Beware: Trusts and VA Home Loans Don’t Mix

Beware: Trusts and VA Home Loans Don’t Mix

If you’re a veteran nearing full retirement or getting your estate in order, you might be establishing a living trust instead of preparing a simple will. But are you also considering taking out a new VA Home Loan?

Beware: One MOAA life member recently found out the hard way that because he and his wife had transferred their home into an irrevocable living trust, they were ineligible for a new VA Home Loan on this property. The VA Home Loan Office told them that if a home is placed in trust, then both of the individuals had to qualify for the home loan — meaning both had to be veterans.

The Code of Federal Regulation section on veteran loan guaranty (38 CFR § 36.4354 “Estate of Veteran in Real Property”) states, “The title of the estate in the realty acquired by the veteran, wholly or partly with the proceeds of a guaranteed or insured loan … shall be not less than: a life estate, provided that the remainder and reversionary interests are subject to the lien; or a beneficial interest in a revocable Family Living Trust …, provided the lien attaches to any remainder interest and the trust arrangement is valid under state law.”

In layman’s terms: You can put your home in a trust, but you can’t get a loan if you’ve put your home in an irrevocable trust. Unfortunately, this member and his spouse had done exactly that and were denied a refinancing VA Home Loan.

Generally, what is a trust? A property owner passes some or all of their property to a trust. The trustee manages the trust until such time that it can be transferred to the beneficiary, typically upon the death of the owner(s).

What are some of the benefits of a living trust? Two main benefits entice individuals and families toward a trust. The first is a trust avoids probate, which typically means a faster transfer of assets to your beneficiaries. The second is that trusts provide privacy over the matter of asset distribution; wills do not. A will’s provisions are made public after death.

Here's a more detailed list of characteristics of trusts and wills:


Characteristic Revocable Living Trusts Wills
Name beneficiaries for property X X
Leave property to your children X Maybe*
Revise your document X X
Avoid probate X  
Keep privacy after death X  
Requires a notary public X  
Requires transfer of property X  
Protection from court challenges X  
Avoid a conservatorship X  
Name guardians for children   X
Name property managers for children’s property   X
Name an executer   X
Instruct how taxes and debts should be paid   X
Simple to make   X
Requires witnesses   X


*Note: Children under 18 cannot legally own property. If property is left to a minor child, that property must be managed by an adult — at least until the child turns 18.

Find additional information in Top 5 Must Do's Before You Write a Living Trust, WikiHow: How to Make a Living Trust, The Pros and Cons of Revocable Living Trusts, and Kiplinger: Why you don't need a Living Trust - They are costly and often overhyped.