Many people create a revocable living trust to avoid probate, maintain privacy, and ensure smooth estate distribution. However, these benefits only apply if you properly “fund” your trust, meaning you must transfer assets into it. Establishing a trust without funding the trust is like installing a safe but never placing your valuables inside.
What Is Funding a Trust?
Funding involves changing ownership or beneficiary designations of your assets—such as real estate, bank accounts, or investments—so that the trust, rather than you personally, owns them. You can also name the trust as beneficiary on life insurance policies and retirement accounts; however, you must consult with your attorney prior to naming a trust as a beneficiary to a retirement account to discuss potential tax implications.
Why Funding Matters
- Avoiding Probate: Assets inside the trust avoid probate, saving time, costs, and hassles. Unfunded assets still face probate, undermining your plan.
- Privacy: Unlike probate, trust assets remain private, shielding your family’s financial affairs from public view.
- Control Over Distributions: Trusts let you dictate how and when beneficiaries receive their inheritance. Without funding, state laws and probate courts decide.
- Incapacity Protection: If you’re unable to manage your affairs, a successor trustee can step in to handle trust-owned assets without court intervention.
Common Mistakes
Many forget to transfer all their assets to their trust. Neglected real estate, bank or brokerage accounts, and outdated beneficiary designations can bring the estate back into probate or undermine your estate planning intentions.
How to Fund Your Trust
You should consult with your attorney regarding your individual estate plan and circumstances prior to funding your trust.
- Real Estate: Execute and record a new deed transferring title to the trust.
- Bank & Investment Accounts: Contact financial institutions to retitle accounts.
- Personal Property & Business Interests: Follow proper legal steps to transfer ownership.
- Retirement Accounts & Life Insurance: Consider naming the trust as a beneficiary (often as a secondary beneficiary) to optimize tax and distribution rules. However, you must consult with your attorney prior to naming your trust as the beneficiary of a retirement account.
Ongoing Maintenance
Each time you acquire new assets, remember to update titles or beneficiary designations. Review your trust regularly with an estate planning attorney to ensure it stays fully funded.
Bottom Line
Funding is crucial to a trust’s effectiveness. An experienced Arizona estate planning attorney can guide you through the process, ensuring your trust works as intended, from avoiding probate to protecting loved ones and preserving your legacy.
Lisa is well versed in challenges faced by small businesses and their owners. Her unique prospective benefits her business clients with agreements, employment advice, copyright violations and succession planning. She also assists families with estate planning not only guiding them through the estate planning process but also understanding why this is so vital to their families.