By: Samantha Banks [Trust Funding]
Peace of Mind Starts Here
Many people believe that once they sign their trust documents, their estate plan is complete. However, signing your trust documents is only the beginning. One of the most common (and costly) estate planning mistakes is failing to properly fund a trust after it’s signed. An unfunded trust can completely defeat the purpose of having one!
Let’s break down exactly what trust funding is, how it works, and why it is so important.
Here at Indiana Estate and Elder Law (“IEEL”), we use the “box analogy.” In essence, that is all a trust really is: a box, or “holder”, of assets. Designing and signing your trust creates the box and the rule book that explains how the box will work and how the assets will be managed and distributed once you pass away. However, once you create the box it’s time to fill it!
A trust only controls the assets that are legally transferred into it. The process of transferring those assets is called trust funding — and without it, your trust is just an empty box.
We fill the box in one of two ways: retitling assets in the name of the trust and/or making the trust the primary or contingent beneficiary. Therefore, the assets either go in the box now while you are still living or they go in the box later after you pass away. At IEEL our experienced estate planning attorneys will work with you and your financial professionals to design a funding plan that best meets your goals and ensures your trust is properly funded.
Retitling Assets
Retitling an asset in the name of trust means transferring ownership from you to your trust. A great example of this is real estate. Whether you are focused on probate avoidance or asset protection (or both!), it is imperative that ownership is transferred from you to your trust. We accomplish this through a Quitclaim Deed, prepared by our office and signed by you in the presence of a notary public. The Quitclaim Deed is then recorded with the appropriate county.
Other assets typically retitled in the name of your trust are investment or brokerage accounts, high-yield savings accounts, stocks, CDs, and whole life insurance policies.
Beneficiary Designations
For some assets, retitling in the name of the trust can trigger severe tax consequences or be downright burdensome. For example, retitling an IRA, 401(k), or other retirement account in the name of a trust is considered a distribution, triggering immediate income tax on the entire balance. However, a trust can be a beneficiary. The decision to list a trust as a primary or contingent beneficiary on these accounts is determined by your marital status, family dynamics, and distribution scheme.
If you are married, it is almost always better for a spouse to be the primary beneficiary as they will receive advantages that others (including a trust) would not. If you have minor children or your trust contains specific language and restrictions for how inheritance should be managed, then it might be best for your trust to be the contingent beneficiary. This ensures the funds “pass through” the trust and are governed by the terms of the trust.
Another good example is cash accounts. You may decide to title cash accounts in the name of your trust, but most of the time we will recommend a Pay on Death (POD) designation to the trust. Retitling a cash account, especially a checking account you use daily for automatic deposits and withdrawals, can be annoyingly burdensome. A POD designation is a great way to keep the account status quo while you are alive while ensuring any funds remaining after you pass away are governed by the terms of your trust.
The Danger of an Unfunded Trust
An unfunded or partially funded trust can lead to:
- Probate proceedings
- Court delays
- Increased legal fees
- Family disputes
- Assets passing contrary to your intentions
Remember our box analogy? We need to fill the box to ensure it works the way you designed it! You can have a beautifully constructed box that is virtually useless unless it is properly funded.
Steps to Keep a Properly Funded Trust
- Maintain a “Pour-Over Will”
A pour-over will ensures any forgotten assets are transferred into the trust through probate if necessary.
However, it does not eliminate probate. It acts as a safety net — not a substitute for funding.
- Review Funding After Major Life Changes
Update your trust funding after:
- Buying or selling real estate
- Opening new accounts
- Marriage or divorce
- Birth of children
- Starting a business
Funding is not a one-time task — it’s an ongoing responsibility.
- Annual Trust Maintenance Checklist
Each year:
- Review account statements for correct titling.
- Confirm beneficiaries are current.
- Verify new assets are properly assigned.
- Revisit trustee designations.
- Store documents securely and inform your successor trustee where they are located.
IEEL’s amazing Maintenance Program offers several benefits including an annual review meeting to ensure all funding is current and up to date.
Conclusion
Funding your trust is what makes it legally effective. Remember an empty box accomplishes nothing. Most of the time it can create more problems than having no trust at all.
A properly funded trust:
- Avoids probate
- Protects privacy
- Reduces delays
- Preserves your legacy
If you’ve signed your trust but haven’t completed funding, make it a priority now. The peace of mind comes not from the paperwork — but from knowing your plan will actually work when your family needs it most.