Are there any assets that cannot be placed into an irrevocable trust

I recently had a client, Emily, come to me absolutely distraught. Her father had passed away a few months prior, and she’d discovered a critical error: a codicil to his trust, attempting to add a significant stock portfolio, hadn’t been properly witnessed. That $2 million portfolio was now subject to probate – a $50,000 legal mess and a six-month delay in distribution. It was a heartbreaking situation, completely avoidable with proactive estate planning. Emily’s father thought he could simply add assets to the trust after it was established, which unfortunately isn’t always possible.

The short answer is yes, there are limitations. While irrevocable trusts are powerful tools for asset protection, tax mitigation, and estate control, they aren’t a universal solution. The fundamental principle of an irrevocable trust is, well, irrevocability. Once assets are transferred, you generally lose direct ownership and control. This creates a degree of inflexibility that impacts what can be included.

Can I Transfer Assets I Don’t Fully Own?

You cannot transfer assets you don’t have full, unfettered ownership of into an irrevocable trust. This sounds obvious, but it often creates issues. For example, if you have a property with an existing mortgage, you can transfer your equity into the trust, but the trust must assume responsibility for the debt. Or, more commonly, you can’t transfer an asset that’s subject to an active lawsuit or lien. Doing so could be considered a fraudulent transfer, potentially voiding the trust’s protections. As a CPA, I’ve seen many instances where clients attempt to shift assets with unresolved tax liabilities, which simply won’t hold up under scrutiny.

What About Intellectual Property or Future Income?

Intellectual property, such as copyrights or patents, presents complexities. You can transfer ownership of developed intellectual property. However, future income streams derived from that IP often require careful structuring. Similarly, you can’t simply transfer “future income” – that’s considered a contingent right, not a present asset. You can, however, assign rights to royalties or profits after they’re earned, but there are tax implications to consider. These nuances are where the CPA designation becomes invaluable, as we ensure the transfers are properly characterized to avoid unintended consequences.

What if I Need to Access the Assets Later?

This is the core issue with “irrevocable.” Assets placed in the trust are no longer directly accessible to you. There are limited exceptions—powers of appointment, limited access clauses, or, in California, the potential for Decanting (The Modern Fix): “…alternatively, under the California Uniform Trust Decanting Act (Probate Code § 19501), a trustee with expanded discretion may ‘pour’ assets from an old restrictive trust into a new, modern trust without court approval, often used to fix tax errors or update beneficiary terms.” However, relying on these provisions requires careful planning at the trust’s inception. A poorly drafted trust with overly broad exceptions can undermine the very protections you’re seeking.

How Does This Impact Real Estate?

Real estate is a frequent source of questions. While you can transfer ownership of a home into an irrevocable trust, be aware of the potential property tax implications under Prop 19: “…transferring a home into an irrevocable trust for children often triggers an immediate property tax reassessment under Prop 19 if the parents do not retain beneficial enjoyment or if the children do not make it their primary residence.” This is particularly important in areas like Escondido, where property values are significant. It’s crucial to analyze the overall cost-benefit before making such a transfer.

After 35+ years practicing as both an Estate Planning Attorney and a CPA, I’ve learned that the success of an irrevocable trust hinges on careful consideration of all available options and a thorough understanding of the underlying legal and tax ramifications. It’s not a one-size-fits-all solution, and attempting it without expert guidance can lead to costly mistakes, much like Emily’s father experienced.

What determines whether a California trust settlement remains private or erupts into public litigation?

The advantage of a California trust is control and continuity, but this relies entirely on accurate funding and disciplined administration. Without clear asset titles and strict adherence to fiduciary standards, a private trust can quickly become a subject of public litigation over mismanagement, capacity, or undue influence.

• Protection: Review asset privacy options.
• Specifics: Check probate-trust hybrids.
• Wealth: Manage long-term trust assets.

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 Irrevocable Trust Administration

• Trust Decanting (Probate Code § 19501): California Uniform Trust Decanting Act
  The modern statute allowing a trustee to “fix” a broken irrevocable trust. It permits moving assets into a new trust with better administrative terms or tax provisions without going to court.
• Medi-Cal Look-Back (2026 Rules): California DHCS Medi-Cal Asset Limits
  Official guidance on the reinstated 30-month look-back period and the new asset limit of $130,000 (individual) effective January 1, 2026. Critical for anyone using an irrevocable trust for long-term care planning.
• Spendthrift Protection (Probate Code § 15300): California Probate Code § 15300
  The legal shield that makes an irrevocable trust “irrevocable.” This statute validates clauses that prevent creditors, lawsuits, and ex-spouses from attaching trust assets before they reach the beneficiary.
• Estate Tax Exemption (OBBBA): IRS Estate Tax Guidelines
  Reflects the OBBBA permanent increase to a $15 million per person exemption (effective Jan 1, 2026). This high threshold shifts the focus of most irrevocable trusts from tax savings to asset protection.
• Missed Asset Recovery (AB 2016): California Probate Code § 13151 (Petition for Succession)
  If an asset was intended for the trust but legally left out, this statute (effective April 1, 2025) allows for a “Petition for Succession” for assets up to $750,000, bypassing full probate.
• Digital Asset Access (RUFADAA): California Probate Code § 870 (RUFADAA)
  Mandatory for irrevocable trusts holding crypto or digital rights. Without specific RUFADAA language, a trustee may be legally blocked from accessing or managing these modern assets.