What Does It Mean to Fund a Trust?

Funding a trust involves transferring ownership of your assets—such as bank accounts, brokerage accounts, real estate, business interests, and personal property—into the trust. This requires retitling the assets in the name of the trust or designating the trust as a beneficiary.

For example, a deed to real estate, which is the instrument that identifies who owns the real estate, would need to be updated to reflect the trust as the new owner. Similarly, an investment account would need to be retitled with the trust’s name. Retirement accounts are generally not transferred directly into a trust, but beneficiary designations can be aligned to coordinate with the trust’s plan, if appropriate under the circumstances.

What Happens If You Don’t Fund the Trust?

If a revocable trust is not properly funded during your lifetime, it may be ineffective in achieving the primary goal: avoiding probate. Assets that remain titled in your individual name will likely need to go through the probate process to transfer ownership after you die, even if you have signed a trust and think your estate plan is complete. This can lead to several issues:

• Probate costs and delays: Your estate may be subject to court supervision, public filings, and legal fees that your trust was designed to avoid. Failing to fund your trust may complicate your needs upon incapacity.
• Incapacity complications: If you become incapacitated, assets outside of the trust may not be easily managed or even accessible by your successor trustee if a properly executed power of attorney is not also in place. If a power of attorney is not in place and the assets are not retitled into the trust, a court-appointed guardian or agent under a power of attorney may be required.
• Disrupted distribution plan: The trust’s instructions won’t apply to unfunded assets (or assets not retitled into the name of the trust) unless they are “poured over” into the trust through a will—and even then, this pour-over process must go through probate.
• Creditor and privacy exposure: Probate is a public process and can make your estate more vulnerable to claims and scrutiny.

Why Funding Your Trust Matters

Properly funding your revocable trust ensures that your estate plan works seamlessly and as intended. Some key benefits, in addition to avoiding probate, include:

• Continuity of management: If you become incapacitated, your successor trustee can step in to manage assets without delay.
• Privacy: Unlike a will, a trust is a private document. When assets are held in trust, their disposition remains confidential and pass directly to beneficiaries without court involvement.
• Efficiency: Trusts allow for quicker distribution of assets, reducing the burden on family members and beneficiaries and ensuring that assets are transferred to those you intend to receive from your estate after you die.

The Bottom Line

A revocable trust is only as effective as its funding. Without this step, your carefully drafted estate plan may falter when it’s needed most. Working with an attorney, estate planning professional, or financial planning professional to properly fund and maintain your trust is essential to protect your legacy and spare your loved ones unnecessary hassle.