Funding an Irrevocable Trust - YouTube

Hi Lee Phillips.

I want to talk to you for two seconds about

funding an irrevocable trust.

Now the trust you get for your estate planning is a living revocable trust.

I'm going to talk about an irrevocable trust

and frankly you're probably not going to have an irrevocable trust these days.

You could have an irrevocable life insurance trust

called an ILIT

we used to set up children's trusts all the time

but frankly I'd use an LLC instead of a children's trust

that's maybe another video, right?

But let's say you have an irrevocable trust

for whatever reason.

If you put money into an irrevocable trust

you have to understand

or even property I mean any asset

you put it into the irrevocable trust

you are giving it away

it is gone.

In theory you can't be the beneficiary

of the irrevocable trust

that would be what's called a self settled trust

and that's probably another YouTube we have

so check that out, we'll link you to it

but when you put an asset in

money in to buy the life insurance policy in the

irrevocable life insurance trust

that's a gift to the beneficiaries.

Now in theory you have to stay under the annual exclusion

and that's gone all the way from

I think it was under $10,000 when I started

up to what are we now $15-16,000? whatever it is

it changes all the time

goes up with the cost of living

but this annual exclusion

and you can type it in the internet and find it real fast

this annual exclusion of $15,000

is what you can give a beneficiary

and not have to pay a gift tax on it.

There's a problem, though.

When you put the asset in

if you want to be able to qualify it as the annual exclusion

the individual has to have a present right to it

they have to have the right now

to do whatever they want with it

But in the irrevocable trust the beneficiaries aren't given the right to it.

So a long time ago

there was a case called Crummey

it was a crummy case

and we call it the Crummey case

and Crummey put stuff

money

into the irrevocable trust

and said no no no no

I want to get the annual exclusion on it

and Crummey sued the IRS and the IRS sued Crummey

and it went around and around and around

but what they finally decided on is if

I put my money in

and I actually send a notification letter to each one of the beneficiaries

it's called a Crummey letter

if I send a Crummey letter

to each one of the beneficiaries and say oh by the way

you have 60 days

or whatever the time period is

it has to be a reasonable time period

you have 60 days to take this money out

it's yours

if you don't want to take the money out that's fine

it will stay in the trust and we will use it to buy life insurance

or to pay the mortgage on the cabin

that's in the irrevocable trust

whatever it is

and those beneficiaries have that right

they have been officially noticed

through the Crummey letter

if they don't take it out

then it locks back down.

And you know you just go over and you put your arm around your son

and you say, "You know son

I'm putting this money in, we're buying life insurance

it's gonna give you a big benefit when I die

don't kill me this week but

when I do die you get this big benefit

tax-free by the way

that's why you use an irrevocable life insurance trust.

Son I would really appreciate it

if you don't take the $10,000 out of the trust

that I'm gonna put in to by the life insurance."

And you know if you have a heart-to-heart talk with your kid

you can't force him not to take it out

but

we can talk to him.

And so the money goes in

the kid gets the notice

the beneficiary gets the notice

they leave it in

and then it becomes property of the trust.

So that's the way you do a contribution

to an irrevocable trust

with the estate tax and the gift tax being unified

and being so high these days

this year it's like $11.6 million, $11.58 something bla bla bla bla

but that's quite a bit

so I can gift a lot

and not have to worry about paying a gift tax or estate tax or anything

now technically if it's over

the annual exclusion amount

the $15,000 or whatever it is

you do have to file a gift tax return.

Nobody ever does that

but technically you're supposed to do that.

Now as a husband I can give my fifteen and as a wife I can give fifteen

but I have to file a gift tax return

to tell the IRS that I am splitting the gift

and I'm giving fifteen she's giving fifteen

and so we're both under the annual exclusion.

So gifting to a

an irrevocable trust

is certainly different than putting property

into your living revocable trust

where it's revocable and you are the beneficiary.

So this is Lee Phillips

talking about putting assets into an irrevocable trust.

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