Our daughter is purchasing a home jointly with us in a 60/40 split of ownership. Daughter needs a mortgage (her name only on mortgage) to finance her share and ours is all cash. All of our (wife and myself) major assets are in a revocable trust and we want our share of the house to be in the trust. Lenders are requiring our share to be listed outside of the trust and showing our share of the cash component of the purchase to be shown as a gift to our daughter to get the loan, saying put our share in the trust after 1 year. Is this legal and will it affect the trust?
1 Answer from Attorneys
Unfortunately, you are learning that lenders often do not understand living trusts as estate planning vehicles and suspect their customers are trying to put something past them. There is nothing to keep you from closing the mortgage loan in your personal names as co-owners with your daughter, then deeding your share to your trust. Be careful that the title company knows you wish to hold the title (vesting) as "tenants in common," and give a specific percentage of sharing (such as the 60/40) between you and your daughter, so your respective portion can then be readily conveyed to your trust.
The requirement that you designate your cash contribution as a gift to your daughter is more puzzling,though. I do not understand why they insist that co-owners declare a gift to another co-owner who wishes to finance her portion of the purchase. That is not logical, unless they have some info leading them to believe you are trying - again - to slip something past them. For example, if they think the house is REALLY to be your daughter's and you are just going on the deed to enable her to buy with nothing down, then plan to have your names removed so it is her house using your cash, they will balk. I suspect there is more to the story on this point.