Should You Put Your House in a Trust? (2025)

August 23, 2025 by Georges Benoliel

Deciding whether to place your house in a trust largely depends on your individual circumstances. One of the primary benefits of putting your house in a trust is that it helps you avoid Should You Put Your House in a Trust probate upon your death. This not only saves you from a lengthy and public probate process but also facilitates a quicker transfer of assets to your heirs, potentially saving you around 3% in probate fees.

However, there are reasons why placing your house in a trust may not be the best choice for you. For instance, if you don’t expect to pass away soon, the initial setup costs, ongoing maintenance expenses, and complexities of managing a trust could outweigh the benefits.

Here are some factors to consider when deciding whether to place your house in a trust:

Probate Avoidance: If avoiding probate is a priority for you, a trust may be a suitable option. By placing your house in a trust, you avoid the need for probate.
Privacy: If privacy is important to you, a trust may be a beneficial option. Probate proceedings are public, meaning anyone can access your will and see how your assets are distributed. A trust allows you to maintain confidentiality regarding your affairs.
Control: A trust provides greater control over asset distribution. You can set specific conditions for distribution and appoint a trustee to manage your assets if you become incapacitated.
Cost: Establishing a trust can be an expensive endeavor. So it’s essential to weigh these expenses against the potential benefits. Additionally, transferring your house into a trust might have tax implications that you should consider.

Benefits of putting a house in a trust

Establishing a simple revocable trust for your house can offer several advantages, including avoiding probate, maintaining privacy, and enhancing control over asset distribution. Additionally, there are significant tax benefits associated with placing assets in other types of trusts, such as irrevocable trusts.

One of the primary benefits of putting your house in a trust is the avoidance of probate. Probate is a legal process that occurs after someone passes away to distribute their assets according to the terms of their will or state law. This process can be time-consuming, expensive, and public, often causing stress and inconvenience for your loved ones. By placing your house in a trust, it can be transferred to your beneficiaries without going through probate, saving time and money while reducing the anxiety and uncertainty associated with probate proceedings.

Another key advantage of placing your house in a trust is the increased privacy it affords.

Probate proceedings are public, meaning anyone can access your will and see how your assets are distributed. Using a trust allows you to keep your affairs private, which can be especially important if you have complex family situations you wish to keep confidential.

A trust can also give you greater control over asset distribution.

You can set specific conditions for the distribution and designate a trustee to manage your assets if you become incapacitated. This allows you to have peace of mind, knowing your assets will be allocated according to your wishes.

Lastly, placing your house in a trust can protect your beneficiaries from creditors and lawsuits. When your assets are held in a trust, they are separate from your personal assets, providing an additional layer of security for your beneficiaries.

It’s crucial to understand that certain types of trusts, like irrevocable trusts, legally separate the assets from you, making them inaccessible to creditors.

Revocable vs Irrevocable Trusts

A revocable trust, also known as a living trust, is a type of trust that the grantor can modify or revoke at any time during their lifetime. In a revocable trust, the grantor retains control over the assets within the trust, including their house.

The grantor can transfer ownership of the house to the trust and, as long as they are alive and competent, can modify the trust agreement, including removing the house from the trust.

Conversely, an irrevocable trust is a trust that cannot be changed or revoked by the grantor once it has been established and funded. When a house is transferred to an irrevocable trust, the grantor relinquishes ownership and control of the house to the trust and its designated trustee.

An irrevocable trust can offer benefits such as creditor protection, tax advantages, and asset protection. However, once the irrevocable trust is created, the grantor cannot make any modifications to it. In summary, placing your house in a revocable trust allows you to maintain control and make changes to the trust agreement as your circumstances evolve.

In contrast, transferring your house to an irrevocable trust means that you give up control over the house, but you may gain benefits such as asset protection, creditor protection, and tax advantages.

Potential tax benefits of an irrevocable trust

Estate Tax Reduction: One of the primary reasons people use irrevocable trusts is to lower their estate tax liability. When you transfer the property to an irrevocable trust, it is no longer considered part of the grantor’s taxable estate. As a result, it may not be subject to estate taxes upon the grantor’s death.
Gift Tax Reduction: Transferring property to an irrevocable trust can also help reduce gift taxes. When the grantor moves property into the trust, it is a gift; however, the value of this gift can be diminished by any interest the grantor retains in the property. If appropriately structured, the grantor can decrease the value of the gift and potentially avoid or reduce gift taxes.
Income Tax Reduction: An irrevocable trust can offer potential income tax benefits. If the trust is set up as a grantor trust, the grantor is responsible for paying income taxes on the trust’s income, meaning the income is not taxed at the potentially higher rates applicable to trusts. Additionally, the grantor may be able to deduct specific expenses associated with the trust, such as trustee fees or legal fees.
Capital Gains Tax Reduction: When assets are placed into an irrevocable trust, their basis is typically adjusted to reflect the fair market value at the time of transfer. This adjustment can potentially reduce capital gains taxes if the assets are sold in the future.

Can irrevocable trusts shield you from the estate tax?

Putting your house or other assets into an irrevocable trust can protect them from estate tax because they are no longer considered part of your estate. However, it’s essential to note that there is no free lunch; gifts made to an irrevocable trust are subject to the same lifetime gift tax exemption as other gifts. For 2023, the lifetime gift tax exemption is $12.06 million per person. This means that an individual can give up to $12.06 million in gifts during their lifetime without incurring federal gift tax.

When making a gift to an irrevocable trust, there are several strategies you can use to potentially reduce or eliminate gift tax liability:

Gift-Splitting: If you are married, both you and your spouse can each make a gift of up to the annual exclusion amount ($16,000 in 2023) to the trust. This effectively doubles the total amount you can give without incurring gift taxes.
Discounting: Assets gifted to an irrevocable trust can sometimes be discounted for gift tax purposes. This reduces their value, reflecting that they cannot be easily sold or transferred, which may help decrease the overall value of the gift for tax calculations.
Grantor Retained Annuity Trust (GRAT): A GRAT is a specific type of irrevocable trust that allows the grantor to transfer assets into the trust while receiving annuity payments from it for a specified number of years. At the end of the term, any remaining assets in the trust pass to the beneficiaries without incurring gift taxes. This strategy can be particularly useful for transferring assets expected to appreciate.

In summary, there is no glaring loophole in tax law that allows you to completely avoid estate tax by placing your house in an irrevocable trust.

How does a Grantor Retained Annuity Trust work?

A Grantor Retained Annuity Trust (GRAT) is an irrevocable trust that allows you to transfer assets into the trust while retaining an annuity interest for a specified term. As the grantor, you will receive regular annuity payments, typically on an annual basis.

At the end of the term, any remaining assets in the trust pass to the designated beneficiaries, usually your heirs, without incurring gift taxes.

Here’s a more detailed explanation of how a GRAT works:

Establishing the GRAT: You set up a GRAT and transfer assets into it. These assets can include cash, stocks, or other types of property. The value of these assets is determined by their fair market value at the time of the transfer.
Choosing the Term: You select the term of the GRAT, which typically lasts between 2 and 10 years. During this time, you retain the right to receive annual annuity payments, calculated based on the value of the trust’s assets and the IRS-prescribed interest rate, commonly referred to as the “7520 rate.”
End of the Term: Once the term concludes, any remaining assets in the trust are transferred to the beneficiaries you designate, usually your heirs. These beneficiaries receive the assets free from gift tax.

If the assets in the trust appreciate at a rate that exceeds the 7520 rate, excess assets will remain in the trust at the end of the term, allowing them to pass to the beneficiaries without incurring additional gift taxes. This makes the GRAT a potentially effective strategy for transferring appreciating assets.

However, there are risks associated with a GRAT. For instance, if the assets do not appreciate as quickly as expected, it could diminish or eliminate any potential tax savings.

If you’re concerned about saving money on taxes, consider relocating to a tax-free state, such as Florida, to eliminate your state and local tax liabilities. New Yorkers can explore potential savings with the updated NYC Income Tax Calculator, and everyone can learn more about the pros and cons of living in Miami before making a decision.

Cons of putting a house in a trust

Many people choose not to put their house or other assets into a trust due to the complexity and cost associated with it.

Creating a trust may only be worthwhile if the value of the assets is significant enough to justify the additional expenses.

Complexity: Setting up and managing a trust can be intricate, often requiring the help of an attorney or financial advisor. There are ongoing administrative tasks, such as filing tax returns, which can be time-consuming and may necessitate professional assistance. These factors can contribute to higher ongoing costs and complexities when transferring a house into a trust.
Cost: Establishing and maintaining a trust can be a considerable expense. Costs may include legal fees and other expenses associated with setting up the trust, as well as recurring fees for administration and management. The overall costs associated with establishing and managing a trust can exceed those of other estate planning strategies, such as a will or joint tenancy. It’s essential to consider how much more your accountant might charge annually for the additional filings required.
Loss of Control: Transferring a house into a trust means you relinquish some control over the property. The trustee will have legal authority over the asset, and you may need their approval to sell or make changes to the property. This loss of control can be a significant disadvantage if you wish to make modifications or have concerns about how the trust is managed.
Potential Tax Consequences: While putting a house into a trust can offer tax benefits, there are also potential tax implications to consider. For instance, if you place a house into an irrevocable trust, you might lose access to certain tax deductions or exemptions that you would typically qualify for as the property’s owner.
Difficulty in Financing: If you transfer a house into a trust, obtaining financing for the property may become more challenging. Lenders may be hesitant to provide loans to a trust, as it could be more difficult to recover the loan amount in the event of default.

Bottom Line

In summary, establishing a trust entails significant ongoing administrative tasks and expenses, which can vary depending on the type of trust and the assets it holds.

Here are some examples of ongoing costs and filings that may be required to maintain a trust:

Tax Returns: Depending on the type of trust, you may need to file annual income tax returns for the trust. This can be a complex and time-consuming process that may require the assistance of an accountant or tax professional.
Accounting and Record-Keeping: You will need to maintain detailed records of all transactions involving the trust, including income, expenses, and distributions. This process can also be time-consuming and may require the help of a bookkeeper or other professional.
Legal Fees: Depending on the complexity of the trust and its assets, you may need to consult with an attorney regularly to ensure the trust is being managed properly. This can lead to additional legal fees and expenses.
Trustee Fees: If you appoint a professional trustee to manage the trust, you will need to pay their fees and expenses. The cost for a professional trustee can vary based on the size and complexity of the trust.
Reporting Requirements: Depending on the type of trust, you may be required to provide periodic reports to the beneficiaries. These reports can include information about the trust’s assets, income, expenses, and distributions.
Amendment and Termination Costs: If you need to make changes to the trust, such as adding or removing assets or changing beneficiaries, additional legal and administrative fees may apply. If you decide to terminate the trust, additional costs will be incurred for winding down the trust and distributing its assets to the beneficiaries.

It’s important to remember that transferring a house or any other asset into a trust is a complex financial decision.

This should be made in consultation with your personal financial advisor, accountant, and/or legal team. Additionally, it’s a good idea to discuss this decision with your family, particularly your spouse.

If you’re a real estate investor, consider the trade-offs of setting up a trust versus any potential tax benefits you might forfeit. For instance, if a rental property is in an irrevocable trust, that trust would be a separate taxpayer for federal tax purposes, requiring its own tax return.

However, whether the trust qualifies as a real estate professional depends on the specific facts and circumstances of the situation.

Tags: Real Estate NYC

Written By: Georges Benoliel

Georges has been working in Wall Street for the last 16 years trading derivatives with hedge funds. He has been an active real estate investor for over a decade. Georges graduated from HEC Business School in Paris and holds a master in Finance from ESADE Barcelona.

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