Funding a Trust
Key Points
A trust only controls assets that have been properly transferred into it.
Signing a trust agreement alone does not fund the trust.
Different types of assets require different methods of transfer.
Failure to fund a trust is one of the most common estate planning mistakes.
Trust funding should be reviewed periodically as assets change.
Introduction
Creating a trust is only the first step. For a trust to accomplish its intended purpose, the appropriate assets must be properly coordinated with the trust. This process—known as funding the trust—is one of the most important and most frequently overlooked aspects of estate planning.
What Does "Funding" Mean?
Funding a trust means transferring ownership of assets to the trust or coordinating those assets through beneficiary designations or other planning tools when appropriate. The correct method depends on the type of asset involved.
Assets Commonly Transferred to a Trust
Assets commonly transferred to a trust include real estate, non-retirement investment accounts, bank accounts, business interests, and certain personal property. Other assets, such as retirement accounts, are often coordinated through beneficiary designations rather than retitled to the trust.
How Assets Are Transferred
Each asset has its own transfer process. Real estate typically requires a new deed. Financial accounts usually require paperwork provided by the institution. Business interests may require assignments or approval under governing documents.
What Happens If You Forget?
If an asset is never transferred into the trust or otherwise coordinated with it, the asset may not receive the intended trust treatment. Depending on the circumstances, it could require probate or pass according to other legal rules.
Reviewing Your Trust
Trust funding is not a one-time event. Whenever you purchase major assets, open new accounts, sell property, or significantly change your financial situation, your trust funding should be reviewed.
Common Misconceptions
Signing my trust automatically transfers all my assets.
No. Creating the trust is only the beginning. Most assets require separate transfer documents, updated account registrations, or beneficiary designation changes before they become part of the trust.
Only wealthy people need to fund their trust.
No. Anyone who creates a trust should make sure the assets intended to be governed by the trust are properly transferred or otherwise coordinated. An unfunded trust can fail to accomplish its purpose regardless of the size of the estate.
Once my trust is funded, I never need to review it again.
No. Trust funding should be reviewed periodically. New accounts, newly purchased real estate, business interests, and other major assets often require additional steps to keep your trust current.
Frequently Asked Questions
Can I still use my bank account?
Yes. Most people continue using trust-owned bank accounts just as they did before while serving as trustee of their own revocable living trust.
Should retirement accounts be retitled into my trust?
Often, no. Many retirement accounts are better coordinated through beneficiary designations rather than changing ownership. The appropriate approach depends on your circumstances and should be discussed with your estate planning attorney.
Can newly acquired property be placed into the trust?
Yes. New real estate, financial accounts, business interests, and other assets can generally be transferred into the trust after they are acquired.
How often should I review trust funding?
At least annually and whenever major changes occur. Reviewing your trust when preparing your taxes or after significant life or financial changes is a good way to help ensure new assets have been properly coordinated with your estate plan.
Your Next Step
Creating and funding a trust are essential first steps, but someone must eventually be responsible for managing the trust according to its terms. Whether that responsibility begins because of incapacity or after death, the trustee plays a central role in carrying out your wishes.
In the next article, you'll learn about the duties and responsibilities of a trustee, including the legal obligations involved in managing trust assets, acting in the best interests of beneficiaries, and administering the trust according to its terms.
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About Jarrod Barron Law
Jarrod Barron Law helps Michigan individuals, families, and business owners make informed legal decisions through thoughtful, plain-English estate planning.
Disclaimer
This article is provided for general educational purposes only. It is not legal advice and does not create an attorney-client relationship.