Refinancing & How It Can Affect Your Estate Plan

The mortgage business is booming in many parts of the country. Historically low interest rates have created an almost frenzied environment with homeowners scrambling to refinance their home loans at these low interest rates. However, one often overlooked consideration is the impact that refinancing your home could have on your estate plan.

Whether you own your real estate solely in your name or jointly with a spouse or other family member, refinancing your property has little impact on determining who will receive your interest in the property upon your death.

If your name is the only name on the deed to the property, your Last Will and Testament controls who will receive the property at your death. Of course, if a lender still has a lien against the property to secure the loan, the loan will need to be paid off before transferring the home to the new owner as directed in the will.

One of the jobs of the executor is to make sure all debts of the deceased individual are satisfied before the property is transferred.

Owning Property From A Trust

Many individuals create revocable living trusts to avoid probate and protect loved ones. A revocable living trust is designed to own the accounts and property of the individual, including real estate, so that those accounts and property are deemed to be no longer owned by the trust maker and subject to probate.

While the trust maker may no longer be the owner of the accounts and property, the trust maker retains the ability to manage and control the accounts and property as trustee of the trust, and the ability to benefit from those accounts and property as the beneficiary of the trust.

Issues With Titling Between Spouses

Problems can also arise during the refinancing process if a property is owned by only one spouse. If the title company does not communicate with the lender and the owner and assumes the property should be retitled in the name of both spouses, creating a joint tenancy with rights of survivorship between the spouses, the original owner’s intent for the property would be undone.

If such a mistake were made and were to go unnoticed, the property would be owned 100 percent by the surviving spouse at the original owner’s death, regardless of any estate planning documents stating differently. Instead of just taking advantage of better interest rates, the refinance would disinherit the owner’s children.

This is not what the property owner would have wanted. But without careful supervision of the refinancing process, mistakes like this can be made, creating enormous headaches for families and leading to years of litigation.

Interested in Working With Us?

If you need any help regarding your business or other legal matters please reach out to us directly here and schedule a call with one of our paralegals on our scheduling page here.