The Listen to Lawrence Letter: Can I take a home equity loan out on a home in a trust?

December 7, 2021
Dear Clients and Friends,
Sometimes clients put a home in an irrevocable Medicaid trust, but later want to get some equity out of the house, like the following client:
Dear Lawrence Davidow,
I enjoy your responses to questions and I have one question for you. You set up a trust for me some years ago and at that time, I put our house in this trust. I was looking to take out a home equity loan and the bank refused to consider it since the house is in the trust. Is there any way to take out this loan so that the bank approves it? Thank you for considering my question.
I ask all my clients if they think they will ever need to pull equity out of their home. If the answer is yes, I tell them to get their home equity loan first, and then we will transfer the house to the trust. But what can we do in an emergency? This is always a problem because banks simply do not want to give a trust a home equity loan. I have seen these trusts successfully obtain a new 30-year mortgage or a reverse mortgage though, so these strategies should also be considered. I would rather you just give up on the loan, but if no matter what, you need to get a home equity loan, then there are ways we can discuss to get the house back in your name, but these will all require consent of all the trust beneficiaries. This needs to be discussed on a case-by-case basis.
I hope this helps! Please forward this information to your friends and relatives to share these informative answers to some very commonly asked questions.
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As always, please send me your questions. If you are thinking about it, others are probably too, so my answers will no doubt help you and many others.
Let’s stay connected.
Stay safe!
Until next time…
peace, health and happiness,
Lawrence Eric Davidow