Trusts are often used in an estate plan to protect assets and avoid probate. Creating the trust with the help of an attorney is the first step, but not the only one needed. Many people make a critical mistake after signing their trust documents: They never fund the trust, making it virtually useless. Think of a trust like a safe. The safe cannot protect your valuables if you never put them inside. The same is true for a trust. An empty trust is a worthless trust.
What Happens If Your Trust Is Not Funded?
In estate planning, moving assets into a trust is called trust funding. If an asset is not placed into the trust, the trust does not control that asset and the asset may still have to go through probate when you pass away. That means your family could face court delays and additional legal fees and expenses. The trust may also not provide the protection you intended, such as keeping assets away from creditors or timing the distribution of the assets to your heirs.
In short, an unfunded trust can undermine an otherwise solid estate plan.
How Do You Fund a Trust?
Funding a trust usually means changing ownership or updating beneficiary designations. Common examples of how to do this include the following:
- Real Estate. The property must be transferred into the name of the trust, and a new deed must be signed and recorded with the county where the property is located. A quitclaim deed or other appropriate deed may be used, depending on the situation.
- Bank and Brokerage Accounts. You should contact your financial institution to retitle eligible accounts in the name of the trust. Also, update payable-on-death (POD) or transfer-on-death (TOD) beneficiary designations when appropriate.
- Life Insurance. Review your beneficiary designations and consider naming the trust as a primary or contingent beneficiary when it aligns with your estate plan.
- Other Assets. Ownership and beneficiary designations related to your business interests, investment accounts and valuable personal property should be updated as needed to match your overall estate planning goals.
Make Trust Funding a Priority
A trust only works when your assets are properly connected to it. Take a few minutes to review your major assets and confirm with an attorney that they will be passed on to your heirs in accordance with your wishes as part of your estate plan.
If you are unsure whether your trust has been properly funded or if you need help preparing deeds, transfer documents or beneficiary updates, contact our team to schedule a comprehensive trust review.
A simple review today could save your loved ones significant time, expense, and stress in the future.