5 facts you should know about real estate transactions and your estate plan

Real estate transactions happen with increasing frequency these days, and while real estate can be easily transferred or mortgaged, it is important to seek advice from a qualified professional to adequately protect your property and maintain the integrity of your estate plan.

For example, transfers of real estate between family members and into or out of trusts are commonly done for estate and long-term care planning purposes. Further, the low interest-rate environment we are currently experiencing has made refinancing mortgages more attractive than ever. However, any time you undertake a transaction that involves your real estate, keep in mind the impact it may have on your estate plan and related matters. 

Here are five facts to keep in mind when transferring or mortgaging real estate.

1. Homestead Protection can be disturbed by certain real estate transactions. A Declaration of Homestead is a document that is recorded at the Registry of Deeds to protect up to $500,000 of equity in your home from claims of creditors. A transfer of your home to a family member or a trust can disturb the homestead protection. Some attorneys interpret existing law to provide that refinancing a mortgage can terminate homestead protection if there is language in the mortgage document that waives the existing protection. If you have filed a Declaration of Homestead, make sure you seek the advice of your attorney before entering into any real estate transaction to ensure your homestead protection is maintained.

2. Changing property ownership can affect real estate tax exemptions. Some cities and towns in the commonwealth offer property tax exemptions for owner-occupants of property, for owners who meet certain financial criteria, or for veterans and their spouses. If ownership of property is transferred to a trust or to another family member, these exemptions may no longer be available. If you are eligible for a real estate tax exemption from your town, be sure to investigate this carefully before transferring title to your property so that you do not inadvertently lose a valuable benefit.

3. Title insurance policies can be voided by a change in ownership. Many people purchase owner’s title insurance when they purchase real estate. This coverage offers valuable protection against title defects. Because the decision to purchase title insurance is often made in the haste of purchasing property, many people do not remember they have title insurance. Be aware that transferring the ownership of your property to family members or to a trust can terminate your title insurance coverage. Check with your title insurance company on the steps necessary to continue your title insurance protection when you transfer your property to a trust or to a family member. Often an inexpensive rider is all that is required to continue this valuable protection.

4. Transferring property into or out of trusts should be handled with care. You may have established one or more trusts as a part of your estate plan. Real estate may be held in trust for a variety of reasons, including avoidance of probate, estate tax savings, asset protection, etc. In connection with refinancing your mortgage, your banker or real estate attorney may suggest or require that you remove the property from the trust in order to refinance the mortgage. This is not uncommon. However, it is vital that you make your estate planning attorney aware of the transaction so that she can properly advise you about transferring the property back into trust after your financing transaction is complete, and about any other effects such a transfer may have. Failure to do so may adversely affect the estate plan you so carefully created.

5. Transfers of mortgaged property must be done with awareness of the implications. If you have a mortgage on your property, a bank or other lender has agreed to lend money to you on the condition that you agree that your property will serve as security for that loan.  Most mortgages prohibit any transfer of ownership without the bank’s consent; however, federal law permits transfers to certain trusts and family members under certain circumstances without violation of the terms of the mortgage. However, your mortgage, the applicable law, and the circumstances of the particular transaction should always be reviewed and legal advice obtained before undertaking a transfer of mortgaged property to determine if the consent of the bank is required.

No matter how simple a real estate transaction may seem, it is always worth taking the time to obtain good advice and ensure you understand all aspects of the transaction.

Attorney Maria Baler is an estate planning attorney and a partner with the Dedham firm Samuel, Sayward & Baler LLC. She is also a director of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA).  For more information, visit www.ssbllc.com.