Should We Transfer Our House with a Home Equity Loan to Our Children?
We have a home equity line of credit on our home, on which we owe $6,000 now. If we deeded it to a revocable trust to pass to our children upon our deaths, could we still borrow on the loan if we needed it again? What if we deeded it outright to our children right now? At our age of 74, which is better?
There should be no problem with your existing mortgage if you transfer your house to a revocable trust. You could continue to borrow on it if need be. However, you would probably have to take the house back out of the trust if you were to seek a new mortgage or home equity line.
Transferring the house to your children could be more problematic. It would probably trigger the due on sale clause in the line of credit, at least technically. It’s possible you’d have no problem since the bank might not know the difference, but there’s always a risk that they’d find out. There are also potential tax costs to transferring the house outright to your children as well as risks should they run into financial trouble, get divorced, or pass away before you. So, I’d normally prefer a revocable trust to an outright transfer.