Trust: revocable vs irrecoverable

6 Replies

Originally posted by @Blake Johnson :
Which is better for real estate, revocable or irrevocable trust? I’m an investor in single family homes.

 There are a lot of considerations going into that; I'll stick to what I'm professionally qualified to comment on.

One of those two options, a revocable living trust, can get a normal agency-subsidized Fannie loan, assuming you are interested in leverage and otherwise can get Fannie loans. Here is Fannie's living trust checklist. Many lenders will have overlays that are more restrictive than that checklist, others will not. 

Except as expressly provided elsewhere in the Selling Guide, Fannie Mae only accepts individuals as credit-qualifying borrowers. In addition, Fannie Mae normally deems property in which no borrower has an ownership interest as ineligible collateral. However, to accommodate the use of inter vivos trusts as an estate planning tool, Fannie Mae provides an exception for property held by inter vivos revocable trusts created by credit-qualifying borrowers.

This applies to purchases or refinances. So, unlike folks using other entities to hold title, you can buy, refinance, etc, without needing to shuffle title back and forth in between closings (which has costs of its own) if title is held in a revocable living trust. On our end internally, the way we are set up (other companies will differ) it's a 2 business day wait for a lawyer to review the trust paperwork, review Fannie's checklist, and make sure it all lines up (bonus tip: if Fannie loans are of interest to you, it wouldn't be crazy to give that checklist to the lawyer helping you set it up -- that way if there's a conflict between what you want and what Fannie wants it's identified early & not a "surprise" later on). Typically that internal lawyer review happens when we're otherwise waiting on the appraisal to come back anyways, so no delay is apparent to the borrower.

@Blake Johnson

Not sure what your goals are. Ananymity, asset protection, use of leverage as @Chris Mason suggests, estate planning, transference, taxation, etc are reasons people use trusts-living trusts, land trusts, personal property trusts, etc are some trusts people use in real estate.

Your question is simple however the answer is not. I have not found the entity that is best for everything so as time goes on and your lifestyle changes so will your entities including trusts. Identify your goals and then decide what trust is best. 

What are your goals? Are you trying to reduce your estate? Do you have asset protection concerns? Do you demand control of your assets?

These are some of the questions you need to ask yourself before speaking with your CPA and Attorney. When it comes to funding and creating a Trust, you need to make sure you have a CPA with Trusts/estates experience as well as an Estate Planning Attorney who can write the document.

A revocable living trust is the most common form of Trust as this provides control of your assets, while ensuring assets will avoid probate when you die, and as such, streamlining the process of your assets passing to your heirs.

My goals are asset protection. My homes are held within an LLC now. My name and my wife’s name are officers of the llc. I would like to change that where my trust is the officer of the LLC.

Originally posted by @Blake Johnson :

My goals are asset protection. My homes are held within an LLC now. My name and my wife's name are officers of the llc. I would like to change that where my trust is the officer of the LLC.

From an asset protection standpoint, an irrevocable trust would be better. However, if you already have an LLC the extra protection you might get may not be worth the negatives. When you put assets into an irrevocable trust, they belong to the trust (not to you).

I would talk to an attorney in your state that focuses on asset protection.  You don't want to create problems for yourself by creating extra complexity with only negligible additional benefit.

If it’s a living trust, over 90% of the time; it would be revocable. Irrevocable trusts can be used for asset protection and tax savings but they may not be your estate trust.