Don't Forget to Do Your Homework: Funding a Trust
One of the biggest misconceptions about a revocable living trust is that simply signing the trust document completes the estate planning process. In reality, signing the trust is only the beginning. To make your trust work as intended, you must also fund it.
Think of it like building a beautiful new home. Signing the trust creates the structure, but funding the trust is what moves your belongings into it. If your assets never make it into the trust, the trust cannot accomplish many of the goals it was designed to achieve. It’s an empty box that serves no one.
What Does It Mean to "Fund" a Trust?
Funding a trust means changing the ownership or beneficiary designation of your assets so they are owned by your trust when appropriate. For most people, this includes:
Real estate (including timeshares)
Checking and savings accounts
Brokerage and other non-retirement investment accounts
Certificates of deposit and similar financial accounts
Oil, Gas, and Mineral Interests
Business Interests (Shares or Membership/Partnership Interests)
Copyrights, Trademarks, and other Intellectual Property Interests
Generally, retirement accounts such as IRAs and 401(k)s are not retitled into the trust during your lifetime. Instead, those accounts require careful beneficiary designation planning (look for an upcoming article on this complex subject!)
Why Funding Is So Important
Many clients choose a revocable living trust because they want their loved ones to avoid probate. Probate can be time-consuming, expensive, and public. A properly funded trust allows assets owned by the trust to be administered privately and efficiently after death. However, if significant assets remain titled in an individual's name instead of the trust, those assets may still have to go through probate.
Unfortunately, we sometimes learn after a client has passed away that they never completed the funding process. Their trust may be carefully drafted, but if key assets were never transferred into it, one of its primary purposes may not be achieved.
Your Estate Plan Is Only as Good as Its Funding
We've seen situations where a client had an excellent trust, but a new property they purchased was never deeded into the trust, bank accounts remained in their individual name, or brokerage accounts were never retitled. Their plan was to have a smooth transition from them to their beneficiaries, but instead, these beneficiaries end up dealing with probate for assets that should have been part of the trust. This is why we often remind clients that funding their trust is their "homework." Completing it is every bit as important as signing the estate planning documents.
How to Make Sure Your Trust Is Properly Funded
After your estate plan is signed, take the time to:
Confirm that all of your real estate has been transferred into the trust, including vacation homes, timeshares, and new purchases that occur after you sign your trust documents.
Visit your financial institutions and retitle eligible (non-retirement) bank and investment accounts in the name of the trust.
Review newly acquired assets to determine whether they should be titled in the trust.
Periodically review your asset ownership, especially after purchasing property, opening new financial accounts, or making other significant financial changes.
Don't Let One Missed Step Undermine Your Plan
A revocable living trust is one of the most effective estate planning tools available, but only if it actually owns the assets it is intended to manage. Taking the time to properly fund your trust helps ensure your wishes are carried out and gives your loved ones the best opportunity to avoid unnecessary probate proceedings. If you're unsure whether your trust is fully funded, don't guess. Schedule a trust funding review with our office. We'll help you determine whether your assets are titled correctly and identify any changes needed so your estate plan can work the way you intended.