A client recently came to our Manhattan office with what seemed like a simple plan. She wanted to place her Brooklyn brownstone—the home she’d lived in for 40 years—into a trust to make things easier for her children and avoid Surrogate’s Court. A common goal, and a sound one on the surface. But a few months later, she decided to renovate her kitchen and applied for a home equity line of credit. The bank’s underwriters saw the trust’s name on the deed, and a process that should have taken weeks ground to a halt for months.
Putting a home into a trust is often presented as a default strategy for responsible estate planning. For many families, it is the right move. But it is not a universal fix. A trust is a powerful legal instrument, and it changes your relationship with your most significant asset. Before you sign a new deed transferring your home to a trustee, understand the trade-offs you are making—particularly regarding control, financing, and taxes.
The Reality of Relinquishing Control
The disadvantages depend on the type of trust you create. With a revocable living trust, you typically name yourself as the trustee. In this scenario, you retain full control. You can sell the house, refinance it, or even dissolve the trust entirely. For day-to-day purposes, little changes.
An irrevocable trust is a different matter. These are often used for more advanced goals, like protecting assets from long-term care costs or minimizing estate taxes. When you place your home into an irrevocable trust, you are making a gift to the trust. You are no longer the owner, and you cannot be the sole trustee with the power to take it back. You have intentionally and permanently given up control.
This means any decision to sell or mortgage the property is now in the hands of the trustee you appointed. That trustee has a strict fiduciary duty to act in the best interest of the beneficiaries, not necessarily your own immediate wishes. If your children are the beneficiaries and the trustee, a future disagreement could become a significant family conflict with your home at the center of it.
Financing and Administrative Headaches
My client’s experience with her home equity application is incredibly common. Lenders manage risk. A trust adds a layer of legal complexity they are cautious about.
When you apply for a mortgage or refinance a property held in a trust, the lender’s legal department will insist on reviewing the entire trust document. They need to verify that the trustee has the specific authority to borrow against the property. If the language in the trust is ambiguous or doesn’t explicitly grant this power, the bank will refuse the loan. Correcting this might require a legal amendment to the trust, which costs time and money.
Even if the trust is perfectly drafted, the process simply takes longer. It involves more paperwork, more scrutiny, and more people who need to sign off. What should be a standard financial transaction becomes a legal review. For clients who plan to use their home’s equity in retirement, this can become a major and unexpected obstacle.
Unintended Tax and Exemption Consequences
Transferring your home to a trust can also have significant, often overlooked tax implications. While a standard revocable trust is usually tax-neutral—it doesn’t change your tax situation—more complex trusts can create problems.
One of the most important benefits for homeowners is the capital gains tax exclusion on the sale of a primary residence—up to $250,000 for an individual and $500,000 for a married couple. A properly drafted revocable trust preserves this benefit. However, certain types of irrevocable trusts can forfeit it. If the trust, not you, is considered the seller, the sale could be subject to capital gains tax from the very first dollar of profit.
Furthermore, property tax exemptions in New York, like the STAR (School Tax Relief) program, are tied to ownership and residency. Transferring title to a trust can complicate your eligibility. While a transfer to a living trust generally doesn’t disqualify you, it can create administrative hurdles with your local assessor’s office that must be managed correctly.
Finally, the trust itself must be created with legal precision. Under New York EPTL § 7-1.17, a lifetime trust must be in writing and formally executed, much like a deed. This isn’t just paperwork; it’s a legal event with strict requirements that underscore the seriousness of the transfer.
A Deliberate and Intentional Choice
A trust can be an essential part of a generational legacy, protecting a family’s most important asset from probate and ensuring a smooth transition. But it is not a step to be taken lightly. The decision to change the ownership of your home requires a clear understanding of your long-term intentions.
Before you retitle what may be your most valuable asset, a prudent first step is to map out your goals for the property. We often begin this process with a legacy review to weigh the benefits of a trust against its potential drawbacks for your specific family situation.
