Trust “funding” is a term of art referring to the process of transferring your assets from you to your trust. To do this, you physically change the titles of your assets (e.g., real property and financial accounts) from your individual name to the name of your trust by executing Deed(s) for real property and your financial institution’s change of ownership documents for all financial accounts. If you are married, you and your spouse might change the titles of jointly owned assets and accounts to your joint trust. Note, broad language in the Trust that declares you have transferred assets to the trust (even if listed on a Schedule of Trust assets) is not sufficient. Rather, you must complete the additional documentation required for each asset you own.

However, you may not be able to transfer all of your assets to your trust. For example, retirement plans such as individual retirement accounts (IRAs and 401ks) cannot be owned by your trust while you are living. However, you can change the beneficiary designation for your IRA to individuals, charities, and/or your trust or sub-trusts established thereunder, as primary or contingent beneficiary, to receive retirement benefits after your death. Warning: You should always seek advice of legal counsel before making any beneficiary designation on retirement accounts to ensure maximum tax and legacy planning in light of recent changes to laws impacting retirement account beneficiaries under the SECURE Act of 2019 and SECURE Act 2.0.

If you have business assets, you also need to be certain to coordinate the ownership interest in your business (e.g., membership in LLC, or shares in a corporation) with your Trust. Note: Your estate planning and business law attorney should be involved in these discussions.

In general, assets owned by a Trust on the Trustor’s date of death shall be distributed to the beneficiaries by the Trustee as set forth in the trust agreement, with no probate or court supervision required. As such, the complete “funding” of a Trust is critical to avoid probate. If you have signed your trust agreement but have not changed titles and beneficiary designations, you are unlikely to avoid probate. Your trust agreement and trustee can only immediately control the assets you have put into the trust. Until you fund your trust it does not control anything, and functions like an expensive coffee table book- it’s attractive and large but not terribly functional. If your goal in having a Trust is to avoid probate at death and court involvement at incapacity, then you must fund it now, while you are able to do so.

What Happens if Something Is Left Out of Trust?

With your trust, your attorney will prepare a “pour-over Will” that acts like a safety net. When you die, the Will collects any forgotten “estate” asset and leaves it to your trust. The “estate” asset will likely go through probate first under the pour-over Will to be transferred to the trust and then ultimately distributed according to the instructions in your trust.

Who Funds the Trust?

You are ultimately responsible for making sure all appropriate assets are transferred to your trust either by changing the title to transfer the assets during your lifetime or updating the beneficiary designation to arrange for the assets’ transfer later. How you should fund your Trust and make appropriate beneficiary designations will depend upon your unique circumstances; the information contained herein is only general in nature. You should always seek legal advice to understand how to properly fund your trust in a manner consistent with your overall goal and objectives.

If you have questions regarding how to properly fund your trust, or whether any updates are warranted please call our office today at 480-922-1010 or email info@bivenslaw.com to schedule a consultation with one of our estate planning attorneys. Do not delay—protect your family from Court or unexpected outcomes.

—Stephanie A. Bivens, Esq., CELA