First what is a Living Trust? Well Wikipedia has this to say: A living trust, or in Latin inter vivos trust (inter vivos is Latin for "between the living"), is a trust created during a person's lifetime to either save money on taxes or setup long term property management. All living trusts are designed to avoid probate.
Since we are dealing with real estate when we are using a reverse mortgage the keys are the property management and the avoid probate issues.
Most of the questions that I hear regarding the reverse mortgage can be answered by us finding out who the parties to the trust are. Wikipedia has another point to help us here: The Parties To The Trust
• Grantor/Settlor: The person who sets up the trust; also called the settlor, trustor, or trustmaker.
• Trustee: This is the person who will manage the trust assets. This also may be the settlor in a Revocable Living Trust, since the settlor wants to manage his or her own property. Some revocable living trusts are "self settled trusts" (that is, the grantor is also a beneficiary of the trust).
• Successor trustee: Where the Grantor is a Trustee, the Successor Trustee is the person who will manage the trust assets when the Grantor dies, or in the event the Grantor becomes incapacitated. Upon the Grantor’s death, the Successor Trustee will immediately have the same powers that the Grantor had as Trustee to buy, sell, borrow, or transfer the assets inside the trust.
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The Successor Trustee has the right to distribute the trust’s assets according to the Grantor’s instructions in the trust instrument. The Successor Trustee does not have the legal right to change the trust. The trust becomes irrevocable upon the Grantor’s death. The Successor Trustee has the right to manage the assets in the estate, but must do so for the benefit of the remainder beneficiaries.
At the Grantor’s death, the Successor Trustee automatically takes over without court order, pays any debts, expenses and taxes directed to be paid by the terms of the written trust document, and then distributes the property to the trust beneficiaries. Where the trust is scheduled to terminate on the Grantor’s death, and the trust is merely a means of avoiding probate, the death beneficiary should ordinarily be named Successor Trustee.
• Beneficiaries: The people who will receive the benefit of the trust’s assets are called beneficiaries. Sometimes, the grantor is the original beneficiary. Those who take after the grantor's death are "remainder beneficiaries".
If the all of the Grantors/Settlors are alive then you still have a revocable trust and as long as they are the ones living in the property as their primary residence then you should be fine to do a reverse mortgage. Except in Texas where they have a law that does not allow property held in a trust to have a reverse mortgage.
If one of the Grantors/Settlors has died then there is a possibility that the property has been put into the decedents portion of the trust which is irrevocable and would cause a problem since reverse mortgages can only be done on property that is not in an irrevocable trust. See LegalZoom.com: Disadvantages of an AB Living Trust
But AB living trusts are not without their disadvantages. The most important of these disadvantages is that the surviving spouse cannot sell their spouse's share of the trust property. The surviving spouse is entitled to income generated by Trust A and to certain allowances for his or her health and support.
Also see about.com: When the first spouse dies, the first $3,500,000 of his or her assets are funded into the B Trust. This effectively uses the first spouse's $3,500,000 federal exemption from estate taxes. The B Trust can be relatively flexible and used for the benefit of the surviving spouse and descendants or other beneficiaries.
If the survivor did as described above at about.com they would most likely not be able to get a reverse mortgage. The reason is the trust is irrevocable and would limit the survivor’s ability to finance the property and the ability of the lender to encumber the property.
In all cases the lender is going to require a trust review by an attorney usually arranged by the title company, if the attorney allows it then the broker can move forward and process the reverse mortgage.
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