What Does "Funding a Trust" Mean?

Funding Means Changing the Ownership or Beneficiary to Your Trust

Living Trust
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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 Trustmaker must “fund” his or her assets into the trust.

What Does "Funding a Trust" Mean?

Funding a trust refers to taking assets that are titled in the individual Trustmaker’s name or in joint names with others and retitling them into the name of the Trustmaker's Revocable Living Trust, or taking assets that require a beneficiary designation and naming the Trustmaker's Revocable Living Trust as the primary or secondary beneficiary of those assets.

The ultimate goal of funding a Revocable Living Trust is to ensure that the Trustmaker’s property is governed by the terms of the trust agreement. This, in turn, will allow the Trustmaker's selected Disability Trustee to manage accounts held in the name of the Trustmaker's trust in the event the Trustmaker becomes mentally incapacitated.  Also, after the Trustmaker dies, the Trustmaker's selected Death Trustee will be able to manage and then transfer accounts held in the name of the Trustmaker's trust to the ultimate beneficiaries named in the trust agreement.

Why Should You Fund Your Trust?

Why is it so important to fund your Revocable Living Trust? For the following reasons:

  • Assets held outside of your Revocable Living Trust cannot be managed by your Trustee - The Trustee of a Revocable Living Trust has no power whatsoever over the Trustmaker’s property that has not been retitled in the name of the Trustmaker's trust. Thus, if the Trustmaker becomes mentally incapacitated, then the Trustmaker's loved ones may need to establish a court-supervised guardianship or conservatorship to manage the Trustmaker's assets that are not held in the name of the trust.
  • Assets held outside of your Revocable Living Trust may need to go through probate - The Trustmaker's property that has not been retitled in the name of the Trustmaker's Revocable Living Trust may have to go through probate after the Trustmaker’s death. This, in turn, will defeat one of the main benefits of creating a Revocable Living Trust - avoiding probate.
  • Assets held outside of your Revocable Living Trust may not go to your intended beneficiaries - After the Trustmaker’s death, a property that is held outside of the Trustmaker's 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 to other joint owners or to the beneficiary named on the beneficiary designation form such as is used for a payable on death account or transfer on death account.

An Unfunded Revocable Living Trust is Just a Stack of Papers

An unfunded Revocable Living Trust is not worth much more than the paper its written on.  Thus, 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.  Also, you will need to update the beneficiary designations for your assets that require a beneficiary designation.