Funding Your Trust

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The Most Common Mistake in Estate Planning: An Unfunded Trust

You’ve met with an attorney, carefully considered your wishes, and signed your new Revocable Living Trust. It’s a comprehensive document, a “magic book” designed to protect your family, avoid probate, and ensure your legacy is handled privately and efficiently. Unfortunately, for many people, the process stops there, and that magic book ends up sitting on a shelf, completely useless.

The single most common and devastating mistake in trust-based estate planning is the failure to “fund” the trust. An unfunded trust is nothing more than an empty set of instructions, leading to the very probate process it was created to avoid.

What is Trust Funding?

Funding a trust is the legal process of transferring your assets from your individual name into the name of your trust. Think of your trust as an empty box. It can’t manage or distribute anything until you actually put your assets inside it. This means changing the legal title of your property:

  • Your home should be re-titled from “John and Jane Doe” to “John and Jane Doe, Trustees of the Doe Family Trust.”
  • Your non-retirement investment and bank accounts should also be re-titled into the name of the trust.

Why “Title” is the Foundation of Your Entire Plan

How you own your property—the legal “title”—is the foundation of your entire estate plan. Certain forms of ownership will override any instructions you leave in your will or trust.

  • Joint with Rights of Survivorship: Many married couples own their home and bank accounts this way. When one spouse dies, the property automatically passes to the surviving spouse by law, regardless of what a trust says. While simple, this can undermine more advanced planning goals.
  • Beneficiary Designations: Assets like life insurance, annuities, and retirement accounts (IRAs, 401ks) are controlled by the beneficiary designation form you filled out with the financial institution. These designations completely bypass your will or trust.

If these assets are not properly coordinated with your trust, your carefully laid-out plan can completely fail.

The Consequences of an Unfunded Trust

If you fail to fund your trust, your family will lose the primary benefits it was designed to provide. Your assets will have to go through the public, costly, and slow-moving probate court process. Your Trustee will have to wait for your Executor to settle the probate estate before they can manage and distribute the assets, defeating the purpose of your plan.

Ensure Your Plan Works as Intended

Creating a trust is only the first step. The follow-through of funding is what makes it work. A proper estate plan involves a thorough review of every asset to ensure it is titled correctly and coordinated with your trust.

If you have created a trust and are unsure if it was properly funded, or if you need assistance with the titling of your property, our estate planning attorneys can help. Call our office at (919) 256-7000 to schedule a consultation.