How to Fund a Massachusetts Irrevocable Trust

by Matthew Karr, Esq. on December 13, 2011

An Irrevocable Living Trust can in some ways be compared to a car without gas: it only works for you when you put something in it. Creating an Irrevocable Trust can be a great way to protect assets (particularly from the cost of long-term care) and avoid probate, but in order to accomplish these goals you must fund the trust. This means that once the trust has been created you must transfer the asset you want to be protected to the trust.

During the process of creating your Irrevocable Trust, your estate planning attorney should discuss with you exactly what your goals are and what assets you want to include in your trust. This decision should be considered carefully, since principle placed into an Irrevocable Trust cannot be taken back out directly by the donor. This means that assets you need regular access to for your everyday living expenses should probably be kept out of trust, while more stable assets, such as real estate or long-term stocks or bonds, could be used to fund the trust.

Depending on the type of asset you want to protect, funding your Irrevocable Living Trust can be done in the following ways:

Change of Title/Ownership
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, can be funded into an Irrevocable Living Trust by changing the owner of the asset from the donor’s individual name into the name of the trust. This could involve recorded a new deed for real estate or filing a new ownership form with you bank or financial manager.

Assignment of Ownership Rights
Assets such as personal effects without a legal title (jewelry, art work, 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, can be funded into an Irrevocable Living Trust by assigning ownership rights from the donor’s individual name into the name of the trust. In many cases, a pour-over will can accomplish this goal as well.

Change of Beneficiary
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), don’t need to actually be retitled into the name of an Irrevocable Living Trust. Instead, the primary and/or secondary beneficiaries of these types of assets are changed to the trust directly. This can be done by contacting the owner or manager of your policy and filing the necessary beneficiary change papers.

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 actually be retitled into the name of an Irrevocable Living Trust is a life insurance policy.

It is also important to note that assets placed into an Irrevocable Living Trust are not fully protected from long-term care costs until they have been in trust for five years due to MassHealth’s five year look-back policy. To get the most out of your Irrevocable Trust it is therefore important to start planning early, rather than waiting until the last minute to fund it.

The Heritage Law Center regularly helps clients establish and fund their trusts to ensure the protection of their assets and the reduction or elimination of estate taxes and probate fees. Call us for a free consultation on how you can get protected using an Irrevocable Living Trust as part of your estate plan.

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