Inheriting a Home in a Revocable Trust with a Mortgage: Do You Have to Refinance?

Inheriting a home from a parent is a significant life event, but it often comes with complex questions—especially if the property is in a revocable trust and has an existing mortgage. If you are a beneficiary ready to make the home your primary residence, you might be asking: Can I just keep paying the mortgage? Do I have to refinance?

This guide breaks down exactly how the situation works under Florida law and federal statutes based on expert insights.

1. How the Transfer of Property Works

When a parent passes away and leaves their home in a revocable trust to a child, the process depends on the specific language in the trust document.

The "Outright Distribution"

In many cases, the trust dictates an "outright distribution." This means the home is intended to go directly to the beneficiary immediately upon the parent's death, rather than being held in the trust for a long period.

• Example: A trust might state, "When I pass away, I leave my homestead located at 123 Smith Street to my daughter."

• The Result: The daughter gets the homestead immediately.

The Trustee's Role

Even with an outright distribution, the legal title must be updated. The steps are:

1. The Trustee of the trust must execute a deed.

2. This deed removes the property from the trust.

3. The property is transferred directly into the child's name.

2. Handling the Mortgage: Refinance vs. Assumption

One of the most common worries for beneficiaries is the mortgage. If you are the child inheriting the homestead, do you have to qualify for a new loan?

Do You Have to Refinance?

Not necessarily. While mortgage companies may sometimes try to force a refinance, there are special laws in place to protect heirs.

The Garn-St. Germain Act

Under federal law, specifically the Garn-St. Germain Act, there are prohibitions preventing lenders from forcing a beneficiary to refinance in certain situations.

• Who it protects: Children inheriting the homestead property of their parent.

• What it does: It can prohibit a lender from forcing you to pay off the loan immediately or refinance if you cannot afford to.

• The Outcome: As the child, you may be able to assume the mortgage that your parent had and continue making payments.

Important Note: Even though this law exists, mortgage companies may still attempt to force a refinance. It is crucial to know your rights before agreeing to a new loan.

3. Why You Should Speak to a Lawyer

Navigating the intersection of estate planning and real estate finance can be tricky. Here is why legal assistance is recommended:

• Lender Compliance: Mortgage companies do not always voluntarily offer assumption options; you may need help asserting your rights under the Garn-St. Germain Act.

• Deed Execution: A lawyer can ensure the trustee executes the deed correctly to transfer the property from the trust to your name.

• Financial Safety: Many children cannot refinance for various reasons. Legal counsel can help ensure you don't lose the homestead simply because you were pressured to refinance.

Summary (FAQ)

Q: What happens to a house in a revocable trust when the owner dies? A: If the trust dictates an "outright distribution," the trustee executes a deed to transfer the home out of the trust and directly into the beneficiary's name.

Q: Can a child assume a parent's mortgage after death in Florida? A: Yes. Under the Garn-St. Germain Act, a child inheriting a homestead is often protected from forced refinancing and may be able to assume the existing mortgage.

Q: Do I have to refinance if I inherit a house with a mortgage? A: You should check with an attorney before refinancing. Federal law may allow you to keep the current mortgage, even if the lender initially says otherwise.

Need Help with Estate Planning or Probate in Florida?

If you have questions about how property transfers through a revocable trust, or if you need assistance with an estate planning matter in Florida, don't hesitate to reach out.

Contact atCause Law Office for legal assistance regarding your specific situation.