Are Any Assets Excluded from Irrevocable Trusts

I had a client, David, come to me last month absolutely devastated. He’d spent over $10,000 on an irrevocable trust, believing it was perfectly set up to protect his assets from potential long-term care costs. He’d even transferred his brokerage account into the trust. But, because he hadn’t legally transferred the deed to his rental property, it wasn’t covered. When he applied for Medicaid, that rental property was counted as an available asset, wiping out the benefits he’d planned for. A simple oversight—a forgotten deed transfer—cost him tens of thousands of dollars in potential care and peace of mind.

The most common mistake I see isn’t with the trust document itself, but with the actual funding of the trust. It’s easy to sign the papers, feel secure, and move on, thinking you’ve done everything. But under California Probate Code § 15200, a trust is not valid unless it holds identifiable property; signing the trust document is only step one—you must legally transfer assets (funding) to the trustee for the trust to exist.

So, what types of assets are most frequently excluded, often unintentionally? Let’s break it down.

What Happens If Assets Aren’t Properly Transferred?

If an asset isn’t legally titled in the name of the trust, it’s considered to be outside the trust. This means it’s subject to probate just as if the trust never existed for that particular asset. This defeats the entire purpose of creating the trust in the first place—avoiding the cost, delay, and public nature of probate.

Commonly Excluded Assets

• Real Estate with Incorrect Deeds: As with David, real estate is a huge problem area. The county recorder must have a deed reflecting ownership by the trust (e.g., “The Smith Family Trust, dated January 1, 2025”).
• Bank and Brokerage Accounts without Beneficiary Designations: Simply listing the trust as a beneficiary isn’t enough. The account registration must reflect the trust as the owner.
• Life Insurance Policies without Trust as Beneficiary & Ownership: Similar to accounts, the trust needs to be listed as both the beneficiary and, ideally, the owner of the policy.
• Business Interests (LLCs, Corporations): Ownership of a business entity needs to be correctly transferred, including updating operating agreements and articles of organization. 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.
• Digital Assets without RUFADAA Provisions: 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.

Addressing Funding Errors After Trust Creation

What if you realize you’ve missed an asset? Don’t panic. It’s fixable, but the longer you wait, the more complicated it becomes. For a primary residence unintentionally omitted (valued up to $750,000), and for deaths on or after April 1, 2025, you can use a ‘Petition for Succession’ under AB 2016 (Probate Code § 13151). It’s important to note that this is a “Petition” (Judge’s Order), NOT an “Affidavit.” This process allows for a streamlined transfer, but it’s still court-supervised.

The CPA Advantage: Identifying and Valuing All Assets

After 35 years as both an Estate Planning Attorney and a CPA, I can tell you one of the biggest benefits of working with a dual-credentialed professional is a comprehensive understanding of all your assets. We’re not just looking at accounts and real estate; we’re looking at the cost basis of assets, potential capital gains taxes, and valuation issues for businesses and other complex holdings. Properly funding a trust isn’t just about listing assets, it’s about understanding their tax implications and ensuring a seamless transfer. For example, while transferring your home into your revocable trust does not trigger reassessment, the eventual distribution to your children will trigger a Prop 19 reassessment to current market value unless the child moves in as their primary residence within one year.

Trust Amendment and Revocation

Remember, unless the trust instrument expressly states otherwise, Probate Code § 15400 presumes that all California trusts are revocable by the settlor, allowing you to amend, revoke, or restate the trust at any time while you have capacity. This means you can always correct funding errors or adjust your plan as your circumstances change.

Verified Authority on California Trust Law

• Trust Validity (Probate Code § 15200): California Probate Code § 15200
• Property Tax Reassessment (Prop 19): California State Board of Equalization (Prop 19)
• Digital Asset Access (RUFADAA): California Probate Code § 870 (RUFADAA)
• Estate Tax Exemption (OBBBA): IRS Estate Tax Guidelines
• Petition for Succession (AB 2016): California Probate Code § 13151

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

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.

Ultimately, the success of a trust depends on the details—proper funding, clear terms, and a trustee willing to follow the rules. By anticipating friction points and documenting every step of the administration, fiduciaries can protect the estate and themselves from liability.

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 home (up to $750,000) is left out of the trust, this Petition 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.
• 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 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.