A couple from Queens sat in my office last week. Years ago, they had placed their family home in an irrevocable trust, believing they had secured it for their children and protected it from future costs. Now, facing an unexpected health crisis, they wanted to sell the house to fund medical care and downsize to a more manageable apartment in Manhattan. The problem? The house was no longer theirs to sell. It belonged to the trust, and the decision rested with their trustee—their eldest son, who had a very different idea of what should happen to his childhood home.
This scenario is common. While a trust can be a powerful instrument for legacy planning, it is not a universal fix. For many New York families, transferring a primary residence into a trust—particularly an irrevocable one—can introduce serious, unintended consequences. Stewardship of your most significant asset requires understanding not just the benefits, but the very real drawbacks.
When You’re No Longer in Control
Placing your home in an irrevocable trust means you surrender control. The moment you sign the deed over to the trust, you are no longer the owner. A trustee is now in charge, bound by a fiduciary duty to manage the property for the beneficiaries named in the trust document.
This is not a technicality. It means you cannot unilaterally decide to sell the home, take out a home equity loan, or refinance your mortgage. Any of these actions requires the trustee’s approval and signature. If the trustee is a child who disagrees with your decision, or an institution with rigid procedures, you can find yourself unable to access the equity you spent a lifetime building. Even with a revocable trust, where you can retain more control as the trustee, the administrative formalities of acting as the trust can complicate simple transactions.
The arrangement you create today must serve you for decades. A plan that seems prudent in your sixties might become a burden in your eighties when your financial or personal needs have changed. A trust sets a course that can be very difficult to alter.
Unforeseen Tax and Benefit Complications
Transferring your home can also create significant financial friction. We often see clients surprised by the tax implications. For example, if a trust is not drafted correctly, you could forfeit the federal capital gains tax exclusion on the sale of a primary residence—a benefit that can shield up to $500,000 in profit for a married couple.
Here in New York, there are state-specific consequences. Your eligibility for property tax relief programs like the School Tax Relief (STAR) exemption can be jeopardized. Under New York Real Property Tax Law § 425, the property generally must be the primary residence of the owner to qualify. When a trust becomes the legal owner, eligibility often depends on the specific language and structure of the trust. An improperly structured trust can lead to the loss of this tax break.
Furthermore, many people use irrevocable trusts for Medicaid planning to protect the home from long-term care costs. While this can be an effective strategy, it is subject to a five-year “look-back” period. If you need care within five years of transferring the home, the transfer can be penalized, potentially disqualifying you from benefits when you need them most. It is not a simple or immediate solution.
The True Cost of Administration
A trust is not a document you sign and file away. It is a legal entity that requires proper administration. The first step—transferring the title of your property to the trust—involves legal fees and filing costs. This “funding” of the trust is a critical step many people overlook.
Beyond the setup, the trustee has ongoing responsibilities. A corporate trustee will charge an annual fee, typically a percentage of the assets under management. If you appoint a family member, you place a significant legal and ethical weight on their shoulders. They have a fiduciary duty to act in the best interests of the beneficiaries, keep meticulous records, and file appropriate tax returns for the trust. This can be a heavy burden for a loved one who lacks financial or legal expertise, sometimes creating friction within the family. The perceived simplicity of avoiding Surrogate’s Court must be weighed against the real, ongoing work of trust administration.
A trust is an excellent tool when used for the right reasons and in the right circumstances. But it is not the only tool. Sometimes, a simpler instrument like an enhanced life estate deed or even a thoughtfully drafted will is the more prudent choice. The goal is always intentional, deliberate planning that aligns with the future you envision.
Before you make any decisions about titling your property, the first step should be to map out your long-term goals. We can schedule a legacy planning session where we review your objectives for the property against the full range of legal instruments available to find the most effective path for your family.
