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Key Takeaways on Trusts and HECMs

Key Takeaways on Trusts and HECMs

Thank you to everyone who participated in last week’s webinar on trusts, POAs, conservatorships, and life estates.

Education Committee Co-Chair Chris Downey interviewed trust attorney Paul Lovegrove for 60 minutes on a range of topics and then both gentlemen responded to attendees’ questions for another 30 minutes.

Here are a few key takeaways on trusts and what you need to know to ensure a smooth reverse mortgage transaction.

What is a Trust?

  • A trust is a legal document that outlines how someone’s assets should be distributed.
  • The grantor (creator of the trust) typically remains the beneficiary during their lifetime.
  • To be effective, the trust must be funded — assets like bank accounts or real estate must be formally transferred into the trust.

Differences Between a Trust and a Will:

  • Trusts bypass probate, which saves time and legal costs.
  • Wills must go through probate, which can be lengthy and expensive.
  • Trusts allow the trustee to manage assets immediately after the grantor’s death.
  • Courts may override or question wills if potential heirs are not notified or if the will is contested,

Trusts and Reverse Mortgage Eligibility:

  • The borrower must be the sole current beneficiary of the trust.
  • The trustee must be involved in the reverse mortgage process.
  • The trust is not the borrower — the individual is.

Types of Trusts:

  • Revocable Living Trusts: Preferred for HECM; grantors can amend or revoke terms.
  • Irrevocable Trusts: Used for Medicaid planning; harder to modify but can still be made HECM-eligible with legal adjustments.
  • Testamentary Trusts: Not eligible under HECM rules because they originate from a will and are activated only after death. Lovegrove notes that in the case of a Testamentary trust he may be able to transfer the property into a “Mirror Trust” as long as but for the fact the trust is Testamentary it would have otherwise met HECM guidelines. If that’s possible, the reverse mortgage can proceed.

Practical Takeaways

  • Ensure that assets are titled in the name of the trust to be covered by it.
  • Know your state-specific rules, as requirements can vary.
  • Revocable trusts are simpler and more reverse-mortgage-friendly.
  • Irrevocable trusts require planning, but reverse mortgages are possible with proper structuring.

Published by

Darryl Hicks

Darryl Hicks is Vice President of Communications for the National Reverse Mortgage Lenders Association. In this capacity, Hicks writes for NRMLA's publications, manages the association's web sites and social media accounts, assists committees and the Board of Directors, and manages the Certified Reverse Mortgage Professional designation. Prior to joining NRMLA in 1999, Hicks spent three years in the Washington, D.C. bureau for National Mortgage News.