So you’ve put property in a trust, but now you’re wondering if you can take it back out. Maybe you need to sell it, refinance it, or your family situation has changed. Whatever the reason, removing property from a trust isn’t as straightforward as you might think – but it’s definitely possible in many cases.
Understanding When You Can Remove Property from a Trust
The short answer? It depends on what type of trust you have. Let’s break this down:
Revocable Trusts – Yes, You Can Remove Property
If your property is in a revocable trust (also called a living trust) good news – you have flexibility! Since you maintain control over this type of trust during your lifetime you can
- Remove property whenever needed
- Amend trust terms
- Even dissolve the entire trust if necessary
Irrevocable Trusts – It’s Complicated
With irrevocable trusts, things get trickier. As the AccountingInsights team explains, these trusts are designed to be permanent However, there are still two possible ways to remove property
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If your trust includes specific provisions allowing for asset transfers (though this is generally not recommended for proper asset protection)
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Working with beneficiaries and potentially the court to petition for property removal when all parties agree
Common Reasons People Remove Property from Trusts
People remove property from trusts for various practical reasons:
- Selling the property – Removing it first can simplify the transaction and avoid trustee involvement in negotiations
- Refinancing needs – Many lenders prefer dealing with individuals rather than trusts when issuing loans
- Family changes like divorce or marriage that require reallocation of assets
- Simplifying management of certain assets that may be cumbersome to maintain in a trust
Steps to Remove Property from a Revocable Trust
If you have a revocable trust, here’s what you’ll need to do:
1. Review Your Trust Document First
Before doing anything, carefully examine your trust’s provisions, specifically:
- The amendment clause outlining conditions for making changes
- Any specific requirements for property removal
2. Draft a Formal Amendment
According to AccountingInsights, you’ll need to create an amendment document that:
- Clearly identifies the specific property being removed
- Explains the reasons for removal (optional but helpful)
- Includes a precise property description to prevent ambiguity
Many experts recommend having legal counsel draft or review this amendment to ensure it complies with state laws.
3. Execute the Amendment Properly
This typically involves:
- Getting the grantor’s signature (that’s you if you created the trust)
- Possibly having the trustee sign as well
- Notarization in many cases
- Following any witness requirements in your state
4. Re-title the Property
Once removed from the trust, you’ll need to:
- Update the property deed to reflect the new ownership status
- File documentation with the appropriate county recorder’s office
- Ensure the legal description matches perfectly
This may involve using a quitclaim deed or warranty deed depending on your situation.
Removing Property from an Irrevocable Trust – More Challenging
If you’re dealing with an irrevocable trust, the LegalClarity team notes that property removal is more restricted, but not impossible.
Option 1: Trust Provisions (Rare)
Some irrevocable trusts might include specific clauses allowing for property withdrawal under certain circumstances. However, as Dominion points out, this is generally not recommended for proper asset protection since:
“If such provisions exist, they could act as windows through which courts, creditors, and lawyers can get access to your assets.”
Option 2: Beneficiary Agreement and Court Petition
This route requires:
- Getting all beneficiaries to agree to the property removal
- Possibly getting trustee approval
- Petitioning the court to allow the transfer
- Demonstrating that the transfer serves the trust’s purpose
Option 3: Trust Decanting (Where Available)
Dominion mentions another possibility called “decanting” where:
“Decanting is putting the contents of your old trust into a new trust. This lets you change the terms of the trust without court approval or beneficiary consent, so long as the new trust benefits the same beneficiaries.”
This option is only available in certain states, so check your local laws.
Legal Considerations When Removing Property
Removing property from any trust involves several legal considerations:
- State trust laws govern the formalities for amendments
- Fiduciary duties of trustees must be respected
- Uniform Trust Code provisions may apply in many states
- Proper documentation is essential to avoid future disputes
According to AccountingInsights, “Trustees must act in the best interest of the beneficiaries. If removing property negatively impacts beneficiaries, the trustee could face claims of a breach of fiduciary duty.”
Tax Implications to Consider
Taking property out of a trust can trigger several tax consequences:
For Revocable Trusts:
- Capital gains tax – The property’s basis remains unchanged when removed, but could trigger gains if sold after removal
- Property tax reassessment – Some jurisdictions may treat removal as a change in ownership
For Irrevocable Trusts:
Tax implications can be even more complex, potentially affecting:
- Gift tax consequences
- Income tax considerations
- Generation-skipping transfer tax in some cases
The Re-Titling Process After Removal
Once property is removed from a trust, proper re-titling is crucial:
- Update the property deed to reflect new ownership
- File documentation with the local land registry or county recorder
- Ensure accuracy in all property descriptions and party names
- Pay any required recording fees or taxes
As LegalClarity notes, “Errors can cause complications in future transactions, such as refinancing or selling the property.”
Real-World Example: Removing a Home for Refinancing
Let’s say you placed your home in a revocable trust for estate planning, but now interest rates have dropped and you want to refinance:
- You’d review your trust document to confirm amendment procedures
- Draft an amendment removing just the home from the trust
- Execute the amendment with proper signatures and notarization
- Record a new deed transferring the property from the trust to you personally
- Complete the refinance process
- After refinancing, you could transfer the home back into the trust with a new deed
When Not to Remove Property from a Trust
There are situations when keeping property in a trust is preferable:
- When the trust provides valuable asset protection
- If removal would trigger unnecessary tax consequences
- When removal contradicts your estate planning goals
- If the property benefits from the liability protection offered by the trust
Alternatives to Removing Property
Sometimes you don’t need to fully remove property from a trust:
- Limited amendments might address your concerns without removing assets
- Power of appointment provisions might give needed flexibility
- Trustee changes could resolve management issues
- Trust protector provisions might allow for modifications without full removal
Seeking Professional Guidance
Given the complexity, both AccountingInsights and Dominion strongly recommend consulting professionals before removing property from any trust:
- Estate planning attorneys understand legal implications
- Tax professionals can assess tax consequences
- Financial advisors help evaluate overall impact on your finances
As Dominion puts it: “At Dominion, we operate as partners for your irrevocable asset protection trust from start to finish. Therefore, not only will we ensure that you won’t need it to take assets out of your trust at all, but we’ll also be there to answer any questions you have about irrevocable trusts, asset transfers, and distributions.”
Yes, you can take property out of a trust in many cases, but the process varies significantly based on the type of trust, its provisions, and your specific circumstances. Revocable trusts offer straightforward options, while irrevocable trusts present more challenges but still have potential paths for property removal.
Before making any changes to your trust, consult with qualified professionals who understand the legal, tax, and financial implications. This will help ensure that your property transfers achieve your goals without creating unintended consequences for you or your beneficiaries.
Have you had experience removing property from a trust? What challenges did you face? We’d love to hear your thoughts in the comments below!
Qualified personal residence trust (QPRT)
A qualified personal residence trust (QPRT) is a type of irrevocable trust â in other words, a trust where the terms cannot be changed.
One of the main perks of a QPRT is that the owner of the property can continue to live there for a set amount of time. Theres “retained interest” in the house. Once the period of time is up, the interest gets transferred to the trust beneficiaries.â
Another perk of a QPRT is that the trusts creator can remove the home as one of the listed assets in their estate. The benefit of this? It bumps down how much gift tax is owed â a valuable tax advantage. â
A gift tax is the tax owed when one person transfers an asset, such as property, from one person to another without getting anything in return.
Types of trusts and their implications on selling
The type of trust you have can impact the selling process. Lets look at the three main types of trusts:
A revocable trust, also known as a living trust, allows the grantor (the person who creates the trust) to make changes, modify, or even revoke it at any time.â
Selling a house in a revocable trust: The grantor retains control over the trust, managing assets as they see fit, including selling property. Beneficiaries can only obtain and sell assets after the grantor passes.
An irrevocable trust is not easily altered or revoked by the grantor once its established. Any changes typically require the consent of the beneficiaries.
Selling a house in an irrevocable trust: The trust maps out how you can sell and distribute profits, and the terms cant be modified. In turn, there are more limitations in selling your home.
These trusts are created through a will and only come into effect after the grantors death. They have specific instructions and provisions on how assets are managed and allotted.
Selling a house in a testamentary trust: If you sell a house in a testamentary trust after death, the process tends to be more straightforward. How and if you can sell is laid out in the trusts provisions. For instance, a condition might state that all beneficiaries must agree to sell a property.
Living Trusts Explained In Under 3 Minutes
FAQ
Can you take property out of a trust?
Taking property back out of your trust can be simple or nearly impossible, depending on what kind of trust you formed. If you have a revocable living trust, you can take property in and out of the trust at your leisure. If you have a revocable trust, however, you generally cannot remove property.
Can a trustee transfer property out of a trust?
The legal power to transfer property out of a trust is granted to the trustee by the trust document, often called a Declaration of Trust or Trust Agreement. This document is the primary source of the trustee’s authority, and they must review it carefully before a transfer.
Can you remove property from a revocable trust?
Moving Property out of a Revocable Trust As long as you’re mentally competent, you can remove property from your revocable trust at any time. If you’re not competent, your successor trustee or power of attorney can do so. It’s simply a matter of reversing the process by which you funded the trust with the property in the first place.
Can a revocable trust transfer property?
You can transfer property in and out of a revocable trust simply by changing the title, as you’re entitled to do so. However, if your trust is irrevocable, you don’t have the power to remove property from the trust. Antonelli & Antonelli: Revocable vs. Irrevocable Trusts – What’s the Difference?
What happens if a trustee dies?
After you die, a successor trustee whom you named in the trust document will take over for you as trustee. You’ll also transfer property to the trust and list beneficiaries to receive that property. When it’s time for a beneficiary to take ownership of a home held by the trust, the trustee will transfer ownership by using a deed.
What happens to a living trust if you die?
If you create a living trust, you’ll likely name yourself as the original trustee—the person who manages the trust. After you die, a successor trustee whom you named in the trust document will take over for you as trustee. You’ll also transfer property to the trust and list beneficiaries to receive that property.
Can you pull assets out of a trust?
Because one of a trustee’s primary duties is to make timely distributions of trust assets to beneficiaries, withdrawing money from a trust for this purpose is not only permitted — it’s expected. However, distributions must be made fairly and in accordance with the trust’s terms.
Who owns the property in a living trust?
But one of the most common questions surrounding trusts is: Who actually owns the property within it? The simple answer is that legally, the trust itself owns any property that has been retitled and transferred into it during your lifetime – not you as an individual owner.
What is the 5 year rule for trusts?