Can I Mortgage Land in an Irrevocable Trust?

A trust is a common estate planning tool used to distribute assets to children or other beneficiaries without lengthy and costly probate proceedings and to reduce or eliminate taxes. There are two types of trust, revocable or irrevocable. A revocable or living trust can be changed by its creator or grantor at any time and in any way during his or her lifetime. An irrevocable trust is just that — the grantor no longer owns the assets. Trusts are created under state laws, which vary, so check your state law before you create a trust.

Trust Owns the Land

Once land or other property is put into a trust, the trust owns it. That means you as the trust grantor cannot get a mortgage in your name or make other changes. The trustee, who is named by the grantor, can make changes in some cases, but generally only to benefit the beneficiaries of the trust and not the grantor.

Trust Might Get Mortgage

Some mortgage lenders will grant a loan on land or property owned by an irrevocable trust, but most will not. If you want to mortgage trust-owned land, you'll have to have the trustee approach lenders on behalf of the trust and any mortgage would be in the name of the trust, not the grantor. Any money from the mortgage would go to the trust, not to you. A court also can sometimes order such changes, but this is rare.

Exclude Land

Exclude land that you think you might want to mortgage in the future from the irrevocable trust or get a mortgage before you place the land in the trust. In most irrevocable trusts, you can add land or assets. You may have to list it as a gift and do some paperwork to have the land declared a gift to the trust, but most state laws allow some additions.

Use Two Trusts

Create two trusts as an option. Put assets that won't change into an irrevocable trust and create a revocable or living trust for land or other property that you think you might want to sell or mortgage. You can change a revocable trust to an irrevocable trust at any time by creating a new trust and transferring assets and you can have more than one irrevocable trust.

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About the Author

Bob Haring has been a news writer and editor for more than 50 years, mostly with the Associated Press and then as executive editor of the Tulsa, Okla. "World." Since retiring he has written freelance stories and a weekly computer security column. Haring holds a Bachelor of Journalism from the University of Missouri.