I want to transfer my three New York properties -- including my personal residence -- into a revocable living trust to avoid probate, keeping full control and the right to revoke at any time. Will funding the trust trigger Real Estate Transfer Tax or Real Property Transfer Gains Tax? And will my residence be exempt from gains tax when the trustee eventually sells it after I die?

Plain-English summary

Hilles Timpson owned three improved New York properties, each worth more than $1 million: her Southampton personal residence, a New York City residence occupied rent-free by her children and grandchildren, and a New York City rental property leased to a university. None carried a mortgage.

She planned to transfer all three into a revocable trust naming herself and another individual as trustees, for her sole lifetime benefit -- retaining the exclusive right to all trust income, the unconditional right to revoke the trust (with all property reverting to her upon revocation), and the trust agreement providing that her Southampton residence would be sold by the surviving trustee after her death. The purpose was purely to avoid the delay and expense of probate; she'd receive no compensation for the transfers, and none of the transfers would change how the properties were used.

The Department held that funding the trust with all three properties is exempt from both the Real Estate Transfer Tax and the Real Property Transfer Gains Tax, because it's a "mere change of identity or form of ownership" with no change in beneficial ownership -- Timpson retained complete control and economic benefit throughout. Separately, the Department confirmed that when the trustee eventually sells the Southampton residence after her death, that sale will also be exempt from gains tax under the personal-residence exemption, as long as she occupied it exclusively as her residence up until her death -- the same exemption available to an individual applies equally to a sale by an estate or trust holding a decedent's former residence.

What this means for you

Individuals setting up a revocable living trust for probate avoidance

Funding your own revocable trust -- where you keep full control, all the income, and the unrevoked right to take the property back at any time -- doesn't trigger New York transfer or gains tax, regardless of how many properties or their value. This is one of the earliest Department rulings establishing that principle, later reaffirmed and extended (e.g., to a fractional tenant-in-common interest) in Betty G. Reader TSB-A-95(4)R.

Estate planning and trust and estates attorneys

Note the SEPARATE personal-residence exemption question here: even after a mere-change-of-form transfer into trust, a later SALE by the trust/estate can independently qualify for its own exemption (the personal-residence carve-out) if the decedent occupied the property as a residence through death -- these are two distinct exemption analyses that can both apply to the same property at different points in its life.

Accountants reviewing older (pre-1996) trust and estate transactions

The Real Property Transfer Gains Tax discussed in this ruling was repealed for transfers on or after June 15, 1996 and no longer applies to current transactions -- only the transfer tax mere-change-of-form analysis remains relevant today for revocable trust funding.

Common questions

Q: Does putting my New York property into my own revocable trust trigger transfer tax?
A: No, as long as you keep full control -- use rights, income, and the unconditional right to revoke -- funding a revocable grantor trust is a tax-exempt mere change of form.

Q: Will gains tax apply when the trust later sells my former residence after I die?
A: Not to the extent the property qualifies for the personal-residence exemption -- the same exemption available to an individual seller extends to a sale by the decedent's estate or trust, as long as the decedent occupied and used it exclusively as a residence through death.

Q: Is the Real Property Transfer Gains Tax discussed here still a live concern?
A: No. It was repealed for transfers occurring on or after June 15, 1996.

Q: Can I rely on this ruling for my own trust?
A: No. This advisory opinion binds the Department only as to Hilles Timpson and the specific facts described.

Citations and references

Statutes and regulations:

• Section 1405(b)(6) of the Tax Law (mere-change-of-form exemption from the transfer tax)
• Section 1443(2) of the Tax Law (personal residence exemption from the gains tax)
• Section 1443(5) of the Tax Law (mere-change-of-form exemption from the gains tax)
• Section 590.24 of the Gains Tax Regulations (personal residence sale exemption applies equally to a sale by a decedent's estate)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_estate_tran_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a92_7r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92(7)-R
Real Property Transfer
Gains Tax
Real Estate Transfer Tax
November 3, 1992

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M920903A

On September 3, 1992, a Petition for Advisory 0pinion was received from Hilles Timpson,
373 Millstonebrook Road, Southampton, New York 11968.
The issues raised by Petitioner, Hilles Timpson, are:
1.

Whether the transfer by Petitioner of certain parcels of real property to a revocable
grantor trust will be subject to New York State Real Property Transfer Gains Tax
(hereinafter the "gains tax") or New York State Real Estate Transfer Tax (hereinafter
the "transfer tax").

2.

Whether following the death of Petitioner, the sale by the trustee of Petitioner's
personal residence will be exempt from gains tax.

Petitioner owns three improved parcels of real property within New York State. The first
parcel (the "Southampton Residence") is located in Southampton, New York and is used by
Petitioner exclusively as her personal residence. The Southampton Residence is not encumbered by
a mortgage.
The second parcel (the "New York City Residence") is located New York City and is used
by Petitioner's children and grandchildren for residential purposes. Petitioner is not compensated by
her relatives for their use of the New York City Residence. The New York City Residence is not
encumbered by a mortgage.
The third parcel (the "New York City Rental Property") is residential property located in New
York City that is leased by Petitioner to a university for use by the university. The New York City
Rental Property is not encumbered by a mortgage.
It is assumed that each of the three properties has a fair market value in excess of $1,000,000.
Petitioner plans to enter into a trust agreement (the "Trust Agreement") with herself and
another individual as trustees (the "Trustees") creating a revocable trust (the "Revocable Trust") for
Petitioner's sole benefit during her life. Under the Trust Agreement, Petitioner will retain all of her
rights to use all property transferred to the Revocable Trust and Petitioner will have the exclusive
right to have distributed to her all income earned on the property held by the Revocable Trust. In
addition, Petitioner will have the unconditional right to revoke the Revocable Trust. Upon such
revocation, the Trustees will transfer all property held by the Revocable Trust to Petitioner.
The Trust Agreement will provide that upon Petitioner's death the Southampton Residence
will be sold by the surviving Trustee.

-2­
TSB-A-92(7)-R
Real Property Transfer
Gains Tax
Real Estate Transfer Tax
November 3, 1992
Petitioner plans to transfer the Southampton Residence, the New York City Residence and
the New York City Rental Property to the Revocable Trust for the purpose of having those properties
administered by the Trustee after her death in order to avoid the delay and expense that would result
from having the properties administered under Petitioner's will pursuant to a probate proceeding.
Petitioner will receive no compensation for making the transfers to the Revocable Trust. The transfer
of the three properties to the Revocable Trust will not in any way affect the use and occupancy of
the properties.
With respect to the transfer tax, Section 1405(b) of the Tax Law provides as follows:
(b) The tax shall not apply to the following conveyances:
*

*

*

6. Conveyances to effectuate a mere change of identity or form of
   ownership or organization where there is no change in beneficial
   ownership, other than conveyances to a cooperative housing
   corporation of the real property comprising the cooperative dwelling
   or dwellings.
   As for the gains tax, Section 1443 of the Tax Law provides, in part, as follows:
   Sec. 1443.
   Exemptions. -- A total or partial exemption shall be allowed
   in the following cases:
   *

*

*

2. If the real property consists of premises occupied by the transferor as his
   residence (but only with respect to that portion of the premises actually occupied and
   used for such purposes).
   *

*

*

5. If a transfer of real property, however effected, consists of a mere change
   of identity or form of ownership or organization, where there is no change in
   beneficial interest.
   Section 590.24 of the Gains Tax Regulations provides, in part, as follows:
   (a) Question: Is the sale of an individual's personal residence subject to the
   gains tax where the consideration received is in excess of $1 million?

-3­
TSB-A-92(7)-R
Real Property Transfer
Gains Tax
Real Estate Transfer Tax
November 3, 1992
Answer: No. Section 1443(2) of the Tax Law specifically exempts from the
gains tax the sale of premises occupied by the transferor exclusively as his residence.
*

*

*

(e) Question: Is the sale of premises by an estate exempt from the gains tax
when the premises were occupied and used as a residence by the decedent?
Answer: Yes. The same rules for determining the applicability of the
personal residence exemption for an individual apply to the sale of the premises by
a decedent's estate.
Concerning issue "1", the transfer of the three parcels of real property by Petitioner to a
revocable trust is deemed a mere change of identity pursuant to Sections 1405(b) and 1443.5 of the
Tax Law since there is no change in the beneficial ownership of the property following the transfer.
Therefore, pursuant to Sections 1405(b) and 1443.5 of the Tax Law the transfer of the property by
Petitioner will not be subject to gains tax and transfer tax.
Regarding issue "2", the transfer of the Southampton Residence by the Trustee following the
death of Petitioner will constitute the transfer of a personal residence in accordance with Section
1443.2 of the Tax Law and Section 590.24 of the Gains Tax Regulations provided the premises was
occupied and used by Petitioner up until her death exclusively as a residence. Therefore, pursuant
to Section 1443.2 of the Tax Law and Section 590.24 of the Gains Tax Regulations if Petitioner
occupies and uses the premises up until her death exclusively as a residence the transfer will not be
subject to gains tax.

DATED: November 3, 1992

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.