What options do I have for funding a property with a mortgage into my trust? – North Carolina

Short Answer

In North Carolina, you can transfer mortgaged real estate into a revocable or irrevocable trust by recording a deed from you to your trustee. The loan stays on the property, but your lender’s due-on-sale clause and insurance requirements must be addressed before recording. A revocable trust is typically simpler for probate avoidance; an irrevocable trust may require lender consent and has tax and control tradeoffs.

Understanding the Problem

You want to move real estate that already has a mortgage into a trust under North Carolina law. The key decision is whether to use a revocable trust (for probate avoidance and control) or an irrevocable trust (for potential long-term protections but with stricter rules). Because you also own property outside North Carolina and want to protect assets for minor children, the choice affects how deeds are prepared and recorded, what your lender requires, and how smoothly your plan works in multiple states.

Apply the Law

Under North Carolina law, you may convey real property to a trustee by deed, and the lien (mortgage or deed of trust) remains attached to the property after the transfer. If the property is owned by spouses as tenants by the entirety, both typically must sign the deed to convey it into a trust. Recording occurs with the Register of Deeds in each county where the land sits. For out-of-state property, follow that state’s deed and recording rules. A revocable trust does not shield you from your own creditors, while an irrevocable trust changes control and may require lender approval.

Key Requirements

• Choose the trust type: Revocable trusts simplify funding and probate avoidance; irrevocable trusts can affect control, taxes, eligibility planning, and lender comfort.
• Review your loan: Check for a due-on-sale clause; obtain your lender’s written approval or guidance before recording a deed to the trust.
• Prepare and record a deed: Deed the property from you to your trustee and record it with the Register of Deeds where the property is located; repeat in each state for non‑NC property.
• Address title and insurance: Update your owner’s policy endorsements and homeowners liability coverage to name the trust/trustee as insured as your carrier requires.
• Spousal/title issues: If title is held by spouses as tenants by the entirety or with survivorship, both spouses typically sign; verify how the trust will hold title.

What the Statutes Say

• North Carolina Gen. Stat. § 36C-5-505 (Revocable trust assets and creditors) – Property in a revocable trust remains subject to the settlor’s creditors.
• North Carolina Gen. Stat. § 39-13.6 (Tenancy by the entirety) – Defines how spouses hold title; both generally must join to convey.
• North Carolina Gen. Stat. § 28A-26-1 (Ancillary administration framework) – Explains the relationship of in‑state and out‑of‑state proceedings, relevant if you keep out‑of‑state land in your name until death.
• North Carolina Gen. Stat. § 31-39 (Title passing under a will) – Confirms how real estate passes at death if not titled in trust.

Analysis

Apply the Rule to the Facts: Because you own property in multiple jurisdictions, transferring each parcel to a revocable trust now avoids separate probate and potential ancillary proceedings later. Your existing mortgage remains on the property, but you should obtain the lender’s consent before recording the deed. If property is held with a spouse, plan the deed so both sign and the trust takes title properly. A revocable trust aligns with protecting minor children through trustee oversight; an irrevocable trust adds complexity and lender scrutiny.

Process & Timing

1. Who files: You (through your attorney). Where: Register of Deeds in the North Carolina county where the property sits; for non‑NC property, that state’s local recorder. What: Deed from you to your trustee (and any lender-required approval/assumption or endorsement). When: After lender review and insurance/title updates are lined up.
2. Obtain lender guidance and any written consent; coordinate with your title insurer for endorsements; update homeowners insurance to reflect the trust/trustee; prepare and execute the deed; then record it. This often takes a few weeks depending on lender response and county recording volume.
3. Confirm the county tax office reflects the trustee ownership, keep paying the loan as usual, and store the recorded deed with your trust, pour‑over will, and ancillary documents.

Exceptions & Pitfalls

• Lender due‑on‑sale clauses: Many lenders allow transfers to a revocable trust if you remain a beneficiary and occupy the home, but get written confirmation first.
• Tenancy by the entirety: If spouses own the home, both typically must sign the deed; improper signing can cloud title.
• No asset protection with revocable trusts: Your creditors can still reach assets you place in your revocable trust.
• Irrevocable trust tradeoffs: Lenders may resist or re‑underwrite; you surrender control and may trigger tax or eligibility consequences.
• Multi‑state deeds: Each state has its own deed form and recording rules; use local counsel to avoid rejection or defects.
• Insurance/title updates: Failing to name the trustee can cause coverage gaps or title issues.

Talk to a Estate Planning Attorney

If you’re dealing with moving a mortgaged property into a trust and want to avoid multi‑state probate while protecting minor children, our firm has experienced attorneys who can help you understand your options and timelines. Call us today at (919) 341-7055.

Disclaimer: This article provides general information about North Carolina law based on the single question stated above. It is not legal advice for your specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If you have a deadline, act promptly and speak with a licensed North Carolina attorney.