Funding a trust
Actually moving property into a trust — retitling accounts and deeds into its name. An unfunded trust generally does not control assets that were never transferred into it.
What it means
Signing a trust document creates an empty container. Funding is the separate work of retitling: changing the deed to the house, the registration on accounts, the ownership of a vehicle.
Some assets are handled by beneficiary designation instead, naming the trust as beneficiary rather than retitling. And some should be left alone — retitling a retirement account is treated as taking the money out of it.
Property left out stays outside the trust and, if it has no other route, goes through probate. A pour-over will catches whatever was missed, and it catches it by sending it through the probate the trust was made to avoid.
Why it matters
Unfunded trusts are a frequent failure in estate planning, and they fail silently: everything looks in order until somebody dies and the house turns out to be in the wrong name.
It also matters for capacity. A successor trustee can manage trust property without a court, but only property the trust actually holds.
When you are likely to meet it
- After a trust is signed.
- When reviewing whether a parent's trust is complete.
- When a house or account turns out to be in an individual's name after a death.
Which treatment each asset gets
Three things can be done with an asset and only one of them is right for each. The expensive mistake is retitling something that should have been left alone.
| What is being compared | Retitle into the trust | Name the trust as beneficiary | Leave outside the trust |
|---|---|---|---|
| Typically | The house, other real property, bank and brokerage accounts, a business interest | Life insurance, and sometimes a retirement account where a person is not the right beneficiary | Retirement accounts, vehicles in most states, day-to-day current accounts |
| How it is done | A new deed, recorded; the institution's own retitling paperwork | The institution's beneficiary form, naming the trust exactly as the trust document does | Nothing |
| Avoids probate | Yes | Yes | Only if it has another route — a joint owner, a beneficiary, a small-estate procedure |
| The mistake to avoid | Recording a deed without checking the mortgage and the property tax exemption first | Naming the trust where a spouse would have had better tax treatment | Assuming the pour-over will fixes it — it does, by sending it through probate |
| If it is retirement money | Do not. Retitling an IRA or a 401(k) is treated as a distribution and taxed | Possible, and a decision with real tax consequences either way | Usually right, with a person named |
A trust names itself precisely — its full title and its date. A beneficiary form that says only "my trust" is a form an institution can refuse.
How this varies by state
How an asset is retitled into a trust — and what a recorder or a transfer agent will accept — is set locally.