How Can My Parents Borrow Against House in Irrevocable Trust?

 In Long-Term Care Planning

Question:

My parents home (paid off/no mortgage) located in New Hampshire is in a irrevocable trust (5+ years now). I am one of the trustees. This week they signed a P & S to purchase a home in North Carolina, where they would move to this spring or summer. However, in order to buy the home in NC, they need to refinance (Home Equity Loan) on the home in NH which is in the irrevocable trust. They plan on selling the home in NH in June, and pay the home equity loan back and then move to the the home in NC. I’m not sure if they will be able to obtain financing on the home in NH to purchase the home in NC. One credit union told them they would need to take NH home out of the Trust and then they would refinance home in NH and then they could put the home back into the irrevocable trust. Would they lose the protection of the irrevocable trust if they did this? Or any recommendations. They are in their mid 80’s in decent health.

Response:

Without seeing the trust I can’t give you a definite answer. But it sounds like the trust was drafted for Medicaid planning purposes, in which cases it’s unlikely under the trust’s terms that the New Hampshire house could be conveyed back to your parents. It is probably fine to sell the New Hampshire house within the trust and for the trust to purchase the North Carolina house. If this all happens within the trust it doesn’t restart the five-year clock for Medicaid purposes. The problem, however, is timing and financing. If no bank or credit union will provide the financing while the house is in the trust, is there anyone else that could give your parents a bridge loan? Could your parents borrow against another asset, such as a retirement fund?

As we always explain to our clients, one of the drawbacks of using a trust for Medicaid planning is that it bars access to the equity in the trust property. However, some trusts do have certain safety hatches built in. I would recommend consulting with the attorney who drew up the trust or another New Hampshire attorney.

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