HELOC on a home in an irrevocable trust

If you’re interested in a home equity line of credit (HELOC) on a home in an irrevocable trust, most lenders don’t offer one. A HELOC is secured by a home itself. The irrevocable trust structure changes who legally owns and controls the home, creating hurdles for HELOC lenders.

A revocable trust may offer more flexibility. Many lenders offer HELOCs for revocable trusts, with some added documentation requirements.

With an irrevocable trust, options depend on your situation. If you inherited a home in an irrevocable trust, you may be able to get a short-term loan against the property from a specialized lender. If you placed your home in an irrevocable trust, then options are far more limited, and borrowing against the property could undermine the protections the trust was supposed to provide.

This article provides educational information only. Legal rules vary by situation. An estate attorney can help you understand how borrowing against trust property could affect the trust and your financial plans.

Why an irrevocable trust makes a HELOC harder to obtain

When a home is in an irrevocable trust, the trust holds the title to the property rather than the grantor (the creator of the trust). The grantor gives up control of the home when they put it in an irrevocable trust. Changes to an irrevocable trust also can’t be made by the grantor alone.

This complicates the HELOC underwriting process. Lenders review the applicant’s finances and legal authority to pledge the home as collateral. With an irrevocable trust, the trust holds the title but has no income or credit. The grantor may meet the financial requirements for a home equity loan but technically doesn’t own the home anymore.

The trustee (who controls the trust) may be able to borrow against trust property. The trust document determines whether the trustee has this authority. However, the trustee signing for the loan generally isn’t personally liable for the debt, leaving the lender with no individual to pursue in the event of a default.

Because of these issues, most lenders don’t offer HELOCs on homes in an irrevocable trust. If you put your home in an irrevocable trust, you most likely won’t have many, if any, HELOC options. Some specialized lenders offer home equity loans directly to irrevocable trusts when the trustee or beneficiary inherits a home in the trust. These are typically short-term loans and different from a traditional HELOC.

Revocable vs. irrevocable trusts, and why it matters

The type of trust that holds your home affects your financing options.

With a revocable trust, the grantor generally retains the ability to change or revoke the trust, which could make financing more workable for lenders.

An irrevocable trust doesn't provide that flexibility, so most lenders don’t offer home equity loans or HELOCs for properties in this type of trust.

HELOC on a home in a revocable (living) trust

A revocable trust generally allows the grantor to amend or revoke the trust, which makes a HELOC on a home in a revocable trust workable for many lenders. Lenders normally ask for trust documents or a certification of trust to confirm who has authority to borrow against the property.

Some lenders might have additional title or trust-document requirements before closing. Requirements vary by lender, so ask how the lender handles a HELOC for revocable trusts before you apply.

HELOC on a home in an irrevocable trust

A HELOC on a home in an irrevocable trust is difficult to obtain because the trust holds the title to the home. When you place your home in an irrevocable trust, you give up ownership and control. Since you don’t have legal authority over the home, you generally can’t borrow money against it.

Most traditional lenders avoid HELOCs on homes in irrevocable trusts entirely. Some specialized lenders may offer irrevocable trust loans, but these loans are for the trust directly when a trustee or beneficiary inherits a home in the trust.

What options do trustees and beneficiaries have?

While a traditional HELOC usually isn’t available for irrevocable trusts, trustees and beneficiaries could have other options to consider:

• Specialty trust financing. Some lenders offer financing for property held in a trust. Availability and loan terms vary.

• Distribute the property. If the trust terms allow it, the trustee might be able to distribute the home to a beneficiary. Once the beneficiary holds the title individually, that person could have additional financing options.

• Trustee borrowing. A trustee's ability to borrow against trust property depends on the trust document and applicable law. A trustee might need specific authority before using trust property as collateral.

• Sell the property. Selling the home converts the property's value into proceeds, which the trustee handles according to the trust’s terms and applicable law.

Trust documents vary, and the right option depends on the specific trust and the people involved. An estate attorney can help you understand what the trust allows before you pursue financing.

Tax and legal cautions before you borrow against trust property

An irrevocable trust might have specific estate-planning or asset-protection goals. Taking out a loan against trust property could affect those plans, depending on how the trust is structured and how the borrowed funds are used. The transaction could also have tax consequences for the trust or its beneficiaries.

Tax rules are complicated. Consult with a tax professional to find out more about your specific situation.

A fixed-rate HELOC through Achieve Loans if your home isn't in an irrevocable trust

If you own your home outside an irrevocable trust and meet the applicable requirements, you may qualify for a fixed-rate HELOC through Achieve Loans. Since Achieve Loans offers a fixed interest rate, your rate doesn't change over the life of the loan.

Find out if you qualify through Achieve Loans.