A couple came into my Manhattan office last month with a clear objective: put their Brooklyn brownstone into a trust. They’d heard from friends that this was the definitive way to avoid the delays of Surrogate’s Court. They were surprised when my first question wasn’t about their children, but about their mortgage. “Do you plan to refinance in the next five years?” I asked. The husband paused. “We might,” he said. “Why?”
His question hits a common misconception. A trust can be an exceptionally powerful instrument for generational wealth transfer. But it is not a default, especially for your primary residence. Placing your home—often your most significant asset—into a trust without understanding the trade-offs can create the very problems you’re trying to avoid.
Relinquishing Control Is a Practical Reality
When you transfer your house to a trust, you legally change its owner. You no longer hold the title; the trust does. The implications depend entirely on the type of trust you create.
With a revocable living trust, you typically name yourself as the trustee. You retain a great deal of control. You can sell the property, refinance it, or even dissolve the trust entirely. The process is more administrative than with a personal deed, but the power remains yours.
The dynamic changes completely with an irrevocable trust. These are often used for more advanced goals, like protecting assets from long-term care costs or minimizing estate taxes. Here, you cannot be the sole trustee with power to give the property back to yourself. You must appoint an independent trustee—a person or institution—who has a fiduciary duty to the trust’s beneficiaries, not necessarily to you.
Suddenly, the decision to sell your home or take out a home equity loan is not yours alone. The trustee must approve it, and they will only do so if the action aligns with the trust’s terms and serves the beneficiaries. This is not a theoretical hurdle. It is a practical one that adds delay and bureaucracy to major financial decisions.
Unintended Tax Consequences
One of the most significant advantages of homeownership is the capital gains tax exclusion. Under federal law, an individual can exclude up to $250,000 of capital gains ($500,000 for a married couple) from the sale of their primary residence. Many families rely on this benefit when they downsize or relocate.
Transferring your home to the wrong type of trust can jeopardize this exclusion. If an irrevocable trust is not structured as a “grantor trust” for income tax purposes, the trust—not you—is considered the seller. The trust does not live in the house and therefore cannot claim the primary residence exclusion. A lifetime of equity could suddenly be exposed to a significant, avoidable tax bill.
Similarly, a well-drafted trust should preserve the “step-up in basis” for your heirs. This resets the property’s cost basis to its market value upon your death, wiping out capital gains tax for your beneficiaries if they sell. A poorly constructed trust, or one where property was gifted incorrectly, can interfere with this critical benefit, leaving your children with an unexpected tax liability.
The Problem with Mortgages and Lenders
This brings me back to my question to that Brooklyn couple. Banks and mortgage lenders prefer simplicity. They are comfortable lending to individuals, but they become cautious when a trust owns the property.
If you want to refinance a home already in a trust, the lender will almost certainly require you to take the property out of the trust first. You will have to deed the property back to yourself personally, complete the refinancing, and then have an attorney prepare a new deed to transfer it back into the trust.
This process is cumbersome and adds legal costs—it also introduces risk. I have seen clients complete the refinancing but forget the final, critical step of re-deeding the property into the trust. Years later, their family discovers the house was never put back, negating the purpose of the trust and forcing the asset through a lengthy probate process.
Is a Trust the Right Custodian for Your Home?
A trust is a tool of stewardship. Like any tool, it must be suited for the job. For some families, particularly those with high net worth or specific asset protection needs, a trust is the correct vehicle for their home. For others, the costs and loss of flexibility outweigh the benefits of probate avoidance.
The decision to place your home in a trust—especially an irrevocable one—is serious. In New York, the law reflects this permanence. While a revocable trust can be amended, changing an irrevocable trust is difficult, often requiring court approval under Estates, Powers and Trusts Law (EPTL) § 7-1.9.
This is not a decision to be made based on something you overheard. It requires a deliberate review of your assets, your family structure, and your goals for the next five, ten, and twenty years.
Before you take any action, the first step is a clear conversation about what you truly want to accomplish. If you would like to discuss whether a trust is the right instrument to protect your home and legacy, my office can schedule a detailed review of your property and your specific family objectives.
