Yes, a house in an irrevocable trust can be sold, but the process is controlled by the trustee, not the original owner (grantor). The trust document must authorize the sale, and proceeds must typically remain in the trust to protect assets from taxes or creditors. It requires specialized handling, as the trust, rather than an individual, is the legal owner.
Generally, the trustee must sell the property in the trust since they're responsible for managing the assets. However, who decides that the house will be sold is another matter. Some irrevocable trust agreements require the consent of the trustee and all beneficiaries — or at least the beneficiaries' consent.
Disadvantages of Irrevocable Trusts
Placing a home into an irrevocable trust can protect it from creditors and litigation, but when the home is sold, someone will have to pay the capital gains on the sale. Although irrevocable trusts are great for distributing assets to beneficiaries, they are also responsible for paying capital gains taxes.
The Trustee Owns the Property in an Irrevocable Trust
That's the entire point of setting up a trust in the first place. A trust removes ownership of valuable assets for one reason or another, like estate planning or asset protection.
When it comes to paying property taxes in a trust, the responsibility typically falls on the trustee. The trustee is the individual or entity that holds the legal title to the property and manages the trust's assets for the benefit of the beneficiaries.
The main "new rule" for irrevocable trusts is IRS Revenue Ruling 2023-2, which eliminated the tax benefit of a "step-up in basis" for assets in many irrevocable grantor trusts, meaning beneficiaries inherit the original cost basis, not the fair market value, potentially triggering significant capital gains tax when sold. This change impacts trusts designed to keep assets out of the grantor's taxable estate, forcing planners to choose between estate tax reduction and avoiding capital gains for heirs, especially as the large estate tax exemption may revert in 2026.
Changes to an Irrevocable Trust
The trustee and any named beneficiaries would need to agree to a change mutually. They would need to decide that removing assets would best serve the trust and would need to go to court to explain the reasoning. Even then, the assets could not come back to you directly.
The 20% rule for capital gains refers to the highest federal tax rate for long-term capital gains, applying to higher income brackets when you sell investments (stocks, real estate) held for over a year, with lower rates of 0% and 15% for lower incomes, and even higher rates for special assets like collectibles. This rate kicks in for single filers earning over approximately $492,300 (2024) or $533,401 (2025), and higher for joint filers, making holding assets over a year a key tax strategy.
The "irrevocable trust 3-year rule" (IRC 2035) means if you transfer an existing life insurance policy to an Irrevocable Life Insurance Trust (ILIT) and die within three years, the death benefit is included in your taxable estate, potentially triggering estate taxes, to prevent last-minute estate tax avoidance. To avoid this, the ILIT should own a brand-new policy from its inception, meaning the trust applies for and owns the policy, rather than receiving a gifted one, or you can wait three years after gifting the old policy.
Suze's Warning About Irrevocable Trusts
While an irrevocable trust can, in some cases, protect assets from being counted for Medicaid eligibility, Orman pointed out a major trade-off: "It no longer is part of your estate. It's now out of your hands. Somebody else is in control of it — you are not."
This rule generally prohibits the IRS from levying any assets that you placed into an irrevocable trust because you have relinquished control of them. It is critical to your financial health that you consider the tax and legal obligations associated with trusts before committing your assets to a trust.
Any assets that were transferred to an irrevocable grantor trust will not receive a step-up in basis upon the client's death.
A trustee can sell trust real estate, but must follow the trust's terms and the California Probate Code. Trustees must act in the best interests of the beneficiaries and obtain fair market value for the property. Certain sales may require court approval before they can proceed.
Assets transferred into an irrevocable trust are generally removed from the grantor's taxable estate. This can significantly reduce estate taxes upon death, depending on the size of the estate and current exemption thresholds.
Who owns the property in an irrevocable trust? The trustee is the legal owner of the property placed within it. The trustee exercises authority over that property but has a fiduciary duty to act for the good of the beneficiaries.
Sometimes a house ownership may be put into a Trust when the elderly occupier moves into nursing care. The Trustee to sell the property would need their solicitor to confirm that legally they are allowed to sell the property.
In an irrevocable trust, the trustee is typically responsible for paying property taxes on real estate held within the trust. The trustee uses trust assets to ensure that these taxes are paid on time, thereby maintaining the property's legal standing and protecting the beneficiaries' interests.
The options to terminate or modify an Irrevocable Trust include a Private Settlement Agreement, Non-Statutory Agreements, Judicial Reformation, and Decanting.
Revocable trusts last as long as you want them to and can be canceled at any time. At the time of your death, a revocable trust becomes irrevocable. Irrevocable trusts are permanent. They last for your entire lifetime and after you've passed.
Assets placed under an irrevocable trust are protected from the reach of a divorcing spouse, creditors, business partners, or any unscrupulous legal intent. Assets like home, jewelry, art collection, and other valuables placed in the trust are guarded against anyone seeking litigation against you.