What Most Trust Plans Get Wrong: The Importance of Funding Your Trust

Many people take the time to create a trust as part of their estate plan, but a common mistake can prevent it from working as intended. The biggest issue is that people think once they sign the trust documents, everything is taken care of. In reality, that’s only the first step. 

For a trust to work, you must “fund” the trust. This means changing ownership of things like your bank accounts, investments, or real estate so that they are owned by the trust instead of you personally, or go to the trust automatically upon your death. If you don’t do this, the trust doesn’t control those assets and a probate administration may be needed. 

This is where many estate plans fall short. People create a trust but never transfer their assets into it. As a result, those assets may still have to go through probate after they pass away or wind up going to incorrect beneficiaries. Thereby defeating the main reasons people set up their trust in the first place. 

For example, someone might create a trust but forget to transfer their house into it. When they pass away, the home is still in their name, so it may have to go through probate. The same thing can happen with bank accounts or other assets that were never retitled or are missing beneficiary designations. 

Funding a trust is not something you do just once and forget about. As you acquire new assets or open new accounts, you need to make sure they are properly connected to the trust. It’s also a good idea to review your accounts from time to time to make sure everything is set up correctly. 

Another area that can cause confusion is how trusts work with named beneficiaries. Some assets, like life insurance or retirement accounts, pass directly to the person you name. These should be reviewed along with your trust to make sure everything is working together the way you intended. 

The main takeaway is simple: a trust only works if it is properly funded. Creating the document alone is not enough. Making sure your assets are correctly placed into the trust is what allows it to do its job. 

Working with an estate planning attorney can help make sure everything is set up the right way and stays up to date. Taking these extra steps can help your family avoid unnecessary complications in the future.