but your house isn’t in it yet? You might want to revisit that sooner rather than later.

Your future self—and your family—will thank you.