What Is Funding a Trust?

Definition & Examples of Funding a Trust

Older couple signs paperwork with an advisor

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Funding a trust is the process of transferring your assets to the ownership of your trust. Once ownership is transferred, the trustee will have control of these assets.

Learn why funding a trust is important and how it is done.

What Is Funding a Trust?

Funding a trust refers to taking assets that are titled in the settlor’s name or in joint names with others and retitling them into the name of the settlor's revocable living trust. It can also involve taking assets that require a beneficiary designation and naming the revocable living trust as the primary or secondary beneficiary of those assets.

The person who creates and funds a revocable living trust can be referred to as the settlor, grantor, trustmaker, or trustor. Settlors may also chose to designate themselves as trustees or beneficiaries, depending on the reasons for the trust.

Funding a revocable living trust ensures that the settlor's property is governed by the terms of the trust agreement:

  • If the settlor becomes incapacitated, the selected disability trustee will be able to manage accounts held in the name of the trust.
  • After the settlor dies, the selected death trustee will be able to manage and then transfer accounts held in the name of the trust to the ultimate beneficiaries named in the trust agreement.

How Funding a Trust Works

For a revocable living trust to function properly, it is not enough for the trustmaker to simply sign the trust agreement. After the agreement has been signed, the settlor must “fund” his or her assets into the trust.

Funding a trust involved transferring property to the trust. How that works will depend on the type of property. For some assets you will need to transfer ownership to the trust. For others, you may need to designate the trust as a beneficiary.

  • Titled property (boat, car, motorcycle, airplane, etc): Obtain a new title showing the living trust as the owner.
  • Untitled property (jewelry, collectibles, etc): Create a signed and dated document called an Assignment of Property that designates the trust as the owner.

Untitled property can often be listed in an ownership document as broad categories of "electronics" or "furniture." If, however, you have particularly valuable items, such as jewelry or art, those should be listed individually.

  • Bank accounts: Varies by bank, may involve closing on account and transfering funds to a new account owned by the trust.
  • Certificates of Deposit (CDs): Wait until the CD matures, then open a new CD in the trust's name in order to avoid early withdrawal penalties.
  • Securities (stocks, bonds, brokerage account, etc): Can vary by brokerage and type of security. Stock and bond certificates may need to be reissued with the trust as the owner. Ask your broker how to transfer ownership of these assets.
  • Real estate: Transfer ownership using a quitclaim deed. If you have a mortgage or belong to a homeowners' association, you may need permission.

Your county or city may have additional paperwork that you need to fill out to legally transfer real estate ownership to your trust.

  • Business interests (shares in partnership, LLC, corporation, etc): Retitle shares in the name of the trust.
  • Life insurance, retirement accounts, health savings accounts (HSAs), medical savings accounts (MSAs): Designate the trust as the beneficiary for each account or policy.

If you are unsure how to transfer ownership of any property to your trust, speak to your lawyer or the instutition that holds the asset, such as your bank or broker.

Once assets are owned by the trust, they are protected from probate and under the control of the trust and its trustees.

Do I Need to Fund a Trust?

If you have created a revocable living trust, funding it is a critical step in the process.

An unfunded revocable living trust is not worth much more than the paper it's written on. It is important to take the time to retitle your assets in the name of your trust after you have taken the time to work with your estate planning attorney to create a revocable living trust that fits your particular family situation and financial needs. 

Failing to fund a trust properly can create several long-term difficulties.

Assets Cannot Be Managed by Your Trustee

The trustee of a revocable living trust has no power whatsoever over any of the settlor's property that has not been retitled in the name of the trust.

If you create a trust without funding it, then become mentally incapacitated, you loved ones may need to establish a court-supervised guardianship or conservatorship to manage the any assets that are not held in the name of the trust.

Assets May Need to Go Through Probate

Any property has not been retitled in the name of your revocable living trust may have to go through probate after the your death. This defeats one of the main benefits of creating a revocable living trust—avoiding probate.

Assets May Not Go to Your Intended Beneficiaries

After the your death, a property that is held outside of your revocable living trust cannot be disposed of as provided in the trust agreement. 

Instead, assets held outside of the trust may pass by rights of survivorship, depending on the state that you live in. Funding your trust ensures that your assets go where you want them to go.

Article Sources

  1. Nolo. "Funding Your Living Trust." Accessed Aug. 26, 2020.

  2. The Elderlaw Firm. "Basics of Funding a Revocable Living Trust." Accessed Aug. 26, 2020.