The disadvantages of putting your house in a trust include legal and administrative costs, reduced control over the property, mortgage and refinancing complications, potential loss of tax benefits like the homestead exemption or step-up in basis, and the fact that a revocable trust offers no protection from creditors. Whether those trade-offs are worth the probate avoidance benefit depends on the type of trust you use, the property’s value, and how much ongoing management you’re prepared to handle.
The Money You’ll Spend Setting Up and Running It
Attorney fees for drafting the trust and preparing a new deed typically run from roughly $1,000 to $5,000. Complex estates or properties in multiple states push that higher. On top of the drafting fee, you’ll pay county recording fees when the new deed is filed and notarization costs for the trust documents. None of it is recoverable if you later decide the trust wasn’t worth it.
Ongoing costs depend on who runs the trust. A corporate or professional trustee commonly charges 1% to 2% of the trust’s total asset value per year. On a house worth $400,000, that’s $4,000 to $8,000 annually just for administration. Even if you serve as your own trustee, a nongrantor irrevocable trust must file its own federal income tax return (Form 1041) each year if it has $600 or more in income, which means annual accounting fees on top of everything else.1Internal Revenue Service. Abusive Trust Tax Evasion Schemes – Questions and Answers
The Control You Give Up
Once you deed the house into a trust, legal title no longer sits in your name. It belongs to the trust, and the trustee manages the property according to the trust document. With a revocable living trust where you name yourself as trustee, daily life feels similar. You can still sell, borrow against the property, or dissolve the trust. The friction is paperwork: every transaction involves your capacity as trustee rather than as an individual owner.
An irrevocable trust is a different situation. You give up the right to change the terms, reclaim the property, or direct how it’s used. The trustee, whether that’s you or someone else, must follow the trust document to the letter and act in the beneficiaries’ best interest. Trustees owe duties of care, loyalty, and good faith, and courts take those obligations seriously.2Cornell Law Institute. Fiduciary Duties of Trustees If you later want to renovate, sell, or rent the property in ways the trust doesn’t allow, you may be stuck without a formal trust modification, which itself can require beneficiary consent or court involvement.
The administrative side is not set-it-and-forget-it either. The trustee must keep detailed records of every transaction involving the property: rental income, maintenance expenses, insurance payments, property tax bills, and capital improvements. Trust funds must stay completely separate from personal accounts. Mixing them, even briefly, creates a commingling problem that can expose the trustee to personal liability and give beneficiaries grounds to challenge the trustee’s management.2Cornell Law Institute. Fiduciary Duties of Trustees Family members who volunteer as trustee often discover the role is far more demanding than expected.
Your Mortgage and the Due-on-Sale Clause
Most mortgages include a due-on-sale clause that lets the lender demand full repayment if you transfer the property. Deeding your house into a trust technically triggers that clause because ownership is changing hands. Federal law provides a narrow safe harbor: under the Garn-St. Germain Act, a lender cannot enforce the due-on-sale clause when you transfer to a living trust as long as you remain a beneficiary of that trust and continue living in the property.3Office of the Law Revision Counsel. 12 U.S. Code 1701j-3 – Preemption of Due-on-Sale Prohibitions
That protection has limits. If you transfer the house into an irrevocable trust and either stop living there or are no longer a beneficiary, the exemption may not apply. An irrevocable trust that names your children as the sole beneficiaries, for example, could give your lender the right to call the entire loan balance due immediately. Before transferring a mortgaged property into any irrevocable trust, confirm with both your attorney and your lender that the structure qualifies for the exemption.
Refinancing and Selling Get Harder
Getting a mortgage or refinancing a property held in a trust adds friction that doesn’t exist for individually owned homes. Fannie Mae will purchase loans on properties held in revocable trusts, but the trust must meet specific eligibility conditions and the lender is required to review the trust documents before closing.4Fannie Mae. Inter Vivos Revocable Trusts
Properties in irrevocable trusts face a harder road. Most conventional lenders won’t finance them, because the borrower doesn’t personally hold title and the trust terms may restrict the trustee’s ability to pledge the property as collateral. Some homeowners end up temporarily transferring the house out of the trust to refinance, then deeding it back afterward. That means paying for two deed transfers, two rounds of recording fees, and potentially two rounds of title insurance updates.
Selling from a trust is doable but slower. The trustee needs explicit authority under the trust document to sell. If the trust requires beneficiary consent or if beneficiaries dispute the sale terms, the process can stall for weeks or months. In some situations, a court order may be needed to authorize the sale, adding legal costs and delays a buyer expecting a normal closing timeline won’t appreciate.
Insurance and Title Coverage Can Fall Through the Cracks
Transferring your house into a trust creates a mismatch that can quietly void your insurance coverage. Your homeowners policy names you individually as the insured, but the trust now owns the property. If you file a claim without having updated the policy, the insurer can deny it on the grounds that the named insured doesn’t own the property. The fix is straightforward: contact your insurer immediately after the transfer and add the trust as an additional insured. Skipping that step is one of the most common and costly oversights in trust funding.
Title insurance deserves the same attention. Many title policies extend coverage to transfers into revocable trusts, but not universally. If your existing policy doesn’t cover the transfer, or if you’re moving the house into an irrevocable trust, you may need a new title policy or an endorsement to the original one. Going without title insurance on a trust-held property means the trustee has no recourse if a title defect surfaces years later.
The Tax Downsides
A revocable trust is a “grantor trust” for tax purposes, so the IRS treats you as the owner. You report all trust income on your personal return, and no separate trust return is required during your lifetime.1Internal Revenue Service. Abusive Trust Tax Evasion Schemes – Questions and Answers Once you die and the trust becomes irrevocable, or if you create a nongrantor irrevocable trust from the start, the tax picture changes sharply.
Compressed Trust Income Tax Brackets
Nongrantor trusts that earn income, such as rental income from the house, pay federal income tax on a brutally compressed schedule. For 2026, a trust hits the top 37% rate at just $16,000 of taxable income.5Internal Revenue Service. 2026 Form 1041-ES An individual taxpayer doesn’t reach that rate until income is well into six figures. The 2026 trust brackets:
- 10% on the first $3,300 of taxable income
- 24% on $3,301 to $11,700
- 35% on $11,701 to $16,000
- 37% on everything above $16,000
Distributing income to beneficiaries shifts the tax burden to their individual returns, where rates are usually more favorable, but that requires the trust terms to allow distributions and a trustee who actively manages them.
Property Tax Reassessment and Homestead Exemption
A revocable trust transfer generally doesn’t trigger a property tax reassessment, because you still control the trust. The risk appears when the trust becomes irrevocable, typically at your death, and beneficial ownership shifts to someone else. Jurisdictions that reassess on change of ownership may revalue the property at current market value, raising the tax bill for your heirs.
If your state offers a homestead exemption, transferring to a trust can jeopardize it. Many states permit the exemption for trust-held property, but only if the trust document contains specific qualifying language and the beneficiary continues to occupy the home as a primary residence. Losing the exemption can cost hundreds or thousands of dollars per year in higher property taxes, so check your state’s requirements before funding the trust.
Losing the Step-Up in Basis
One of the biggest tax advantages of dying while owning appreciated property is the step-up in basis: your heirs inherit the home at current market value rather than what you originally paid. Property in a revocable trust qualifies for this step-up, because the IRS treats those assets as part of the decedent’s estate.6Office of the Law Revision Counsel. 26 U.S. Code 1014 – Basis of Property Acquired From a Decedent
Irrevocable trusts are where this gets tricky. If the trust is structured so the property isn’t included in your taxable estate, the IRS has ruled that the property does not receive a step-up. Your beneficiaries inherit your original cost basis and owe capital gains tax on the full appreciation when they sell. On a house bought decades ago for $150,000 that’s now worth $600,000, the difference between getting a step-up and not getting one could mean $60,000 or more in federal capital gains tax. Some irrevocable trusts can be structured to preserve the step-up, but doing so typically means the property stays in your taxable estate, which defeats one of the main reasons people use irrevocable trusts in the first place.
What a Trust Does Not Protect Against
A revocable living trust provides zero asset protection. Because you can revoke the trust and reclaim the property at any time, courts treat those assets as yours. Creditors can reach them, judges can order them seized, and bankruptcy trustees count them as part of your estate. The Uniform Trust Code, adopted in some form by a majority of states, explicitly provides that assets in a revocable trust are subject to the settlor’s creditors during the settlor’s lifetime. If asset protection is your goal, a revocable trust doesn’t get you there.
An irrevocable trust can provide genuine creditor protection, but only under specific conditions. If you transfer property into an irrevocable trust while a lawsuit is pending or reasonably anticipated, a court can unwind the transfer as a fraudulent conveyance. The protection works only when you plan well in advance of legal trouble and genuinely give up control of the property.
Medicaid planning follows a similar pattern. Some homeowners transfer their house into an irrevocable trust to protect it from Medicaid estate recovery, but federal law imposes a 60-month lookback: if you transfer assets for less than fair market value within five years before applying for Medicaid’s institutional care program, you face a penalty period during which Medicaid won’t cover your nursing facility costs.7Office of the Law Revision Counsel. 42 U.S. Code 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets
The penalty is calculated by dividing the value of the transferred asset by the average monthly cost of nursing home care in your state. Transfer a house worth $300,000 in a state where nursing care averages $10,000 per month, and you’re looking at a 30-month penalty during which you’d need to pay for care out of pocket. The penalty clock doesn’t start until you actually apply for Medicaid and would otherwise qualify, so transferring assets and then needing care two years later creates a gap with no coverage and no easy way to reverse the transfer from an irrevocable trust. Assets transferred more than 60 months before a Medicaid application escape the lookback review, which is why this kind of planning needs to happen years before you anticipate needing long-term care.