Borrowing
from a trust can be an alternative to taking a jumbo mortgage, defined as above
$417,000 in most markets and $625,500 in some high-price areas such as New York
and San Francisco. In some cases, a trust can buy the home outright.
A mortgage tends to be a
necessary evil to purchase a home. For most, it's just part of the home buying
process. But what about for those who
have trust funds available to help?
Under the right circumstances,
trusts may be tapped to assist you and your loved ones, even when it comes to
bypassing the bankers and buying a home. This is more and more useful as
interest rates rise.
Whether you are the beneficiary
of a trust or just out to settle one, you will want to read a recent article in
The Wall Street Journal titled “Tapping the Trusty Trust Fund to Buy a House.”
Essentially, a trust can operate
in much the same manner as a bank, but without much of the onerous rates,
rules, liens and stress. As a trust beneficiary, you can approach the trust for
a “mortgage” in the form of a loan from the trust and the trustee can even
grant the loan at little or no interest. Sometimes, you can even ask for a full
distribution from the trust to finance the whole transaction.
In any event, your access to the
trust funds is up to the trustee as guided by the rules of the trust itself.
You see, some trusts are not designed to permit this for a variety of reasons,
some known only to the person who established the trust. In addition, the
trustee may have the interests of other trust beneficiaries to consider. Nevertheless,
if there are no such limitations, then having access to trust funds can be a
great blessing.
Depending on the language of the
trust and your unique circumstance, the trust itself may be engineered
specifically to own the house. Properly structured, ownership by the trust can
provide important asset protection from potential divorces, lawsuits and
bankruptcies. Alternatively, Qualified Personal Residence Trusts (QPRTs) and
Intentionally Defective Grantor Trusts (IDGTs) can be extremely valuable in this
regard, even though normally we talk about them in the context of transferring
the family home.
If you are ready to create a
trust for your beneficiaries, or perhaps are looking for creative ways to help
your loved ones buy their first home, these are some options to explore.
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Reference: The Wall Street
Journal (September 19, 2013) “Tapping the Trusty Trust Fund to Buy a House”