Will the bank require the mortgage to be paid off immediately?

Most mortgages contain a due-on-sale clause, which allows the lender to demand full repayment if the property is transferred to a new owner. That can sound alarming for families dealing with probate or estate planning.

Fortunately, federal law provides important protections.

The Garn–St. Germain Depository Institutions Act of 1982 (12 U.S.C. §1701j-3) limits when lenders can enforce due-on-sale clauses. In many common estate planning situations, the lender cannot accelerate the mortgage simply because ownership changed.

Understanding how this law works is important for homeowners, heirs, and anyone creating an estate plan.

What Is a Due-on-Sale Clause?

A due-on-sale clause is a provision found in most mortgage agreements that allows the lender to demand full repayment of the loan if the property is transferred without the lender’s consent.

In practical terms, this means that if ownership of the property changes, the lender could require the borrower or new owner to immediately pay the remaining mortgage balance.

Lenders include these clauses to protect themselves from:

• transfers to borrowers with unknown credit risk
• unauthorized sales of mortgaged property
• older low-interest loans remaining in place after a sale

However, federal law places important limits on when lenders may enforce these clauses.

What Is the Garn–St. Germain Act?

The Garn–St. Germain Act is a federal law that regulates the enforcement of due-on-sale clauses in residential mortgages.

The statute applies to residential real property containing fewer than five dwelling units, including:

• single-family homes
• duplexes
• triplexes
• fourplexes

The law identifies specific transfers where a lender cannot enforce the due-on-sale clause solely because ownership changed.

Many of these protections apply directly to estate planning and inheritance.

When a Mortgage Cannot Be Called Due After a Transfer

The Garn–St. Germain Act lists several situations where lenders may not accelerate the mortgage after a transfer.

Inheriting Property After the Death of the Borrower

One of the most important provisions appears in 12 U.S.C. §1701j-3(d)(5).

The statute prevents lenders from enforcing the due-on-sale clause when there is:

“a transfer to a relative resulting from the death of a borrower.”

In other words, when a homeowner dies and the property transfers to a family member, the lender generally cannot demand full repayment of the mortgage simply because the title transferred.

In many cases, heirs can continue making payments under the original loan terms.

This rule commonly applies when property transfers through:

• probate
• a will
• intestate inheritance

Transfers Between Spouses

Federal law also protects transfers involving spouses.

The due-on-sale clause generally cannot be enforced when property transfers:

• to a surviving spouse after death
• between spouses during marriage
• as part of a divorce property settlement

These protections allow families to reorganize property ownership without triggering mortgage acceleration.

Transfers to a Living Trust

Many homeowners place their home into a revocable living trust as part of an estate plan.

The Garn–St. Germain Act protects this type of transfer if:

• the borrower remains a beneficiary of the trust, and
• the transfer does not change the borrower’s right to occupy the property.

This rule allows homeowners to use living trusts to avoid probate without automatically triggering the due-on-sale clause.

Transfers Between Joint Owners

When property is owned jointly, such as:

• joint tenants with right of survivorship, or
• tenants by the entirety (married couples)

the surviving owner automatically receives the deceased owner’s interest.

These survivorship transfers are also protected from enforcement of the due-on-sale clause.

How the Garn–St. Germain Act Relates to Lady Bird Deeds

In Florida estate planning, many homeowners use a lady bird deed, also known as an enhanced life estate deed, to transfer property at death without probate.

With a lady bird deed:

• the homeowner keeps complete control of the property during life
• the homeowner can sell, mortgage, or revoke the deed at any time
• the property automatically transfers to the named beneficiaries when the owner dies

Because the transfer occurs as a result of the owner’s death, it often fits within the same category of transfers that occur after a borrower dies.

If the property passes to a relative after death, the transfer may fall within the Garn–St. Germain protection for transfers to relatives resulting from the death of a borrower.

This means that, in many situations, the lender cannot enforce the due-on-sale clause solely because the property passed to the beneficiary after the homeowner’s death.

However, each situation can be different, and the details of the transfer and the relationship between the parties may matter.

Important Limits of Garn–St. Germain Protection

Although the Garn–St. Germain Act provides significant protections, there are important limits.

The property must be residential

The law applies only to residential property containing fewer than five dwelling units.

Commercial property, vacant land, and larger apartment buildings are not covered.

Some transfers are not protected

The lender may still enforce a due-on-sale clause if the property is transferred to:

• an unrelated third party
• an LLC or corporation
• an investor outside the protections of the statute

For this reason, property transfers involving a mortgage should be structured carefully.

Why This Law Matters for Estate Planning

The Garn–St. Germain Act plays a major role in modern estate planning.

Without this law, heirs could face the risk of immediate mortgage acceleration simply because ownership changed after a death.

Instead, federal law allows many family transfers to occur without triggering the due-on-sale clause, allowing heirs to continue making mortgage payments under the existing loan.

This protection is especially important when planning for:

• inheritance of a home with a mortgage
• lady bird deeds and other probate-avoidance strategies
• transfers between spouses
• revocable living trusts
• probate administration

Understanding these rules helps families avoid unnecessary refinancing or forced sales after a death.

Frequently Asked Questions

Do heirs have to refinance a mortgage after inheriting a house?

Not necessarily. If a relative inherits the property, federal law generally prevents the lender from enforcing the due-on-sale clause solely because of the inheritance.

Can a bank foreclose after a borrower dies?

A lender may still foreclose if mortgage payments stop. However, the loan cannot typically be accelerated solely because the property transferred to a relative after death.

Does the Garn–St. Germain Act apply to rental property?

Yes, as long as the property is residential real estate with fewer than five units.

Does a lady bird deed trigger the due-on-sale clause?

In many cases, no. Because the transfer occurs at death, it may fall within the Garn–St. Germain protections that apply to certain inheritance transfers. However, the specific facts of each situation matter.

The Bottom Line

The Garn–St. Germain Act protects many common estate planning transfers from triggering a mortgage’s due-on-sale clause.

When property transfers to family members, spouses, or certain trusts, lenders generally cannot demand full repayment of the mortgage solely because ownership changed.

Understanding how this law works can help families plan ahead and avoid complications when property with a mortgage passes to the next generation.

The post The Garn–St. Germain Act: What Happens to a Mortgage When Property Is Transferred? appeared first on LD Legal, LLC.

Luckily, you have options. The one tool that we often recommend as part of an otherwise simple estate plan is commonly known as a “Ladybird Deed” though its formally referred to as an “Enhanced Life Estate Deed”. Enhanced because a normal Life Estate Deed does not include the special features of the Enhanced version.

A standard Life Estate Deed grants property to someone, for the remainder of their life and then upon that person’s death, passes the property to another person (the remainder beneficiary).

An Enhanced Life Estate Deed allows the grantor (the giver) to grant the property to someone but allows the grantor to retain use and enjoyment of the property until the pass away. Further, the grantor retains the ability to encumber the property or essentially revoke the transfer in its entirety.

Example:

Mary executes a Ladybird Deed (Enhanced Life Estate Deed) to her son, James.

Mary retains the right to:

• Take a mortgage on the property
• Sell the property
• Gift/grant the property to someone else entirely

However, if she still owns the property at her death, James becomes the automatic owner of the property. No probate, no fuss.

Ladybird Deed Tax Advantage

What’s more, James receives a “stepped up” tax basis in the property as if he had inherited the property via the probate process. This is a far better tool than a “Quit claim” or standard “Warranty Deed”, neither of which include the stepped up tax basis. Quickly, if Mary had simply quit claimed the property to James, and he subsequently sells the property, he might have capital gains taxes calculated using Mary’s original purchase price. With a stepped up tax basis via Ladybird deed (or inheritance), James’ basis in the property is the date of death value leaving virtually no capital gains tax if he sells the property shortly after Mary’s death.

Overall, the use of a Ladybird deed has clear advantages in an otherwise simple estate plan. Though a Last Will and Testament is still strongly recommend for virtually any adult, the Ladybird deed can eliminate concerns about the passing of real estate.

The post Ladybird Deeds: Transfer Your Real Estate Easily appeared first on LD Legal, LLC.

Many people believe a safe deposit box is the best place to store a last will and testament. After all, a will is supposed to be kept safe. And what could be more secure than storing a will in a safe deposit box? Indeed, there are good reasons to think that a will should not put into a safe at home. However, sometimes putting a will in a safe deposit box leads to disaster. So, let’s take a look at why safe deposit boxes can be dangerous and how you can avoid those problems in advance.

What They Don’t Know CAN Hurt Them

Perhaps the biggest problem that can result from putting your will in a safe deposit box is no one knowing that the will is in the box! If none of your loved ones know where to find your will, then your will may not be found at all. Alternatively, your will could be found after the administration of your estate has already been completed according to the rules of intestate succession. In both of these situations, your will ends up being ignored because no one knew how to find it.

Safe deposit boxes are meant to be secure, and for that reason people are sometimes hesitant to tell anyone else about a box. However, a better practice is to at least inform your personal representative of the box and where it is located. That way you can know your will won’t be forgotten or lost. You should also give your personal representative a key to the box and a copy of your will, as this will allow the personal representative to access the box in the event of your death.

Chicken and Egg Problem

What happens if no one has the legal authority to open your safe deposit box after you die? At first, this seems like an absurd scenario. After all, the personal representative is supposed to have the authority to access your possessions. But if your will is in the safe deposit box, how will a court know who you designated as your personal representative? This can lead to a chicken and egg problem: the will is needed to see who was designated as personal representative but the personal representative is needed to gain access to the will.

To avoid this problem, Florida allows its probate courts to issue an order for the opening of the safe deposit box so that the will can be accessed. Or if there is no court order, the box can be opened by the decedent’s spouse, parent, adult descendant, or the person named as personal representative in a copy of the will. This eliminates the chicken and egg problem for most people, as most people will leave behind at least one person who can either access the box or petition the court for an order.

However, this problem can still arise if the bank manager is unaware of the law. Some managers may want to play it safe and not allow access to the box without a court order. Or even if a court order has been granted, a bank manager might be confused and still refuse access. Although these problems can be overcome eventually, they would cause delay and complicate your estate administration before the will is even found.

Bottom Line

In Florida, it is perfectly fine to put your will in a safe deposit box. But if you choose to do so, you should take the following precautions:

• Tell your personal representative where to find your will.
• Give your personal representative a copy of the key to your safe deposit box.
• Have your bank give your personal representative legal authority to access the box now, so that there is no dispute after you die.
• Give your personal representative a copy of your will.

If you take these steps, you can store your will in a safe deposit box without fear. And the loved ones you leave behind will be in a better position to carry out your wishes.

The post Should I Keep My Will in My Safe Deposit Box? appeared first on LD Legal, LLC.

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Though rare, we’ve seen a few self-prepared Wills in the last year that had critical problems aside from the occasional execution defects. Here’s a very simple but critical mistake that you should be careful to look out for if you choose to draft your own.

“The personal representative shall sell my homestead residence and divide the proceeds amongst my children.”

It seems innocuous enough but this sentence can have serious repercussions in how your estate is administered in probate court.

(Reminder: Having a Last Will and Testament does NOT avoid probate.)

Any directive, mandate or instruction that the personal representative shall sell your homestead residence removes homestead protections and exposes the home to claims of unsecured creditors!

Example:

• Mom’s Last Will instructs the personal representative (PR) to sell her home and split the proceeds amongst her children.
• Mom dies with a $200,000 homestead residence which has no mortgage.
• She also has $25,000 in credit card debt from Discover.
• Upon probate administration, the PR must sell the home and Discover’s claim against the estate must be satisfied from the proceeds of the sale.

REMOVE THE SALES DIRECTIVE/MANDATE

In the above example, if Mom’s Will simply said “I leave my homestead to my children” or even more plainly, “I leave all the rest, residue and remainder of my estate (whatever I own) to my children”, the homestead would pass on to her children and they could later turn around and sell the property and retain all profits. Discover could not seek payment from the sale of the homestead.

CHECK YOUR WILL!

Already have a Will? Take a peek at it. We’ve also seen attorney-prepared Wills with this language so it’s not just a problem for self-prepared Wills.

The post Last Will Drafting Tip: Why You Should NOT Require Your Homestead to Be Sold appeared first on LD Legal, LLC.

Over the last month, I’ve seen an appreciable uptick in estate planning clients during this uncertainty and concern caused by the COVID-19 pandemic. While I welcome all clients to explore their estate planning needs, I’ve decided to extend priority service to healthcare and emergency service personnel. From now until July 31st, 2020, we’re offering *no-fee estate planning consultations and courtesy discounts on estate planning instruments such as:

• Last Will – Determining your heirs; Naming Guardians for your children
• Living Will – Your wishes regarding life prolonging procedures
• Health Care Surrogate Designation – who makes health care decisions for you
• Durable Power of Attorney – allowing someone to make your financial decisions
• Living/Revocable Trust – more sophisticated planning for unique family needs, diverse assets, avoiding probate

We are currently offering consultations by phone or via video conferencing (Skype, Zoom, etc.)

If you or someone you know has been putting this conversation aside, I encourage you to schedule a consultation soon.

Contact us and we can have a quick chat about the process.

Or if you’re ready to dive in, click on a link below and you can submit an intake form online and we’ll reach out:

Single Person Intake Form
Married Persons Intake Form

(these forms ask for ballpark financial data to help us frame the planning consultation – you’re welcome to fill out only what you feel comfortable for now and we can discuss more details during your consultation; additionally we ask about who you might name as fiduciaries to serve as your personal representative/executor and your power of attorney agents or health care surrogates should you decide to prepare those instruments as well)

The post Estate Planning for Healthcare Workers & Emergency Personnel (During COVID19) appeared first on LD Legal, LLC.

This is a very common hypothetical for clients seeking assistance for long term care or “unexpected” overstays at long term care facilities such as nursing homes and rehabilitation centers:

My mother is in a rehab center after breaking her hip. Turns out she’ll have to stay longer but it’s going to cost her $10,000 a month minimum. Medicare won’t cover the cost anymore. She’s afraid it will deplete her life savings and that she’ll need to sell her house. Do we have any options?

The answer is maybe and leaning towards probably.

Long term care is very expensive but you don’t have to be dirt poor to get help.

DO NOT SELL MOM’S HOME WITHOUT FIRST TALKING TO AN ELDER LAW ATTORNEY

First – DO NOT RUSH TO SELL THE HOUSE. In nearly all cases, the home can be kept and protected. There are a number of strategies that your mother can employ to leverage her ability to qualify for certain benefits and reduce, perhaps significantly, how much she might have to pay out of pocket. But it’s critical that she act as soon as possible.

Find an Elder Law Attorney (asap)

Elder law attorneys can help you preserve your savings, your assets… your legacy through the use of very precise, deliberate planning all within the parameters set forth by the various available public assistance options such as Medicaid. You don’t have to be dirt poor to explore these options and these eligibility techniques are widely accepted by benefit agencies.

Even if Spouse is Wealthy…

There are also options available where one spouse is considerably more wealthy than the other spouse – no matter which spouse is looking for aid – or where there are willing and able family members who will step forward and take over the reins as caregiver (not to be confused with actual in home nursing).

Return on Investment

This is not inexpensive planning, but the overall savings and preservation of mom’s significant assets far outweigh the expense of the advice and work required.

The post Mom’s in rehab at a nursing home. We just got a bill for $10,000! Options? appeared first on LD Legal, LLC.

Living Trusts, also known as “Revocable Trusts” are estate planning tools that can be incredibly useful but are often misunderstood. If you don’t understand why you have a trust, that’s a problem. Consider talking to the attorney who drafted it or the LegalZoom representative who sold you one (just kidding).

First, it should be clear that there are many, many variations a trust and not every trust is created equally. I won’t explain all of the varieties of trusts that exist – rather, I’ll discuss the most standard type of trust that is created.

What is a Living Trust?

A Living Trust is very plainly, a written legal instrument which directs how assets placed into the trust will be managed both during your life and after you pass. Sounds a lot like a Last Will and Testament huh? Well, in some respects, a Trust is very similar to a Will. Both instruments explain what to do with assets after you pass but only a Trust can serve you while you are alive.

Why is it called a “Living” Trust?

The most common type of trust is called a “Living” Trust (and sometimes, an “intervivos trust” because it is created while you are alive. In contrast, it is very common in a Last Will and Testament to include provisions for a “Testamentary” Trust, that is, a trust that is created by the Will after you die. More importantly, the Testamentary Trust can not be engaged before you die while a Living Trust can be utilized to your advantage while you are still alive.

Isn’t a Last Will and Testament Enough?

A Will is enough if you:

• don’t care about your estate going through probate
• aren’t concerned about your beneficiaries experiencing delays for their inheritance
• don’t mind exposing your estate to creditors
• understand that a Last Will and Testament does NOT avoid probate

Honestly, I did not intentionally skew this list to disparrage the value of a Last Will and Testament. Everyone should have a Will so long as everyone understands the purpose of a Will (for another post on another day.

How does a Living Trust Avoid Probate?

After you create the trust, you should begin to “fund” your trust. You fund a trust by placing assets into it. For example:

• Open a bank account in the name of the trust (and put some money in it)
• Transfer real estate into the name of the trust
• Designate your trust as a “payable on death” beneficiary of your bank account
• Assign your shares in your small business (LLC, Corporation) to your trust

When you die, your trust will own or become the owner of most (and hopefully all) of your assets. If you successfully and completely fund the trust with all of your assets, then there will no longer be any assets in your name and therefore, no reason to probate your estate. You no longer own these assets…your trust does.

Think of your trust as its own entity, not unlike a small company. This company has trusted managers (trustees) whose job it is to carry out the required task of ensuring all of the assets are properly distributed to your trust beneficiaries.

Without a trust, your assets will still pass onto your beneficiaries BUT the court’s will supervise the entire process and creditors will be able to take what is owed to them. If your assets are all owned by your trust, creditors will have a very difficult time peering inside to get paid.

So a Living Trust can Protect My Assets?

That’s a fairly broad statement so I won’t commit to that.

I will say that a Living Trust can make it very difficult for unsecured creditors (i.e. credit card banks and medical creditors) to access your assets. Here’s a scenario that might help illustrate:

Claire executed, among other things, a Living Trust and made sure to fund it with all of her assets. She stopped by her bank and designated the trust as the primary beneficiary of the account if she were to die. She also deeded her house into the trust. She had no other significant assets.

Claire dies after 125 glorious years of life as a lawyer/doctor/astronaut.

As far as the rest of the world is concerned, Claire died with nothing to her name. All of her assets were now owned by her trust. The bank wrote a check to liquidate her account which the trustee of Claire’s trust deposited into a checking account in the name of the trust. The bank did not require any court documentation to release the funds.

Her house was already owned by the trust so no probate was necessary to transfer the house.

Unsecured creditors can file claims against Claire’s estate only if her estate is opened in probate court. But if there’s no reason for Claire’s beneficiaries to go to probate, then who is going to bother to open the probate? No one. Creditors can force the probate open but that costs time and money and they have no idea what is inside pandora’s box when they open it. They might be joined by many other creditors or find that Claire had no assets. That’s not a risk most creditors are willing to take.

Claire’s designated trustee’s only job now is to follow the instructions in the trust and distribute the bank account and the house to Claire’s beneficiares.

That’s it. Done.

So… Should I have a Living Trust?

Maybe. I usually don’t recommend them unless a client fits the bill for one. Answer yes to any of these questions and I might recommend it:

• Do you own multiple real estate properties?
• Do you own real estate outside of Florida?
• Do you have a LOT of unsecured debt?
• Do you despise the probate court system?
• Is your financial privacy terribly important to you?
• Do you want your beneficiaries to have faster access to your assets?
• Do you want someone to manage your financial affairs while your still alive?

There are at least 25 more questions I could ask and I didn’t spend much time talking about the lifetime benefits but you get the idea.

Living Trusts can be incredibly useful but they aren’t for everyone. Consult with an experienced estate planning attorney before taking the leap.

The post Should You Have a Living Trust? appeared first on LD Legal, LLC.

It’s not easy.

And the usual response I hear is that nobody wants to talk about such a morbid topic. Remember though that estate planning isn’t only about post-mortem affairs. Planning for disability or  other complications before death are all part of the estate planning process. Statistically, you and everyone else on this planet will become significantly disabled or incapacitated, long before you die.

Talking to your aging parents about estate planning summons up all kinds of emotions:

From the adult child’s perspective:

• If dad needs to go to a nursing home, will we have to liquidate all of his assets to pay for it?
• What if mom is unable to make an emergency medical decision? Am I automatically the person responsible?
• Do I have authority to sell her house to pay for expenses?
• What if dad has a ton of debt I don’t know about and there isn’t enough to cover his creditors?
• What happens with the reverse mortgage on the home after grandma dies?
• How do I access mom’s safe deposit box in an emergency?
• Alzheimer’s runs in the family. Who gets to make dad’s financial decisions if he suffers from memory loss?

From the aging parents perspective:

• Why do I need a Will? I already told my kids they get everything anyway.
• If I go to a nursing home, Medicare will probably pick up the tab because I’m old enough. (false)
• My husband and I did a Will in the 80’s. It will probably get the job done.
• I don’t want my kids to have any problems dealing with my estate after I die. I’ll just give everything away while I’m alive.
• My wife has her own kids but I’m sure she’ll see to it that my kids are provided for after I die.

There are so many questions and concerns that many people clam up and avoid estate planning altogether. I’d rather see everyone go out and get a LegalZoom package then have nothing at all.

How to Bring Up Estate Planning Over Brunch

(Meal setting optional.)

Talk about your own plans. Your aging parents are likely to also be grandparents. Having a discussion with you about your own estate planning thought process might gracefully open the door to a conversation about your parents’ plans. Here are some conversation starters:

Dad, do you think you could serve as a backup guardian to my kids if I were gone?

Mom, I need to name a health care surrogate in case I’m in a car accident and can’t make a medical decision for myself. Do you mind if I name you as an alternate? Who did you pick?

Dad, I just did a Durable Power of Attorney so nobody has to spend thousands in guardianship fees if I become suddenly mentally incapacitated. Have you prepared one yet?

I’m sure you can think of a thousand ways to dip your toe in the water.

Whatever your approach, just do it. It’s not particularly important that you know every last detail about their estate planning, but it’s a huge relief to know that they’ve actually taken steps towards the planning itself.

The post How to Talk to Aging Parents About Estate Planning appeared first on LD Legal, LLC.

Parents of minor children need a Last Will and Testament

“I don’t own anything of real value, why do I need a Will?”

Do you have a child under 18?

If the answer is yes and you want to be sure they are in the right hands if you should die, then you should have a Will. Although not unique to Florida, a Last Will and Testament presents an opportunity to nominate a guardian for your minor child if there is no surviving parent. This nomination is given priority consideration by a guardianship judge when determining who shall care for your child.

What happens if I don’t bother to nominate a guardian?

Generally, the closest blood relative takes precedent but there are other factors such as:

• State of residence
• Criminal history (among other concerns, a convicted felon may not act as guardian)
• Capacity to care for the child (both physical and financial)

Who should you nominate as guardian?

This is a very subjective question which only you can answer. You can nominate virtually anyone: a grandparent, close friend or adult sibling. The courts will consider all factors when rendering its final decision, but your nomination weighs heavily on that decision.

It’s also very important that when possible, both parents discuss these nominations. If there’s a dispute, so be it – at least name someone you trust and believe is up to the task.

When discussing this decision with my clients, the knee jerk reaction is almost always to consider a similar married couple that has children of a similar age. While logical and rational, nominating a husband and wife pairing could fall apart if the couple were ever to get divorced. Sometimes as couples age, their values and priorities mature into different directions. So it’s often best to pick one person, followed by at least one “successor” should the first nominee decline to serve as guardian.

Calculating the odds

Many clients suggest to me that the notion of both parents dying is far fetched. My immediate response is that a car accident can change that theory in a heartbeat. Even if one parent survives a car accident, he or she may later succumb to injuries.

Even if a grandparent is available to serve as guardian, he or she may not be up to to the task physically or financially. The courts strongly prefer parental guidance in making these decisions and your Last Will & Testament is the best way to address this concern.

Contact us today if you’re interested in securing the well being of your child if you’re not around to care for them.

Video and transcription of this article:

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