States, counties and cities impose transfer taxes when someone sells real estate inside their borders. Delaware, for example, sets a 2 percent tax on the value of the property; Alabama charges 50 cents per $500 of value. It's up to your state laws whether you pay transfer tax when you give your trust the deed to your property.
Types of Trust
Your tax bill may depend on whether your trust is revocable. You can take assets back out of a revocable trust or dissolve it if you wish. Most grantors -- trust makers -- appoint themselves as trustee so they control the assets. With an irrevocable trust, making changes is much harder, and you may not be able to appoint yourself as trustee. In New Hampshire, for one example, revocable trust transfers are taxable, but there's usually no tax when real estate goes in an irreversible trust.
Taxes or Not
Most states don't impose a transfer tax if the transfer is a gift, with no money involved. As that's usually the case when you put real estate in a trust, it's tax-free. Other states exempt you if you're the trustee and still control the property. California, for example, exempts your trust transfer from tax. In Pennsylvania, a trust transfer is taxable if the transfer of the deed directly to the beneficiaries would be taxable.
Passing It On
If you set up your trust to pass on your assets when you die, taxes may be a factor then, too. In New Hampshire, for example, when a revocable trust gives property to beneficiaries, the state requires the minimum transfer tax, $20 from each party. Pennsylvania law says transfers to beneficiaries for zero money are tax-free. The county assessor or recorder of deeds can tell you what the state law is in the county where you own the land.
When you transfer the deed to your trust, you have to record the new ownership with the county. This applies even if the transfer is from you to you-as-trustee. Recording the new deed usually requires an added fee, typically $10 to $20. You may have other paperwork to file, too. If you transfer title with no tax in California, for instance, some counties require you file an affidavit with the deed saying you don't owe any tax.
- National Conference of State Legislatures: Real Estate Transfer Taxes
- Nolo: Trusts: Revocable v. Irrevocable
- New Hampshire Department of Revenue Administration: What is the Real Estate Transfer Tax?
- Nolo: Real Estate
- Viva Escrow: California Documentary Transfer Tax
- Pennsylvania Code: Realty Transfer Tax
A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.