Are Any Assets Excluded from Irrevocable Trusts

I recently received a frantic call from Emily. She’d meticulously drafted an irrevocable trust, transferred her rental properties into it… or so she thought. Her daughter discovered a brokerage account, containing over $200,000, that Emily had completely forgotten about. Now, with Emily facing a serious illness, the question isn’t just about maximizing estate value—it’s about ensuring her wishes are honored and avoiding a costly, public probate. The potential for those assets to be caught in probate, despite the trust’s existence, is devastating, and the emotional toll is immense.

What Happens If You Forget to Fund Your Irrevocable Trust?

It’s a surprisingly common scenario. People focus so much on the creation of the trust document itself that they neglect the crucial step of actually transferring ownership of assets into the trust. Signing the trust document is only step one—you must legally transfer assets (funding) to the trustee for the trust to exist. An unfunded or partially funded irrevocable trust is essentially useless, leaving those excluded assets subject to the lengthy and expensive probate process. This defeats the entire purpose of establishing the trust in the first place. Probate in California, even for a moderately sized estate, can easily consume 5% or more in fees, not to mention the time and emotional stress for your loved ones.

Can You Add Assets to an Irrevocable Trust After It’s Created?

This is where it gets complex. The very nature of an “irrevocable” trust implies a lack of flexibility. Generally, once assets are transferred, you can’t simply reach back in and add more. However, there are a few potential avenues, depending on the trust’s specific language and the nature of the asset. A carefully drafted trust may allow for additions under certain conditions, like a defined annual exclusion amount. More commonly, you’d need to explore gifting strategies, ensuring they fall within the annual gift tax exclusion (currently $18,000 per beneficiary in 2024). Remember, gifting larger amounts can trigger gift tax implications, but a properly planned gifting strategy can also be a valuable estate tax planning tool.

What About Assets Acquired After the Trust is Established?

This is a critical point. An irrevocable trust only governs assets specifically transferred into it. Any assets acquired after the trust’s creation—like an inheritance, a lottery winning, or a new business venture—won’t automatically be included. You must take proactive steps to title these new assets in the name of the trust. This requires consistent record-keeping and a dedicated effort to update ownership information as your financial situation evolves.

The “Safety Net”: What If Something is Missed?

Even with diligent planning, oversights happen. If a significant asset is inadvertently left out of the trust—particularly the primary residence—don’t despair. For deaths on or after April 1, 2025, if a primary residence intended for the trust was accidentally left out (valued up to $750,000), it qualifies for a ‘Petition for Succession’ under AB 2016 (Probate Code § 13151). This is a streamlined process allowing transfer without full probate. CRITICAL DISTINCTION: This is a “Petition” (Judge’s Order), NOT an “Affidavit.” However, relying on this as a regular occurrence is unwise; meticulous funding is always the best approach.

I’ve been practicing as an Estate Planning Attorney & CPA for over 35 years, and I’ve seen countless situations where proper funding was overlooked. As a CPA, I understand the nuances of step-up in basis and capital gains implications associated with trust transfers—an advantage many estate planning attorneys simply don’t possess. It’s not just about avoiding probate; it’s about maximizing the value of your estate and minimizing tax burdens for your heirs.

What About Digital Assets and Business Interests?

Don’t forget the less tangible assets. Without specific RUFADAA language (Probate Code § 870) in your trust, service providers like Apple, Google, and Coinbase can legally deny your successor trustee access to your digital photos, emails, and cryptocurrency. Similarly, if you hold an LLC, be aware of the FinCEN 2025 Exemption: as of March 2025, domestic U.S. LLCs held in a living trust are exempt from mandatory BOI reporting; however, trustees managing foreign-registered entities must still file updates with FinCEN within 30 days.

Is Estate Tax Still a Concern?

With the OBBBA permanently set the Federal Estate Tax Exemption to $15 million per person, effective Jan 1, 2026, the primary focus of most irrevocable trusts is now avoiding probate and protecting privacy, rather than minimizing federal taxes. However, for larger estates, or those anticipating future appreciation, estate tax planning remains a critical consideration.

What separates a successful California trust distribution from a costly battle over interpretation and accounting?

California trusts are designed to bypass probate and maintain privacy, yet they often fail when assets are not properly funded, trustee duties are ignored, or ambiguous terms trigger disputes. Even with a signed trust document, families can face court battles if the “operations manual” of the trust isn’t followed strictly under the Probate Code.

A stable trust administration relies on the trustee’s ability to balance investment duties, beneficiary communication, and tax compliance. When these elements are managed proactively, families can avoid the emotional and financial drain of litigation.

Verified Authority on California Trust Law

• Trust Validity (Probate Code § 15200): California Probate Code § 15200
  The foundational statute confirming that a trust requires property to be valid. This is the legal basis for the “funding” requirement—without transferring assets (deeds, accounts) into the trust, the document is legally empty.
• Revocability Presumption (Probate Code § 15400): California Probate Code § 15400
  Confirms that California trusts are presumed revocable unless stated otherwise. This grants the settlor the flexibility to change beneficiaries, trustees, or terms as life circumstances evolve.
• Primary Residence Succession (AB 2016): California Probate Code § 13151 (Petition for Succession)
  Effective April 1, 2025, this statute acts as a backup for funding errors. If a primary residence (up to $750,000) is left out of the trust, this Petition to Determine Succession avoids a full probate administration.
• Property Tax Reassessment (Prop 19): California State Board of Equalization (Prop 19)
  Essential for all trust creators. While the trust avoids probate, it does not automatically avoid property tax increases for heirs. Specific planning is required to navigate the “primary residence” requirement for children.
• Federal Estate Tax Exemption: IRS Estate Tax Guidelines
  Reflects the permanent increase to a $15 million per person exemption (effective Jan 1, 2026). This shifts the planning focus for most Californians from tax avoidance to asset protection and probate avoidance.
• Digital Asset Access (RUFADAA): California Probate Code § 870 (RUFADAA)
  Without this statutory authority included in your trust, your digital legacy (crypto, social media, cloud storage) may be permanently locked away from your family by service providers.