Living trusts come in many shapes and forms, but all fall into one of two categories: They’re either revocable or irrevocable. Transferring property out of a trust can be simple or nearly impossible, depending on which kind of trust you formed.
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.
How Revocable Trusts Work
Typically, you act as the trustee if you form a revocable trust. You retain control of the property you place into it. You can sell it or move it back out of the trust as you see fit. You can completely undo the trust if you decide the arrangement isn’t working for you after all.
But all a revocable trust can do for you is avoid probate of the property it holds when you die. You can name a successor trustee to take over management of the trust for you if you should become incompetent. This way, the court doesn’t have to appoint a conservator to oversee your personal affairs. A revocable trust doesn’t protect your property against creditors, lawsuits against you or estate taxes, because you technically retain ownership of the property held within it.
Irrevocable Trusts are Different
You cannot act as trustee when you create an irrevocable trust and place property into it, called “funding” the trust. You must step aside. You no longer own that property – your trust does – so you’re not entitled to take it back. You don’t have a voice in whether it should be sold or money from the trust should be invested or how. Only the trustee you’ve appointed can decide these things.
In exchange for relinquishing all control over the property you used to fund the trust, you get several perks. Not only will it avoid probate, but neither creditors nor anyone with a judgment against you can touch it. It does not count toward the value of your estate for estate tax purposes, nor does it count toward your net worth should you need to qualify for Medicaid or other government assistance.
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 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.
For example, if you transferred real estate into your trust, you would have done so by deed, granting it from your name personally into the name of your trust. If you want to take the property back, it’s simply a matter of drafting a new deed that grants title from your trust’s name back to your name. The same process works with titles to vehicles or bank accounts. If you named the trust as beneficiary of your retirement accounts or life insurance policy, you simply fill out new beneficiary designation forms, switching things around again.
If Your Trust Is Irrevocable
None of this will work if you’ve created an irrevocable trust, or at least it won’t be that simple. If you have the express written agreement of all the trust’s beneficiaries and the trustee as well, they – not you – might be able to ask the court to intervene. If everyone is on the same page and they present a good argument for moving property out of the trust, the judge may issue an order allowing it to happen. The beneficiaries and trustee would have to establish that the original terms of the trust no longer serve the purpose you had in mind when you formed it.
The trust might then be “decanted,” effectively emptied of everything it holds. That property would then transfer to a new trust created by the trustee, one with more favorable terms. Ownership would not necessarily revert back to you.
If you included provisions for a trust protector in your original trust documents, you can call upon this third party to make the change. In most cases, that change must be something you outlined in the beginning, such as wanting to remove property at a certain time and only if specific circumstances should arise.