You may create a trust to protect assets and pass them to family members after your death without the time and expense of probate. However, establishing a trust requires you to “fund” it. Failing to fund a trust could cause it to “fail,” potentially upsetting the objectives of an estate plan. As a result, you should learn what it takes to fund a trust and understand the consequences when an unfunded trust fails.
What Does “Funding a Trust” Mean?
“Funding a trust” means legally moving assets into a trust’s ownership. The funding process can vary depending on the type of asset. For example, titled assets like real estate, vehicles, or watercraft require retitling the asset in the trust’s name. Funding a trust with assets like securities or cryptocurrency will require transferring those assets into the trust’s name. Finally, funding a trust with money will mean putting cash into the trust’s bank account.
Funding a trust differs from and follows the process of “creating” the trust, which involves drafting and signing the trust document. Unfortunately, some people who create a trust overlook the step of funding it. They may incorrectly assume that creating a trust automatically means that it takes ownership of designated assets.
Why Unfunded Trusts Fail
An unfunded trust “fails” because assets left outside the trust’s ownership remain part of the grantor’s estate and still go through probate after the grantor’s death. Many people create trusts to pass assets to loved ones outside of probate and avoid the time and expense that probate can involve. However, failing to transfer assets into the trust means they remain part of the grantor’s estate and subject to probate.
Retitling Assets to Place in Trust
When a grantor funds a trust, they will need to transfer ownership of assets to the trust. For real estate assets, the grantor will need to execute and record a deed transferring title for the property from the grantor to the trust. Similarly, the grantor will need to transfer title to other titled assets, such as motor vehicles or aircraft. For securities, the grantor must ensure that the trust becomes the legal or beneficial owner of the security. For other assets that a grantor may want to put in trust, such as pension benefits or retirement accounts, the grantor may need to coordinate beneficiary designations to ensure that those assets do not pass through the grantor’s estate after their death.
Basic Trust-Funding Checklist
When creating a trust, a checklist can help ensure you don’t miss a necessary step. The primary steps of funding a trust include:
- Record new deeds for real estate.
- Contact financial institutions to retitle accounts or transfer funds and securities into newly established trust accounts.
- Update beneficiary designations for financial accounts, insurance policies, and pensions as necessary.
- Transfer business interests per the procedures under the entity’s governance documents and applicable state law
An experienced estate planning lawyer can walk you through the process of funding a trust so you can avoid inadvertent errors that may leave your trust unfunded and cause it to fail.
Contact Our Forney Estate Planning Attorneys Today for Guidance
When you create a trust as part of your estate plan, you need knowledgeable legal guidance to ensure you complete the funding process so it fulfills your objectives. An unfunded trust can have serious unintended financial and legal consequences. Contact Guest & Gray today for a free consultation with a trusts attorney to learn more about funding a trust and why it matters for carrying out your estate planning goals.
