Should You Put Your House in a Trust or Gift It?

For many families, the home is one of the most valuable assets they’ll pass on to the next generation. But when it comes to estate planning, simply deciding who gets the house isn’t enough. How you transfer the home, either by placing it in a trust or gifting it during your lifetime, can have significant tax and legal implications.

In this article, we’ll break down the pros and cons of each option so you can make a more informed decision.

Option 1: Putting Your Home in a Trust

A revocable living trust is one of the most common tools used in estate planning to manage the transfer of assets after death—your home included.

Benefits of Using a Revocable Trust

• Avoids Probate: When a home is placed in a trust, it can pass directly to your heirs without going through the probate process, which can be lengthy and public.

• Maintains Control: With a revocable trust, you still own and control the property during your lifetime. You can sell it, live in it, or remove it from the trust at any time.

• Clear Instructions: You can specify exactly how and when the property should transfer, including naming successor trustees to manage it if you become incapacitated.

• Step-Up in Cost Basis: Heirs who receive a home through a trust at your death typically receive a step-up in basis, meaning capital gains taxes are calculated based on the home’s value at your date of death—not what you originally paid.

Potential Drawbacks

• Setup Costs: Establishing a trust requires legal work and upfront costs.

• Ongoing Maintenance: You’ll need to update the trust if your wishes change and ensure the title of the home is properly retitled into the trust.

• Long-Term Care Risk: Unlike an Irrevocable Trust, a Revocable Trust is not protected from a Medicaid spenddown associated with a long-term care event.

To learn more about if you should put your house in a trust, watch our video here.

Option 2: Gifting the Home During Your Lifetime

Some individuals consider transferring ownership of their home to their children or heirs while they’re still alive. This might feel like a generous or efficient move—but it can come with unintended consequences.

When Gifting May Be Appropriate

• If you’re planning ahead for Medicaid eligibility and want to remove assets from your estate (with timing and rules carefully considered)

• If the home has minimal appreciation and capital gains aren’t a major concern

Risks of Gifting the Home

• Loss of Control: Once you gift the property, you no longer own it. You can’t sell it or use it as collateral without the new owner’s permission.

• No Step-Up in Basis: The recipient inherits your original cost basis. If the home has appreciated significantly, they may face large capital gains taxes when they sell it.

• Medicaid Look-Back Period: Gifting a home may disqualify you from Medicaid benefits if done within five years of applying, depending on your state’s rules.

• Possible Gift Tax Reporting: While you may not owe gift tax, you must file a gift tax return if the gift exceeds the annual exclusion limit ($19,000 per person in 2025).

To learn more about gifting your house to your children, watch our video here.

Which Option Is Better?

In most cases, placing your home in a trust provides more flexibility, tax efficiency, and control over how the asset is handled both during your life and after your death. It’s especially helpful if you want to:

• Avoid probate

• Maintain access and control

• Ensure a step-up in basis for your heirs

• Provide clear transfer instructions

Gifting, on the other hand, might make sense in very specific planning scenarios—but it carries more risk and fewer tax advantages if not done carefully.

Final Thoughts

Your home is more than just a valuable asset. It’s also tied to your financial security and your family’s future. Whether you decide to put it in a trust or gift it, the key is aligning the decision with your broader estate, tax, and long-term care planning goals.

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

Frequently Asked Questions (FAQs):

What are the benefits of putting your home in a trust?
Placing your home in a revocable living trust helps it transfer to heirs without probate, maintaining privacy and avoiding court delays. It also allows you to retain control of the property during your lifetime and ensures your heirs receive a step-up in cost basis, reducing potential capital gains taxes when they sell the home.

What are the drawbacks of using a revocable trust for your home?
Setting up a trust requires legal documentation and some upfront cost, and the trust must be maintained over time to reflect your wishes. Additionally, assets in a revocable trust are not protected from Medicaid spend-down rules in the event of long-term care needs.

What happens if I gift my home to my children while I’m alive?
When you gift your home during your lifetime, ownership transfers immediately, meaning you lose control over the property. The recipient inherits your original cost basis, which could lead to higher capital gains taxes if they sell the home in the future.

Are there tax implications when gifting a home?
Yes. While you may not owe gift tax immediately, you must file a gift tax return if the gift exceeds the annual exclusion amount ($19,000 per person in 2025). The recipient also does not receive a step-up in cost basis, which can increase future taxable gains.

How does gifting a home affect Medicaid eligibility?
Gifting a home within five years of applying for Medicaid can trigger penalties or delay eligibility. The transfer may be counted under Medicaid’s “look-back” period, so timing and state-specific rules are important to consider.

Is it better to gift my home or put it in a trust?
For most people, placing the home in a revocable trust offers more flexibility, control, and tax efficiency. Gifting may make sense only in specific situations, such as Medicaid planning, and should be done with professional guidance to avoid costly mistakes. When it comes to Medicaid planning, often setting up an Irrevocable Trust to own the primary residence can be an ideal solution to protect the house from the long-term care event, and the beneficiaries can still receive the step-up in cost basis when they inherit the house.