Mortgage Blog

Created while you are alive, a revocable living trust lets you control the distribution of your estate. Ownership of your property and assets is transferred into the trust. You can serve as trustee or you can appoint another to serve as trustee. If you serve as trustee, you must appoint a successor to serve as trustee upon your death.
Properly drafted and executed, a revocable living trust can avoid probate and delays as the trust owns the assets not the deceased. Consult with your attorney and/or CPA before deciding a revocable living trust is the right choice for you.

Advantages to a Living Trust Holding Title

• A husband and wife can establish a joint revocable living trust.

• While the trustor serves as a trustee or a co-trustee, a separate tax return is not required for the trust.

• The revocable living trust allows the trustee to buy, sell and finance assets just as before.

• In the event of incapacitation, management of the living trust passes to the successor trustee without the necessity of a court-appointed conservator.

• The living trust can be cancelled or changed at any time before death or incapacitation.

• Probate - including multi-state probate - is avoided when assets are held in a living trust. (Often probate takes 9 to 12 months.)

• Privacy. When a decedent dies with a living trust, the provisions of that trust usually do not become public.

• Litigation is discouraged by a living trust.

• A married couple with a living trust can reduce or eliminate federal estate taxes by setting up an Exemption Trust. While both are alive the assets remain in the revocable living trust. Upon the death of a spouse, the trust is split into two trusts: the survivors trust and an exemption trust. (For tax purposes, the surviving spouse and the exemption trust are two separate taxpayers.)

Disadvantages of a Living Trust

• A living trust will cost more to set-up than an estate plan with only a will.

• A trust agreement with a new will must be set-up.

• Transferring assets into the living trust will require paperwork and incur costs not encountered with a less elaborate estate plan.

• Handling an Exemption Trust may require extra effort from the surviving spouse.

• Some lenders may require property held in a living trust be removed from the living trust to refinance the property.

Common Terms

Trustor: Creates the revocable living trust and transfers major assets into it. (A husband and wife can have a joint living trust or each can have their own living trust.)

Trustee: Manages the living trust's assets.

Beneficiary: Receives the assets of the living trust.

Initially the trustor, trustee and beneficiary are the same person(s).

Unless you live on a desert Island you must know that the US Federal Reserve reduced interest rates yesterday. Predictably we get calls from our clients telling us they heard that “interest rates have fallen by 0.25%”. However the “interest rates” in question are not mortgage rates which are not controlled by the Fed. The Federal Reserve sets the so called “Discount Rate”. This is the rate the Fed charges financial institutions for overnight loans. The DR tends to affect the rates you pay on short term credit such as credit cards, car loans and Home Equity Lines of Credit.

Mortgage rates however are set by the marketplace for Mortgage Backed Securities (MBS) and these tend to track more closely other long term rates particularly the 10 year US Treasury Bond. In some cases long term and short term rates can actually move in opposite directions. This happened yesterday as short term rates fell but yields on the US Treasury Bond pushed up. This in turn caused mortgage rates to rise by approximately .125% even as short term rates such as the prime rate were falling by 0.25%.

If you are wondering when to lock your mortgage rate you could always check on how the 10 year Treasury bond yield is moving. Fortunately we make it easy for you. We do the checking ourselves and publish everyday a rate lock advisory which is free for you to use.