A client came to our Manhattan office last week with a clear goal. She wanted to give her daughter the family home in Westchester—the place her daughter grew up, the most significant asset she owned. Her question was simple: “Should I just sign the deed over, or put it in a trust?”
The answer, as it often is in law, is not simple. Transferring a home is more than a transaction; it’s an act of stewardship that can have consequences for generations. The impulse to provide for a child is a good one, but the method you choose determines whether that gift becomes a foundation for their future or a source of unforeseen liability. My job is to think through the contingencies—the ones you see, and the ones you don’t.
The Goal: Security. The Tool: A Trust.
When a parent wants to put a house in trust for a child, the goal is usually protection. You want to ensure she has a place to live. You want to shield the property from potential creditors or a future divorce. You want to avoid the lengthy and public process of probate in Surrogate’s Court. These are all valid objectives.
A trust is a legal structure that holds assets—in this case, real estate—for the benefit of another person. You, the grantor, create the trust. You name a trustee to manage it, which could be you, your daughter, or a neutral third party. And you name your daughter as the beneficiary.
But the most critical decision isn’t whether to use a trust, but what kind of trust to create. This is where the path divides, and where a deliberate choice can protect—or expose—your family’s most important asset.
Revocable vs. Irrevocable: The Line Between Control and Protection
In New York, trusts generally fall into two categories: revocable and irrevocable. The difference is not a minor detail; it changes everything.
A revocable living trust is flexible. You retain complete control. You can amend it, change the beneficiary, or even dissolve it entirely and take the house back into your name. Because you keep this control, the law sees the house as yours. This is useful for avoiding probate, but it offers almost no protection from creditors or long-term care costs. For tax purposes, it’s as if the transfer never happened.
An irrevocable trust is different. Stewardship. When you transfer your home to an irrevocable trust, you are making a gift. You typically give up the right to change your mind. This loss of control is the price of protection. Because the asset is no longer legally yours, it can be shielded from your future creditors and, after the five-year look-back period, it will not be counted for Medicaid eligibility purposes.
Under New York’s Estates, Powers and Trusts Law (EPTL) § 7-1.9, modifying an irrevocable trust is possible but requires the consent of all beneficiaries. It’s a high bar, and it’s meant to be. The structure is designed for permanence.
Thinking Through the Unintended Consequences
Transferring a home into a trust—especially an irrevocable one—creates ripples that many people don’t anticipate. We always discuss these second- and third-order effects with our clients.
First, there are tax implications. Gifting a house is a major taxable event that will likely require you to file a federal gift tax return. While you may not owe tax due to the lifetime exemption, it uses up a portion of that exemption.
More importantly, consider capital gains. If you gift the house to your daughter today via a trust, she also receives your original cost basis. If you paid $200,000 for the house and it’s now worth $1.2 million, her basis is $200,000. If she sells it, she faces a significant tax bill. In contrast, if she inherits the house upon your death, she receives a “step-up” in basis to its fair market value at that time, potentially erasing decades of taxable appreciation.
Second, if you have a mortgage, transferring the property could technically trigger the lender’s “due-on-sale” clause. While federal law often provides an exception for transfers into a living trust where you remain the beneficiary, the rules for irrevocable trusts can be more complex.
Finally, we must consider your daughter’s own life. Is the trust structured to protect the home if she goes through a divorce? What if she has her own financial trouble? A properly drafted trust can build a protective wall around the asset, but a poorly drafted one can expose it to her spouse, her creditors, and her mistakes.
The decision to place your home in a trust is a serious one that redefines ownership. Before any documents are drafted, we spend our time mapping the family’s assets and discussing the legacy you intend to build. If you’re considering this for your own family, the first step is a clear-eyed review of your deed, your finances, and your long-term goals.
