Why Funding Your Trust Is Essential and What Happens If You Don't
- Phoenix S. Ayotte, Esq.
- Jun 12
- 6 min read
Updated: Jun 13
Creating a trust is one of the most powerful tools in estate planning, offering control, privacy, and efficiency in managing and passing on your assets. But there’s one vital step that many people overlook: funding the trust. Simply signing your trust agreement is not enough. Without proper funding, your trust cannot serve its intended purpose—and your estate plan will unravel when you need it most.
This blog will walk you through what it means to fund a trust, why it's essential, and the potential consequences of neglecting this step.
A. What Does It Mean to Fund a Trust?
Funding a trust is the process of transferring ownership of your assets—such as real estate, bank accounts, investments, and personal property—from your individual name into the name of your trust. This ensures that the trustee (often yourself during your lifetime) has legal authority to manage and distribute those assets according to your wishes.
Key Aspects of Trust Funding:
Changing Titles: Assets must be re-titled to reflect the trust as the owner (e.g., "The [Your Name] Revocable Trust").
Updating Beneficiary Designations: Some assets, like retirement accounts and life insurance, may require beneficiary updates rather than ownership changes.
Legal Documentation: Certain transfers, such as real estate deeds, require formal legal paperwork.
Without these steps, the trust remains an "empty vessel", unable to fulfill its purpose.
What Assets Should Be Funded Into a Trust?
Most of your assets should be placed in your trust, with some exceptions. Common assets to fund into your trust include:
Real estate (residential, rental, vacation)
Bank accounts (checking, savings, CDs)
Brokerage and investment accounts
Business interests
Notes receivable
Tangible personal property (art, jewelry, collectibles)
Assets typically not funded into a trust:
IRAs and qualified retirement plans (but consider naming the trust as a beneficiary)
Certain types of stock (e.g., S-corp shares require special handling)
Motor vehicles (may vary by state and value)
Incentive stock options or Section 1244 stock
Life insurance (ownership depends on tax planning goals)
Always consult your estate planning attorney and tax professional before transferring or designating assets.
B. Why Proper Funding Is Non-Negotiable
Avoiding Probate – The Primary Benefit
A properly funded trust bypasses probate, the court-supervised process of distributing assets after death. Probate can be:
Time-consuming (often taking months or years)
Costly (with fees consuming 3-8% of the estate’s value)
Public (exposing your financial details and beneficiaries to scrutiny)
If assets aren’t in the trust, they will still go through probate, defeating one of the main reasons for creating the trust in the first place.
Ensuring Smooth Management During Incapacity
If you become incapacitated, a successor trustee can seamlessly manage trust assets without court intervention. However, assets left outside the trust may require a conservatorship—a costly and invasive legal process.
Protecting Privacy
Unlike wills, which become public record during probate, a trust keeps your financial affairs private—but only if assets are correctly transferred into it.
Simplifying Multi-State Property Transfers
If you own property in multiple states, a funded trust prevents the need for domesticating separate probate proceedings in each jurisdiction.
Providing Clarity for Unmarried Partners
For domestic partners or non-traditional families, a funded trust ensures assets pass according to your wishes, avoiding uncertain state inheritance laws.
C. What Happens If You Don’t Fund Your Trust?
Failing to fund your trust means that, despite having a valid trust document, your assets are not legally governed by it. Here’s what that can lead to:
Your Trust Won’t Control Unfunded Assets
A common misconception is that simply having a trust means all your assets are covered. In reality, only assets formally transferred into the trust are governed by its terms.
Probate May Still Be Required
Even if you have a "pour-over will" (a backup document directing unfunded assets into the trust), those assets must first go through probate—delaying distribution and incurring extra costs.
Beneficiary Designations Override the Trust
Assets like retirement accounts and life insurance pass directly to named beneficiaries, regardless of trust instructions. If these aren’t updated, they may conflict with your estate plan.
Potential Family Disputes
Unfunded assets can lead to confusion, legal challenges, or unintended heirs receiving property—especially in blended families.
D. How to Fund Your Trust
Real Estate
Deed Transfer: A new deed must be prepared and recorded, naming the trust as owner.
Mortgage Considerations: Per the Garn St. Germain act, retitling real property in the name of your trust cannot activate a due-on-sale clause, so a notification to your lender is appropriate.
Insurance Updates: Notify your homeowner’s insurance provider of the change.
Financial Accounts
Bank & Investment Accounts: Contact your financial institution to re-title accounts in the trust’s name.
Certificates of Deposit (CDs): Ensure early withdrawal penalties aren’t triggered.
Business Interests
LLCs, Partnerships, and Corporations: Ownership certificates or operating agreements need updates. Your attorney should also incorporate clauses into the trust which refer to your business succession planning.
Professional Practices: Some licenses restrict ownership transfers, requiring special handling.
Personal Property
Tangible Items (Jewelry, Art, etc.): A general assignment document can transfer these assets.
Vehicles: Many states discourage titling cars in trusts due to insurance complications.
Retirement Accounts & Life Insurance
Taxes can be triggered by ownership transfer; you need advice from your lawyer for your particular accounts and policies.
Update beneficiaries to align with your trust’s distribution plan.
Digital Assets
Include online accounts, cryptocurrencies, and intellectual property in your funding strategy.
E. Common Mistakes When Funding a Trust
Even well-meaning individuals can run into trouble with trust funding. Here are a few common errors:
Forgetting to Retitle Assets: Creating a trust doesn’t automatically transfer your assets. You must actively change the title on each asset.
Not Updating Beneficiary Designations: For IRAs, retirement plans, and life insurance, you typically update the beneficiary designation rather than transferring ownership.
Leaving Out New Assets: New property acquired after the trust is created must also be titled in the name of the trust.
Overlooking Out-of-State Real Estate: Failure to include out-of-state property in your trust can trigger additional probate proceedings.
Assuming a Will Is Enough: A pour-over will only move assets into your trust after death, and only through probate.
F. Who Is Responsible for Funding?
Ultimately, you are responsible for ensuring that your trust is funded properly. While your attorney may assist with certain assets—especially real estate—much of the work often falls to the trust creator. And, we know it's burdensome.
At Future Counsel, for our clients we offer trust funding support after your documents are executed. We work with trusted partners to take all of the hassle out of this process for you, and reducing your administrative burden to simply providing account and policy statements, and signing the necessary letters and documents prepared.
The Funding Process Takes Time
Trust funding is not a one-time task. It’s an ongoing process that should be revisited regularly, especially when you acquire new assets or if your financial situation changes. Many people intend to “get around to it,” but procrastination can be costly. Make a list of your current assets, confirm which ones are in the trust, and take action to transfer or designate those that are not.
Putting Your Trust to Work Starts with Funding
Establishing a trust is a smart and strategic move, but without funding, your plan is incomplete. A properly funded trust can help you avoid probate, protect your loved ones from court involvement during incapacity, reduce estate administration costs, and ensure your wishes are carried out.
If you’re unsure whether your trust is properly funded or need help getting started, Future Counsel, LLC can guide you through every step. We’re committed to helping you protect your legacy and secure peace of mind for your family.
Need Expert Guidance?
If you’re in Virginia, Maryland, or Washington, D.C. (DMV) and need a lawyer to create a trust that truly protects your assets and reflects your wishes, Phoenix S. Ayotte, Esq. of Future Counsel is here to help! We don’t just draft your trust—we also assist with the funding process to ensure it works when it matters most. Whether you’re starting fresh or updating an existing plan, we’ll guide you through every step with clarity and care.
