If you’re creating an irrevocable trust, you can’t just sign the trust document and go on your way. To fulfill your gift tax goals, income tax goals, or other planning goals, you also have to fund the irrevocable trust.
The first question is whether the irrevocable trust will or won’t be a grantor trust. In other words, will the income be taxed directly to the donor (or some other person) or instead to the trust itself? If the trust will be a grantor trust—the income is to be taxed to the donor (or other person)—don’t get a separate Taxpayer Identification Number (TIN) from the IRS; where a TIN is needed for the asset transfer, use the social security number for the donor (or other person who will pay the tax). But if the trust won’t be a grantor trust—the income isn’t to be taxed to the donor or other person, and instead is to be taxed to the trust itself—get a TIN from the IRS.
Next, broadly categorizing the different assets you might use to fund the irrevocable trust, in general you’ll need to retitle the assets into the trust as follows:
- Real Estate (including mineral rights, timber rights, etc.). You’ll need a deed to transfer the real estate from the grantor to the trust. In Delaware (and most other states), the deed should be to the trustee, rather than the trust (example: “John Jones as Trustee of the Mary Smith 2014 Irrevocable Trust”). Depending on the income tax and gift tax features of the trust, remember that the deed may or may not be exempt from realty transfer tax.
- Tangible Personal Property. For documents with certificates of title or registration with any centralized authorities (for example, cars and boats), use procedures similar to titling real estate in an irrevocable trust. Otherwise, create your own documentation — a simple signed, dated, and witnessed memorandum should suffice to show when you transferred the item(s) to the trust.
- Stock, LLC or LP Interests, or other interests in closely-held or non-publicly-traded entities. The transfer to the trust will need to be in writing, and will need to comply with the entity’s governing documents (stockholder agreement, LLC or LP agreement, the entity’s bylaws, etc.) and any other requirements the entity’s management might have. Typically the trustee will also have to agree in writing to abide by the entity’s governing documents or other requirements.
- Publicly-traded stock or mutual funds. If stock is owned in an individual name, it may be simplest to deal with a broker rather than the corporation itself. If stock is already in a brokerage account, or for mutual funds, contact the brokerage firm or mutual fund
- Bank accounts or other cash equivalents. Contact the bank or other financial institution.
- If insurance proceeds are simply to be paid to the trust as beneficiary, without changing the policies’ owners (rather than the insurance policies also being owned by the trust), request a change of beneficiary designation form and designate the trust as the beneficiary. But if the policies’ ownership will also change, the trust will probably be an irrevocable life insurance trust (ILIT)—see the posts on ILITs generally, and on funding and implementing ILITs, for more details.
- “Qualified plan” and Similar Retirement Assets. These assets can’t be retitled into a trust. Though you can name the trust as the beneficiary, doing so can have income tax consequences. Consult carefully with your advisors before naming a trust as a beneficiary of such assets.
Consult your estate planning advisors with any questions. Visit The Connolly Gallagher Trust & Estate page by clicking here.