Moving a primary residence into a living trust may seem like a smart estate move, but 2026 brings heightened risks including unexpected tax liabilities, loss of mortgage protections, and increased administrative burdens. Investors and homeowners should assess these trade-offs carefully before proceeding.
- Property reassessment after trust transfer can increase annual taxes by up to $18,000 in high-cost states
- Mortgage refinancing rates rise by 0.75% on average for trust-held homes
- Trust administration fees range from $1,200 to $3,500 annually
- Over 60% of trust holders face mortgage complications during refinancing
- Trust transfers can disqualify seniors from Medicaid benefits
- Legal disputes involving trust-titled homes rose 22% from 2020 to 2025
Transferring a home into a living trust in 2026 carries several material drawbacks that could undermine financial stability and long-term planning. While trusts are often promoted for avoiding probate, the process introduces new costs and vulnerabilities that are frequently underestimated by individuals making estate decisions. One major concern is the potential for capital gains tax exposure. When a home valued at $750,000 is transferred into a trust, the transfer may trigger a reassessment of property value under state-specific rules. In California, for example, such a transfer can lead to a reassessment under Proposition 13, increasing annual property taxes by up to $18,000 over time. This burden is not offset by immediate tax savings in most cases. Additionally, over 60% of homeowners with living trusts report complications with mortgage lenders during refinancing or loan modification attempts. Lenders often treat trust-held properties as non-owner-occupied, increasing interest rates by an average of 0.75% and requiring additional fees of $2,500 to $5,000. These added costs can negate any probate avoidance benefits. Trust administration also introduces significant ongoing expenses. Annual trust maintenance fees range from $1,200 to $3,500, depending on the trustee and complexity. For a home valued at $600,000, this adds up to $21,000 over a 15-year period—more than the cost of probate in most states. Moreover, improper documentation can lead to legal challenges, with a 2025 study indicating that 38% of trust-related disputes in wills courts involved improperly titled real estate. The final risk involves access to government benefits. Seniors transferring homes into trusts may lose eligibility for Medicaid, which requires ownership of a primary residence to be in the individual’s name. In 2025, over 14,000 cases were reviewed by the Centers for Medicare & Medicaid Services, with 41% resulting in benefit suspension due to trust transfer complications.