A family I worked with in Brooklyn bought their brownstone in the 1980s. Today, it’s worth millions. Their concern wasn’t just passing the property to their children—it was the New York estate tax bill that would come with it. Their home’s appreciation, combined with other assets, pushed their estate over the state’s exemption threshold, and they asked a question I hear often: “Should we put the house in a trust?”
The answer requires a deliberate look at your goals, assets, and what you are willing to give up. Using a trust can be a prudent strategy, but it is not a simple fix. The type of trust matters immensely.
The Real Question: New York Estate Tax
Many people say “inheritance tax,” but New York does not have one. An inheritance tax is paid by the person who receives the assets. New York—like the federal government—has an estate tax. This tax is paid by the estate itself before any assets are distributed to beneficiaries.
Our planning focuses on the total value of your estate, not on who receives it. As of 2024, the New York State estate tax exemption is $6.94 million per person. If your total estate is valued below this amount, your assets pass to your beneficiaries free of New York estate tax. The federal exemption is much higher, so for most of our clients, the state threshold is the primary concern.
For families who have owned real estate in New York City for decades, the value of their home alone can consume a large portion of that exemption. When combined with retirement accounts, investments, and life insurance, an estate can easily become taxable. At that point, we discuss specific trust strategies.
Revocable vs. Irrevocable Trusts: A Crucial Divide
When clients ask about putting their house in a trust, they are usually thinking of a Revocable Living Trust. This is an excellent tool for one primary purpose: avoiding probate. Placing your home into a revocable trust ensures it can be managed by your chosen successor trustee and distributed to your beneficiaries without the time, expense, and public nature of Surrogate’s Court.
However, a revocable trust does not remove assets from your taxable estate. Because you retain the right to amend or revoke the trust—to take the house back out, sell it, or change beneficiaries—the law considers you to have full ownership. For tax purposes, the assets are treated as if they are still in your name.
To reduce your taxable estate, you must use an Irrevocable Trust. When you transfer your home to an irrevocable trust, you are making a permanent gift. You relinquish ownership and control. The trust becomes the legal owner of the property, and because you no longer own it, its value is removed from your estate. This is the mechanism for avoiding the estate tax on that asset.
The Trade-Offs of an Irrevocable Trust
Giving up control is a significant step. Once your home is in an irrevocable trust, you cannot simply change your mind, sell the property, and use the proceeds for a vacation. The trustee—who has a fiduciary duty to the beneficiaries—must manage the property according to the terms you established in the trust document.
This is legally binding. Under New York’s Estates, Powers and Trusts Law (EPTL) § 7-1.9, modifying or revoking such a trust is exceptionally difficult, generally requiring the written consent of all beneficiaries. It is designed to be a permanent arrangement. Stewardship.
There are specific types of irrevocable trusts for this purpose, like a Qualified Personal Residence Trust (QPRT). A QPRT allows you to transfer the home to the trust but retain the right to live in it for a set number of years. If you outlive that term, the house passes to your beneficiaries at a significantly reduced gift tax value and is excluded from your estate. If you do not, the asset comes back into your estate. It is a sophisticated instrument with specific rules and risks.
This path involves filing a gift tax return when you fund the trust and requires an intentional approach to your legacy. For families with estates above the exemption threshold, it can save their heirs a substantial amount in taxes, preserving the value of a generational asset.
The decision to place a home in an irrevocable trust requires a clear understanding of your net worth and long-term goals. A practical first step is to create a detailed balance sheet of your assets—your home, investments, retirement accounts, and life insurance. Once you have an accurate picture of your estate’s value, we can have a productive conversation about whether you approach the New York tax threshold and if a trust is the right instrument to protect your legacy.
