Dangers of the Due on Transfer Clause (Part 2)
Last week I was telling you about George’s problem. He had transferred his home to a trust to protect it but then received a letter from the bank referring to something called the due on transfer clause.
A transfer of title without permission could trigger the bank’s entitlement to be paid back the entire loan balance immediately. Some transfers are problematic and others are not. For example, a transfer to a revocable living trust may not trigger the clause. A transfer to an irrevocable trust probably would.
Does that mean then, that a revocable trust is the answer. Not if asset protection for long term care purposes is the goal because assets in a revocable trust are countable for Medicaid eligibility purposes. They would have to be spent down first, before Medicaid eligibility is reached.
So, what should George have done? And why would it have been OK for Jamie to transfer her mother’s home to a trust (see my post from 5/11/15), but not for George to do the same? That’s because there was no mortgage on Jamie’s mom’s home. When there is no mortgage or the balance is manageable, then transferring the home won’t pose a problem as long as the owner has the funds to pay off the mortgage in full if required by the bank. If the mortgage balance is small enough, the bank probably won’t bother.
Had George come to me before the home transfer occurred, I would have wanted to know a few things before advising him. What other assets does he have? If he had to pay off the mortgage balance now could he? Does he have sufficient liquid assets to do so? Is he planning to sell his home? If so, then he’ll pay off the mortgage soon anyway.
Each situation is different. A one size fits all solution doesn’t exist. I explained this all to George. He has a decision to make. Pay off the $100,000 balance now or transfer the home back to his name and I’d need to review his trust agreement to see if that was even possible.
As you can see, long term care planning is complicated. There are many factors to consider and it’s always best to have a knowledgeable guide – an elder law attorney – help you along the way.