At the time, it seemed like a smart move to protect the property and ensure a smooth inheritance process. Now that she’s considering a sale, she’s unsure — can she sell the house and use the proceeds to buy a smaller one, or does the trust restrict how money can be used?
If your home is held in an irrevocable trust — or you're thinking about placing it in one — there are some important factors to understand before you downsize.
What is an irrevocable trust?
An irrevocable trust is a legal arrangement in which you transfer ownership of an asset, such as a house, to a separate legal entity known as a trust. Once transferred, the trust (not you) legally owns the asset (1).
The person who creates the trust is called the grantor, and the people who benefit from it are beneficiaries. The trust is managed by one or more trustees, who make decisions about how the assets in the trust are handled.
The main difference between an irrevocable trust and a revocable trust is control. With a revocable trust, you can change or dissolve it at any time. With an irrevocable trust, you give up that control — it can’t be changed or canceled unless all beneficiaries agree or the court approves the modification.
Homeowners often use irrevocable trusts for reasons such as:
- Asset protection: Shielding property from creditors or lawsuits.
- Estate planning: Reducing estate taxes and ensuring assets transfer smoothly to heirs.
- Medicaid planning: Excluding a home from Medicaid eligibility calculations if the trust is created before the look-back period.
Assets placed in an irrevocable trust can include real estate, investments, or even life insurance policies. While a trust offers many protections, there are trade-offs to consider.
Once the asset is owned by the trust, the grantor loses direct control. The trustees must approve any sale or purchase of property held by the trust. This makes it crucial to appoint trustees you fully trust because they'll control decisions about your assets.
How does it impact your ability to buy or sell a home?
Generally, homeowners aren’t “stuck” with their current property just because it’s held in an irrevocable trust. The trust — not the individual — legally owns the home, so the trustees (in Lisa’s case, her sons) would be responsible for managing the sale.
