Funding an Irrevocable Trust

Irrevocable Living Trusts are funded in exactly the same way as Revocable Living Trusts. The primary difference between the two products is in retaining control over the funds. For this reason, you have to be careful about what you fund into an Irrevocable Living Trust because you'll be giving up ownership of and control over the funded property.

In most cases, you and your estate planning attorney will have decided long before the Irrevocable Living Trust is even created what should go into the trust. Why? Because Irrevocable Living Trusts are designed to hold and own a single asset or specific assets, and so they are only used in very limited situations. Here is a summary of the funding procedures.

Change of Title/Ownership

For assets such as bank accounts; non-IRA and non-401(k) investment and brokerage accounts; stocks and bonds held in certificate form; life insurance policies; and real estate, these types of assets are funded into an Irrevocable Living Trust by changing the owner of the asset from the Trustmaker's individual name into the name of the trust:

• Current Title: “William Sample"
• New Title: “Jane Sample, Trustee, or her successors in trust, under the William Sample Irrevocable Trust, dated January 1, 2009.”

Assignment of Ownership Rights

For assets such as personal effects without a legal title (jewelry, artwork, antiques and the like); monies owed to you (personal loans that you've made and mortgages that you've taken back); royalties, copyrights and patents; certain types of oil, gas and mineral rights; and partnership interests and membership interests in limited liability companies, these types of assets are funded into an Irrevocable Living Trust by assigning ownership rights from the Trustmaker's individual name into the name of the trust:

• Current Title: “William Sample”
• Assignment Language: "I, William Sample, hereby assign all of my right, title and interest in and to that certain Promissory Note dated January 31, 2008, in the principal amount of $40,000 by and between William Sample as lender and John Smith as borrower, to Jane Sample, Trustee, or her successors in trust, under the William Sample Irrevocable Trust, dated January 1, 2009."
• New Title: “Jane Sample, Trustee, or her successors in trust, under the William Sample Irrevocable Trust, dated January 1, 2009.”

Change of Beneficiary

For assets such as life insurance; retirement accounts, including IRAs, 401(k)s and 403(b)s; certain pension benefits; and Health Savings Accounts (HSAs) and Medical Savings Accounts (MSAs), these assets aren't actually retitled into the name of an Irrevocable Living Trust. Instead, the primary and/or secondary beneficiaries of these types of assets are charged to the trust:

• Current beneficiary: “Jane Sample”
• New beneficiary: “Jane Sample, Trustee, or her successors in trust, under the William Sample Irrevocable Trust, dated January 1, 2009.”

Note, however, that in order for an asset that has a beneficiary designation to be excluded from the value of your estate for estate tax purposes, the owner of the asset will also need to be changed to the Irrevocable Living Trust using the procedures set forth in paragraphs 1 and 2 above. What this means is that for most people the only type of asset that will be retitled into the name of an Irrevocable Living Trust is a life insurance policy.