Should I Put My Primary Residence in a Trust?

Placing your primary residence into a trust is an estate planning strategy that transfers the legal title of your home from your name to a trust. While this changes the ownership on paper, it does not have to affect your ability to use and control your home during your lifetime. This action has legal and financial consequences, influencing how your property is passed to heirs and its tax treatment.

Understanding Trust Options for a Primary Residence

When placing a home into a trust, the first decision is choosing between a revocable living trust or an irrevocable trust. A revocable living trust is a flexible tool that you, the grantor, control throughout your lifetime. You can change its terms, add or remove assets, or dissolve the trust, meaning the assets are still considered yours for legal and tax purposes.

A primary function of a revocable trust is to allow for the management of your assets if you become incapacitated and to let those assets avoid the probate process upon death. Probate is the court-supervised process of validating a will. Holding the home in a revocable trust allows it to pass directly to your beneficiaries according to the trust’s terms.

An irrevocable trust operates differently, involving a complete surrender of control and ownership of the assets placed into it. Once you transfer your home to an irrevocable trust, you cannot amend the terms or reclaim the property without the beneficiaries’ consent. This transfer removes the asset from your personal estate.

The main reasons for using an irrevocable trust are asset protection and estate tax planning. Because you no longer legally own the home, it is shielded from future personal creditors and can be excluded from your estate for tax calculations. This is advantageous for estates that exceed the federal estate tax exemption of $13.99 million per individual.

Key Financial and Legal Considerations

Probate Avoidance

A primary reason to place a residence in a trust is to bypass probate, the public court process for distributing assets after death, which can be lengthy and costly. When a home is in a revocable living trust, it is not part of the probate estate. The successor trustee you name can then manage and distribute the property to your beneficiaries as directed, ensuring a private and often faster transfer. An irrevocable trust also avoids probate, but the loss of control makes a revocable trust the more common tool for this specific purpose.

Capital Gains Tax Exclusion

Homeowners can exclude a significant amount of profit from capital gains tax when selling their primary residence. Under Section 121 of the Internal Revenue Code, an individual can exclude up to $250,000 of gain, and a married couple up to $500,000, if they owned and lived in the home for at least two of the five years before the sale.

Placing your home in a revocable trust does not jeopardize this exclusion. The IRS treats the grantor as the owner for tax purposes, so the trust can claim the exclusion if you meet the use requirements. The situation is more complex with an irrevocable trust, as transferring your home could mean losing the exclusion. However, this benefit can be preserved by designing the irrevocable trust as a “grantor trust” for income tax purposes. This structure keeps the asset outside your estate for estate tax purposes but treats it as yours for income tax purposes.

Property Taxes and Homestead Exemptions

Transferring a home to a trust can affect property tax assessments and homestead exemptions, which reduce taxes for owner-occupied homes. With a revocable living trust, most jurisdictions allow the homeowner to continue receiving the homestead exemption, though you may need to file a form with the local tax assessor’s office to preserve it.

The outcome is less certain with an irrevocable trust and varies by jurisdiction. Because you are no longer the legal owner, some local governments may disqualify the property from the homestead exemption. This potential loss must be weighed against the trust’s other goals.

Mortgage and Title Insurance

Mortgage contracts include a “due-on-sale” clause, allowing the lender to demand full repayment if the property is transferred. However, the federal Garn-St Germain Depository Institutions Act prohibits lenders from enforcing this clause when a homeowner transfers their residence into a revocable living trust where they are a beneficiary with occupancy rights.

This protection can also apply to an irrevocable trust if the borrower remains a beneficiary with occupancy rights, but seeking the lender’s permission is advisable. After transferring the deed to any trust, you must also contact your title insurance company. The change in ownership may require an endorsement or a new policy to ensure coverage continues under the trust’s name.

Asset Protection

A revocable living trust provides no asset protection from creditors. Because you retain control and are considered the owner, creditors can reach the home to satisfy your debts.

In contrast, an irrevocable trust offers substantial asset protection. By relinquishing ownership, the property is shielded from your future personal creditors and legal claims. This is a primary reason for using this trust, especially for long-term care planning, like qualifying for Medicaid, which has a “look-back” period for asset transfers.

Information and Documents Needed for the Transfer

Before moving your home into a trust, you must have a legally valid trust agreement. This document, drafted with an attorney, outlines the rules, names the grantor and trustee, and designates beneficiaries. You will also need a copy of the current deed to your property. This contains the legal description of the property, which must be transcribed exactly onto the new deed.

The full, correct name of the trust is also required to identify the new owner, or “grantee,” often written as “John Smith, Trustee of the Smith Family Revocable Trust, dated January 1, 2025.” With this information, you can complete a new deed, such as a quitclaim or warranty deed. A quitclaim deed is common for this purpose, as it transfers ownership without warranties about the title. You will fill in your name as the “grantor” and the trust’s name as the “grantee,” along with the property’s legal description.

The Process of Transferring Your Home to a Trust

Once the new deed is filled out, you must sign it in the presence of a notary public. The notary verifies your identity, witnesses your signature, and applies their official seal to affirm the document’s authenticity. This notarization is required before the deed can be recorded.

After the deed is signed and notarized, it must be submitted to the County Recorder’s Office or Register of Deeds where the property is located. Recording the deed makes the ownership transfer a matter of public record, and you will need to pay a recording fee.

The final step is to provide a copy of the newly recorded deed to your mortgage lender and homeowners’ insurance provider. This ensures their records are updated and that your insurance coverage continues uninterrupted under the trust’s name.