Securing the Family Home: Using an Irrevocable Trust to Hold Real Estate

In the heart of New York City lived the Harrisons, a successful couple who had built a comfortable life for themselves and their two children, Adam and Emily. As they aged, the Harrisons, like many families with valuable real estate, began to contemplate how best to preserve their legacy—particularly their cherished primary residence—for the next generation. Their decision to place the property in an irrevocable trust became a pivotal moment in their estate planning journey.

An irrevocable trust, by definition, is a legal arrangement where the grantor permanently transfers ownership of an asset—such as real estate—to a trust. Once the property is transferred, the grantor relinquishes all rights of ownership and control. While this might seem drastic, it offers powerful advantages for those looking to protect family assets.

For the Harrisons, the primary goal was asset protection. By placing their home in an irrevocable trust, it was no longer considered part of their personal estate. This shielded the property from potential creditors and legal claims that could arise during their lifetime. For a businessman and a lawyer—both exposed to liability in their professional lives—this move provided invaluable peace of mind.

Tax advantages were another significant motivation. By removing the property from their taxable estate, the Harrisons reduced their potential estate tax burden. Additionally, since the trust was irrevocable, any appreciation in the property's value would occur outside of their estate, further minimizing tax liability upon their passing.

The process involved working closely with an estate planning attorney to draft a comprehensive trust agreement. This document outlined the roles of the trustee and beneficiaries, the management and distribution guidelines for the property, and the long-term goals of the trust. Once finalized, the title to the home was legally transferred to the trust, marking a definitive shift in ownership.

While the Harrisons no longer legally owned their home, they gained the comfort of knowing it was safeguarded for Adam and Emily. This forward-thinking strategy also avoided the probate process, enabling a smooth and private transfer of the property upon their passing.

Another option—Independent trustee

Appointing an independent trustee to manage an irrevocable trust holding a primary residence can provide several legal, tax, and practical benefits—especially for a married couple seeking to protect and preserve their home for future generations.

An independent trustee is someone not related by blood or marriage to the grantors (the couple establishing the trust), and who does not have a beneficial interest in the trust. This independence is key for ensuring objectivity in managing the trust and maintaining certain tax protections.

Why Use an Independent Trustee for Real Estate?

1. Creditor Protection & Estate Tax Benefits

When a married couple places their primary residence into an irrevocable trust, the goal is often to remove the home from their taxable estate and protect it from future creditors. If the couple retains too much control—such as serving as trustees themselves—courts or tax authorities may view the arrangement as illusory, potentially compromising those benefits.

An independent trustee strengthens the argument that the couple has truly relinquished control, which is a cornerstone requirement for:

• Asset protection
• Medicaid eligibility
• Estate tax exclusion

2. Avoiding IRS Attribution Rules

The IRS scrutinizes irrevocable trusts for signs of retained control. If the grantors act as trustees, or name someone closely aligned with them (like a child or spouse of a child), the IRS may consider them to still have control over the asset. This could cause the home to be included in their taxable estate.

Using an independent trustee helps preserve the integrity of the trust’s tax treatment, particularly under IRC Sections 2036 and 2038, which deal with retained interests and powers.

3. Neutrality in Family Dynamics

Trustee decisions can involve sensitive matters such as whether to sell or rent the property, manage expenses, or address maintenance. An independent trustee brings neutrality, which can be especially important if there are multiple beneficiaries or potential for conflict between children or heirs.

4. Professional Oversight

Many independent trustees are professionals—lawyers, CPAs, or trust companies—who bring experience and fiduciary discipline. They ensure that trust terms are followed, records are maintained, and that decisions align with the couple’s original intent.

Practical Considerations

• Selection: The couple should carefully vet potential trustees for competence, integrity, and alignment with their goals.
• Compensation: Independent trustees are typically paid, so the trust should anticipate and budget for this cost.
• Limited Powers: The trust can define specific powers, such as limiting the trustee’s ability to sell the property without beneficiary approval, to strike a balance between control and protection.

Their story serves as a modern-day example of thoughtful estate planning. An irrevocable trust may not be right for every family, but for those with significant real estate holdings and a desire for asset protection, tax benefits, and a clear path to intergenerational wealth transfer, it is a compelling option.

In the end, the Harrisons’ decision was not just about real estate—it was about love, legacy, and securing peace of mind for the future.

For Informational Purposes only and not for legal or tax advice.

About the Author – Marie Feindt, JD 

Marie Feindt is the Planning Specialist – Estate Attorney at Members’ Wealth, a boutique wealth management firm that offers a comprehensive and holistic approach to serving individuals, families, business owners, and institutions. The firm’s goal is to preserve and grow its clients’ wealth to endure over time, while thoughtfully evolving its strategy to suit an ever-changing world. With over 20 years of estate planning experience, Marie and the Members’ Wealth team thrive on bringing clarity and confidence to clients’ unique situations. She believes everyone, young adults and older, need the essential documents to conserve and preserve and transfer assets accumulated during lifetime to the next generation.

Marie received her JD from Widener University School of Law, her bachelor’s degree from Penn State University, University Park and is currently enrolled in the Villanova University Charles Widger School of Law Graduate Tax Program.

Marie is an Adjunct Faculty at the Villanova University College of Professional Studies Paralegal Professional Certificate Program where she teaches Estates & Trusts and Civil Procedure & Litigation and Torts & Personal Injury Law.

Marie volunteers for a monthly legal clinic at The Salvation Army in Chester, PA facilitated by the Christian Legal Clinic of Philadelphia. She has served on the Women’s Commission of Delaware County and as a Board Member for the Delaware County Literacy Council.

Marie enjoys biking, reading, yoga and walking in her free time with her husband and three children.

To get in touch with the Members’ Wealth team today, I invite you to email info@memberswealthllc.com or call (267) 367-5453. 

You can learn more about how we serve our clients by tapping the button below.

Investment advisory services are offered through Members’ Wealth, LLC., a Registered Investment Advisory Firm.

Registration with the SEC does not imply a certain level of skill or training. We are an independent advisory firm helping individuals achieve their financial needs and goals

Members’ Wealth does not provide legal, accounting or tax advice. Please consult your tax or legal advisors before taking any action that may have tax consequences.

This commentary reflects the personal opinions, viewpoints and analyses of the Members’ Wealth, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Members’ Wealth, LLC or performance returns of any Members’ Wealth, LLC client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Members’ Wealth, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results

Copyright © 2023 Members' Wealth LLC