When you create an irrevocable trust, you completely give up all ownership rights to your assets. The assets placed in your trust are safe from creditors and legal judgments because you no longer own them. Each asset that is transferred must be conducted as an “arm’s length” transaction to enjoy this protection. Anything less could be considered a fraudulent transaction in court and the trust considered invalid. Taking the time to correctly transfer your assets will ensure your named beneficiaries inherit your assets.
Identify Your Assets
Review your assets and determine which ones you would like to place in your trust. Make a list of the individual assets and be very specific about identifying each one. Include the name of the asset, the name of the entity holding the asset and the account number. For example, if you want to transfer stock to your trust, you could identify it as “100 shares of ABC Corporation held at XYZ Brokerage, brokerage account number XXX-XXX, CUSIP number XXXXX.”
Obtain a Trust Tax Identification Number
If you haven’t done so, obtain a tax identification number (TIN) for your trust. Go online to the IRS website and complete Form SS-4, Application for an Employer Identification Number, to receive your number online. The EIN will act as your TIN. Open a separate bank account if you want to transfer cash into your irrevocable trust. If you want to transfer securities, you will need to open a brokerage account as well. Remember to take along your original irrevocable trust document and acceptable personal identification with you when you go to open the accounts.
Transfer Ownership of Your Assets
Transfer the assets by retitling each one into the trustee’s name. For example, if you are transferring stock, the ownership line could read, “Jane Doe, as Trustee of the John Doe Irrevocable Trust dated Jan. 1, 2010.” Be sure you have appointed another person or institution to act as your trustee. If you are listed in the trust as both grantor and trustee, you risk making the trust defective and the trust’s validity could be successfully challenged in court.
Purchase a Life Insurance Policy
You can use a life insurance policy to provide additional assets to your trust beneficiaries. As the grantor, you have the right to purchase the policy; however, you must give up all ownership interests in the policy. You cannot have any control over the policy. The policy must be titled in the trustee’s name with the trustee named as the beneficiary.
Based in St. Petersburg, Fla., Karen Rogers covers the financial markets for several online publications. She received a bachelor's degree in business administration from the University of South Florida.