Transferring Mortgaged Property into a Revocable Living Trust

Mortgaged property may be transferred into a revocable living trust as a measure to avoid probate and provide greater control over how the property is distributed to beneficiaries. Unlike property which the grantor owns free and clear of encumbrances, mortgaged property requires additional considerations prior to placing it in a trust.

The process for funding (i.e., transferring assets into the trust) a mortgaged property to a revocable trust can be confusing, as the process depends on the type of property being transferred. Funding a primary residence can be very different from funding a rental property. One of the reasons for the difference is the Garn–St. Germain Depository Institutions Act of 1982 (the “Act”) and its effect on the “due-on-sale” provision found in most mortgages.

The “due-on-sale” (aka “acceleration clause”) is a provision in a mortgage document that gives the lender the right to demand payment of the remaining balance of the loan when the property is sold. It is a contractual right, not a law. This means that if title to the property is transferred, the lender may (or may not), at its option, decide to “call the loan due.”

However, when the property is transferred into a living trust, homeowners whose mortgage contains a due-on-sale provision receive protection from the Act, which is a federal law that creates several exceptions in which a lender may not enforce the due-on-sale provision. Certain limitations are imposed by the Act on the validity of a due-on-sale provision found in many mortgage contracts; no lender may accelerate in the event of any of the following transfers, regardless of what the particular due-on-sale provision states, whenever the loan is secured by residential real property containing less than five dwelling units:


(1) a junior lien is created on the property.
(2) a purchase-money lien is created for household appliances.
(3) a transfer occurs by devise, descent, or on the death of a joint tenant.
(4) a leasehold is created for a term of three years or less not containing a purchase option.
(5) a transfer to a relative resulting from the death of a borrower.
(6) a transfer where the spouse or children of the borrower become an owner of the property.
(7) a transfer resulting from a decree of dissolution of marriage, a legal separation agreement, or an incidental property settlement agreement by which the spouse of the borrower becomes an owner of the property.
(8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property.
(9) any other transfer or disposition described in regulations prescribed by the Federal Home Loan Bank Board.

Transfers of Commercial or Investment Property

The ability of a lender to enforce a due-on-sale provision for transfers to a revocable living trust becomes more unclear when the property transferred is not the borrower/beneficiary’s personal residence. California law does not contain the same requirements as the Act – that the borrower must remain the occupant of the property in order to prevent enforcement of the due-on-sale provision. On the other hand, the Act expressly states that it was intended to override state law. In general, when federal and state laws conflict, the federal law controls. Thus, the Act appears to allow for the enforcement of a due-on-sale provision when the borrower/beneficiary does not occupy the property.

In light of this uncertainty and the potentially high stakes involved, if the property transferred to the trust is not occupied by the borrower/beneficiary, the best course seems to be to get the lender’s written permission before transferring the property. A lender typically charges a modest fee for this consideration, but there is no guarantee – especially if the interest rate on the loan is significantly lower than the current market rate. At any rate, while funding your revocable trust with real property is critical to avoiding probate and making the most of a revocable trust, transfers of commercial and non-owner-occupied residential property must be handled with care.

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Annuities: Income For Life

Having a company pension plan that provides guaranteed income for life could certainly relieve many financial worries, especially in retirement.

However, many Americans don’t have access to company pension plans, and those who do often have a plan that doesn’t provide a guaranteed income stream.

As part of an overall income generating strategy, annuities can be an ideal solution for taking your retirement savings and turning it into a dependable income stream for your retirement.

So let’s take a closer look at annuities, which can also provide you with income for life.

In exchange for a single lump sum deposit, a financial institution makes guaranteed regular income payments to you that contain both interest and a return of principle.

Annuity payments can continue for a chosen period of time or for the lifetime of one or two people.

While some income generating investments like mutual funds can be depleted over time, life annuities provide retirement income that’s guaranteed for life no matter how long you live.

The amount of income provided by an annuity is determined at the time of purchase and will depend on a number of factors such as;

  • the amount of money you deposit,
  • current interest rates,
  • whether or not you want your payment amount indexed to help keep up with inflation,
  • the sex and age of each spouse,
  • and the number of years you want to guarantee income payments in case of premature death.

If you die prematurely, there are options available to you to ensure that your annuity investment isn’t lost.

For example, various guarantee options can ensure a specific amount of income is paid from your annuity investment to you, or your named beneficiaries.

Some types of annuities have tax advantages as well.

Since annuity payments consist of principle and interest, only the interest portion is taxable.

Prescribed annuities evenly spread the taxable interest over the life of the annuity, thereby offering some tax deferral.

Regular annuities must report taxable income as it is earned, which is higher in the early years and lower when the principle is reduced.

If you are looking for ways to earn guaranteed income for as long as you live, then speak with an advisor about how life annuities can play a role in your overall financial plan.

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Protect your future with estate planning

Life insurance can be a valuable tool for protecting your loved ones financially.

The purpose of your life insurance policy will determine which type of policy you choose. Although some people view life insurance as merely a “bet” on when you will die, it has far more important purposes. These include: 

  • Protection: Life insurance can protect your family and other dependents by replacing your salary if you die.
  • Liquidity for Taxes: Life insurance can help make sure that your estate has enough cash to pay estate taxes and other estate expenses.
  • Investment Tool: Life insurance can also be used as an investment tool that allows you to defer payment of the taxes owed on your gains.

Types of Life Insurance:

Life insurance policies fall into two general categories: term life insurance and permanent life insurance (also known as “cash value” life insurance.) Term life insurance is usually used only for a short period of time and consists of insurance on your life for a specified term, usually a period of one to five years. Term insurance is generally considered “pure” insurance because it is not an investment vehicle and only provides protection in the event of death. Permanent or “cash value” life insurance premiums are generally higher than for term insurance. The part of the premium that is not used to cover the cost of insurance is invested by the insurance company; this creates a cash value that the policy holder can borrow against by taking a policy loan.

The insurance industry has developed many types of life insurance. Some of the more common types of life insurance include:

  • Term Life Insurance: Term life insurance is usually used only for a short period of time and consists of pure insurance on your life for a specified term. If you die during the stated term, your beneficiaries collect the face value death benefits.
  • Whole Life Insurance: Whole Life Insurance is a type of permanent life insurance that covers you for as long as you live and continue paying our premiums. Whole life insurance provides pure insurance on your life as well as an investment vehicle to accumulate cash value.
  • Variable Life Insurance: Variable life insurance is permanent life insurance where the amounts of cash value and death benefits are variable and depend on the success of the investments made.
  • Universal Life Insurance: Universal insurance is permanent life insurance that includes both pure insurance and investment components, similar to whole life insurance. However, universal life insurance allows the owner to adjust either the amount of premiums to be paid or the amount of the death benefits to be paid at death.
  • Universal Variable Life Insurance: Universal variable life insurance is permanent life insurance that includes both pure insurance and investment components. It combines features of variable and universal life insurance and allows some flexibility in choosing investments.

In addition to understanding the type of policy, here are some other important questions you should get answered before signing on the dotted line:

  • Do your insurance premiums increase?  Make sure that the language is clear regarding if and when your payments will increase.
  • What happens to your policy if your health declines?
  • What happens if you miss a payment or make a late payment?  Is there a grace period?  The danger is that your policy will lapse and your beneficiaries will be entitled to no money at all.

To get a sense of what a life insurance policy may include, here is a sample life insurance policy. If you have questions about your coverage, or need to get covered, Oakland Prime can offer you a free life insurance review.  Just submit your information at our Life Insurance Center and one of our Advisors will contact you. 

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Power of Attorney: What You Need to Know

General and Special Powers of Attorney

A General Power of Attorney is a document under which you authorize another person to act on your behalf in a variety of situations. In contrast, a Special Power of Attorney is a document under which you authorize another person to act on your behalf in specific situations only.

A General Power of Attorney is very broad and provides extensive powers. A general statement is included which gives the Agent “full power and authority” to act on your behalf. The document then lists certain powers to make it clear that you intended to grant such broad powers. For a list, see General Powers, below.

A Special Power of Attorney document provides the Agent with only those powers that are listed in the document. For a list, see Special Powers, below.

General Powers

Broad powers granted in a General Power of Attorney can include authority to act with respect to the following subjects:

  • Real Property.
  • Tangible Personal Property.
  • Stocks and bonds.
  • Commodities and options.
  • Banks and other financial institutions.
  • Operation of entity or business.
  • Estates, trusts, and other beneficial interests.
  • Claims and litigation.
  • Personal and family maintenance.
  • Benefits from governmental programs or civil or military service.
  • Retirement plans.
  • Taxes.

In addition, optional powers include powers to:

  • Maintain and operate business interests.
  • Employ professional assistance.
  • Make gifts.
  • Make transfers to revocable (“living”) trusts.
  • “Disclaim interests” (this power can be an important estate planning tool that helps avoid estate taxes).

If providing broad powers is not desirable, a Special Power of Attorney, which can be limited in scope, may be more appropriate.

Special Powers

A Special Power of Attorney document provides the Agent with only those powers that are listed in the document, which may include the following special powers:

  • Create, amend, revoke, or terminate an inter vivos trust.
  • Make a gift.
  • Create or change rights of survivorship.
  • Create or change a beneficiary designation.
  • Authorize another person to exercise the authority granted under this power of attorney.
  • Waive the principal’s right to be a beneficiary of a joint and survivor annuity.
  • Access the content of electronic communications.
  • Exercise the fiduciary powers that the principal has authority to delegate.
  • Disclaim or refuse an interest in property, including a power of appointment.

If limiting the Agent’s power to this list is not desirable, a General Power of Attorney, which is broader in scope, may be more appropriate.

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5 Things to Consider When Receiving an Inheritance

Those who fall in the age range of 60-80 currently hold approximately half the wealth in the US. As a result, their children are expected to receive the largest inheritance across all generations. While there are expectations that this inheritance won’t go as far as it would have years ago due to high inflation recently, the amount passed down can still help many young adults out financially when used wisely.

To some, receiving an inheritance may come as a surprise. Others may be aware of the possibility of an inheritance or even expect it. This can lead to anxiety over the transfer of wealth and how to best manage their inheritance. According to a study conducted by New York Life, under half of adults who expect to receive any inheritance, whether in the form of cash or non-cash assets, feel comfortable with managing it.

If you anticipate receiving any type of inheritance in the future, knowing your options is critical. Here are some tips on how to approach receiving an inheritance.

Manage your expectations

If you are expecting an inheritance, keeping yourself in check with the amount you may receive is best. If your parents, or whomever you may inherit from, do not have a Will or beneficiaries on their accounts, their estate would go to probate, which can be lengthy and costly. Or there may be accounts where someone else is named a beneficiary but was never updated, such as an ex-spouse. Further, end-of-life costs may add up, leaving less to distribute.

If you’re comfortable, talking to your family members may help clear the air of any confusion. A great place to start would be to discuss your parents’ accounts, such as their will or retirement plans.

Talk to an expert

If you are unsure where to begin or want extra help, contacting a financial advisor can help. There may be some paperwork to do, or you may have questions about tax implications, and seeking the advice of an expert is the best way to ensure you’re doing all the correct steps. A financial advisor can also help you create short- and long-term goals of what to do with your finances and help you manage any non-cash assets.

Pay off some of your debts

Assessing your debts to see if it is possible or pay some off may be a hot item on your to-do list if you receive an inheritance. Depending on where you are in your life, some possible debts would be credit card debts, student loans, mortgages or car loans. Assess the different interest rates on your debts and make choices that work the best for you with your financial goals in mind.

Save and invest

Depending on the sum of your inheritance, it might make sense for you to put some of the money away. While putting it in a savings account might be a first instinct, you’ll want to assess which account is best and will provide you with the best rate.

If you don’t need your inheritance money for any short-term goals, looking at other ways to invest your money is a good idea that could help you earn more on your assets compared to that of a savings account. Putting your money into a certificate is a good way to safely put your money away and earn a set interest rate for a period of time. Or, investing your money in a stock market is an option if you have a longer timeframe and are comfortable dealing with stock market volatility.

Get your own estate in order

It is never too early to get your own estate in order, and after you receive an inheritance is a good time to either start the process or update your current documents. Start by checking to make sure you have a record of all your accounts and assets in a safe place. Then, see if you need to add or update the beneficiaries linked to the accounts. Lastly, start a will or update your current one.

While starting this process now may feel daunting, it will make all the difference to your family later on. If you have recently lost a loved one and are in the process of receiving an inheritance, know that you can take time to grieve before jumping into your finances. There’s no need to rush.

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4 Questions to Ask Your Parents About Retirement and Estate Planning

Sooner or later, it will be time for adult children to have a conversation with their parents about their retirement, will and other financial concerns. If you are at the point where your parents are getting older, it may be time to bring up their finances and how you can be more involved. While talking about money is tough, especially when you must bring it up to your parents and their future, it is important.

Here are some tips on how to get the conversation started and key questions to ask:

Ease into the conversation

Many families hold off on having such a conversation until something happens, such as a parent’s declining health or a death. At that point, it might be too late or the conversation too difficult. By having this conversation early, everyone has a better chance of being on the same page with a clear understanding of the parent’s wishes, which can mitigate stress later on.

Start the conversation by approaching what you want to talk about directly, but with kindness and respect. Let your parents know that you simply want to understand their wishes when it comes to their finances and would like to be more involved if something happens. Do not approach the conversation in a way that may come off condescending or that you know better, as this may cause your parents to be defensive.

Ask about retirement and their financial plan

If your parents have yet to retire, learning more about their retirement goals can help gain insight into their finances and wishes for their future. Asking questions about their plans after retirement, such as if they have a financial plan in place, how they want to spend their retirement or where to live is a great place to start. If they have yet to think about it, mention how speaking to a financial advisor might be helpful.

Learning about your parents’ retirement goals early also may affect your current financial plan for you and your family, especially if your parents might lean on you for financial help in the future.

Inquire whether they have a list of their accounts

If your parents have multiple accounts—like a savings account, IRA, investments, etc.—having information about them all in a safe location can simplify the process if an emergency occurs. With this in mind, it is a good idea to ask your parents if they would be okay with providing you with a list of their financial assets and the beneficiaries attached to the accounts. However, if they don’t want to share this with you now, ask if they could provide you with where they keep this type of information, the contact information of their financial advisor (if they have one) or if they could put their account information in a sealed envelope only to be opened in an emergency as a compromise.

Do they have a will and is it up to date?

Asking your parents about whether they have a will in place and who is the executor is another important piece of information to learn about when speaking to your parents about their finances. Knowing this information can better prepare you and the rest of the family if something happens. Wills also outline specific requests for the executor, such as celebrations or burial preferences, so knowing about these early can help you prepare for the specific requests if need be.

While not everyone has a will, they are a valuable document that will help ease the process once a family member passes. If your parents don’t have one now, ask them if they would be willing to meet with an estate attorney to begin the process.

Start planning early by having the hard conversations

Speaking about finances with anyone, no matter the relationship is difficult. But by starting the conversation early you may avoid confusion and headaches later. Bringing up finances, retirement goals and planning and wills earlier, can help keep you aware of your parents’ situation now and in the future.

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