How to Fund a Living Trust: A Complete Guide to Properly Transferring Your Assets

You finally have that Living Trust you’ve known you needed for a long time. So now what? One of the most important tasks after creating your trust is learning how to fund a living trust, which includes properly titling and transferring your assets into your trust. Without this crucial step, all your trustees and beneficiaries will have is an unfunded trust document and a huge headache.

What Does It Mean to Fund a Living Trust?

“Funding” a trust is a crucial step in comprehensive estate planning, involving the process of transferring property from the grantor (the person creating the trust) to the trust itself. When properly funded as part of your comprehensive estate planning strategy, the trust becomes the legal owner of any assets transferred to it.

Importantly, any assets not formally placed in the trust remain the property of the grantor and, therefore, will still have to go through the probate process. If your primary goal in creating a trust is to avoid probate and simplify your estate, funding your trust is just as important as creating it. Even the most well-drafted trust in the world won’t do any good if you don’t properly fund it.

The Importance of Properly Funding Your Trust

Think of your trust as an empty bucket when it’s first created. Until you fill that bucket with your assets, it can’t serve its intended purpose.

Properly funding your trust ensures:

• Your assets avoid the costly and time-consuming probate process
• Your trustee can manage your assets if you become incapacitated
• Your assets are distributed according to your wishes after your death
• Your estate plan works as designed, protecting your loved ones

How to Fund a Living Trust: A Step-by-Step Guide

Different assets are transferred in different ways. Some transfers, like bank accounts, are relatively simple and you can probably handle them yourself.

For more complex transfers, such as real estate, you may want the lawyer who drafted your trust documents to handle the paperwork or refer you to a specialist.

Remember, though, you should never assume that your attorney will be handling the transfers. Ultimately, the responsibility for funding the trust belongs to you, the grantor, so make sure there are no misunderstandings about who’s doing what.

Here’s a comprehensive guide to transferring various types of assets into your living trust:

Real Estate

To transfer real property into your living trust, you need to give the trust legal title to the property. Here’s how:

1. Execute a deed: While quitclaim deeds are common, warranty deeds are often preferred as they can help maintain your title insurance coverage.
2. Include precise trust name: Make sure the deed includes the exact legal name of your trust.
3. Record the deed: File the deed with the land records office in the county where the property is located. You’ll pay a small recording fee.
4. Consider a trust certificate: In some cases, you may want to record a trust certificate (a short document setting forth essential trust information) along with the deed.

In some states, you’ll have to pay a transfer tax when recording the deed, but many states provide exemptions for transfers to living trusts when the person making the transfer is the trustee.

If the property has a mortgage or deed of trust, you may need the lender’s permission before recording the deed, as many deeds of trust require lender consent for any transfer before the debt is fully paid.

After transferring property, consider converting any homeowner’s insurance policies into the trust’s name as well.

Bank and Investment Accounts

For bank and investment accounts, you’ll be placing title to the account in the name of the trustee in their capacity as trustee. For example:

“John Doe, as trustee of the John Doe Living Trust”

Some banks or states may require listing the date of the trust, like this: “John Doe, as trustee of the John Doe Living Trust, under written agreement dated February 9, 2025”

Here’s how to transfer these accounts:

1. Visit the financial institution: Bring a copy of your trust certificate and ask about their specific procedure.
2. Complete change of ownership forms: The institution will have forms for you to fill out.
3. Update signature cards: You’ll need new signature cards for the account.
4. Change beneficiary designations: Update any designated beneficiaries as appropriate.
5. Verify the transfer: Check your next statement to confirm the account is properly titled in the trust’s name.

Some banks may require you to close the account and open a new one in the trust’s name, though this isn’t always necessary.

An alternative approach is to keep the account in your name and designate the trust as a POD (“payable on death”) beneficiary. With this method, the account remains in your name until death and then automatically transfers to the trust.

For CDs, talk to the bank about timing. If you’ll incur early withdrawal penalties for an immediate transfer, it’s usually better to wait until the CD matures and then purchase a new one in the name of the trust.

Personal Property

A revocable living trust can accommodate specific bequests of valuable personal property by providing distribution instructions in the declaration of trust. Here’s how to handle different types of personal property:

For titled property (vehicles, boats, etc.):

• Obtain a new title in the trust’s name from the appropriate state agency (like the DMV).
• In some states, you can designate the trust as a beneficiary upon death on a vehicle title.
• Update insurance coverage to reflect trust ownership.

For valuable untitled property (jewelry, artwork, antiques, etc.):

• Execute an “assignment of ownership” form documenting the transfer to the trust.
• The assignment should clearly identify the transferred property.
• Have the document signed, dated, and (for valuable items) notarized.

For general household items and personal belongings:

• Most trust documents include language that automatically transfers all personal property into the trust.
• Create a personal property memorandum listing specific items and who should receive them.
• The memorandum can be updated anytime without having to amend the trust.

It’s usually not worth the trouble to individually transfer personal property of little value. For miscellaneous personal property, a “pour-over will” (discussed below) can ensure these items are administered through your trust.

Life Insurance Policies

Life insurance policies can be handled in one of two ways:

1. Name individual beneficiaries: You can name primary, contingent, and even tertiary beneficiaries to receive the policy proceeds directly, bypassing the trust.
2. Name the trust as beneficiary: This approach ensures proceeds are paid into the trust and distributed according to the terms in your declaration of trust.

The advantage of naming the trust as beneficiary is that proceeds will be managed and distributed according to the trust terms. The potential downside is that, if your estate is large enough to qualify for estate taxes, the policy proceeds could increase the estate taxes owed.

To name your trust as beneficiary:

1. Contact your insurance company or agent for change of beneficiary forms.
2. Execute the forms, listing the trust as the new beneficiary.
3. Return the forms to the insurer and confirm the change has been processed.

Some experts also recommend making the trust the owner of the policy, which gives your trustee access to the policy if you become incapacitated. However, if you have estate tax concerns, you might consider creating a separate irrevocable life insurance trust instead.

Retirement Plans (IRAs, 401(k)s, etc.)

Retirement accounts require special consideration because they cannot be owned by a trust. These accounts are called “Individual” Retirement Accounts for a reason – they must remain in your individual name.

However, you can name your trust as a beneficiary of these accounts, though there are important tax considerations to weigh:

• If you name your spouse as beneficiary, they can roll over the plan into their own plan when you die, potentially extending tax benefits.
• If you name your trust as beneficiary, the plan will lose certain tax deferment benefits upon transfer, but the trustee will manage distribution according to your trust terms.

This decision involves weighing tax considerations against control considerations. For beneficiaries with special needs or other circumstances where maintaining eligibility for government benefits is more important than tax savings, naming a trust as beneficiary may be the better choice.

Consult with your estate planning attorney and tax advisor to determine the best approach for your specific situation.

Stocks and Bonds

The process for transferring stocks and bonds depends on how you own them:

For securities held in a brokerage account:

• Simply change the ownership of the brokerage account following the institution’s procedure.
• Contact your broker or check their website for the necessary forms.

For physical stock or bond certificates:

• Ask your broker to amend the certificates for you.
• The broker will charge a small fee and require documentation showing the trust has been validly declared.
• The broker will issue new certificates in the name of the trust.

Promissory Notes and Other Debts Payable

To transfer the right to receive payments under a promissory note or other debt, execute an “assignment of rights.” After the assignment is executed, the legal right to collect monies owed belongs to the trust.

If these rights aren’t assigned and the note isn’t paid before your death, the right to receive payment becomes an estate asset, meaning the executor (not the trustee) will be responsible for recovering the debt.

Handling New Assets After Creating Your Trust

When you acquire new assets after establishing your trust, title them correctly from the start:

• For new bank or brokerage accounts, set them up directly in the name of the trust.
• When purchasing real estate, instruct the closing attorney to title the property directly into your trust.
• For other new assets, follow the same guidelines outlined above for each asset type.

By titling new assets directly into your trust from the beginning, you avoid having to transfer them later.

The Pour-Over Will: Your Safety Net

You might not want to transfer all your property into your trust right away, or you might inadvertently miss some assets. A “pour-over will” serves as a safety net for these situations.

A pour-over will is a relatively simple will that, upon your death, transfers to the trust any assets left out during your lifetime. Assets “pour over” into your Living Trust to be treated according to the trust terms.

Assets subject to a pour-over will might still need to go through probate (depending on their value), but they’ll ultimately be administered under the terms of your trust. This ensures a consistent distribution plan for all your assets.

Common Mistakes to Avoid When Funding a Living Trust

1. Failing to transfer assets: The most common mistake is simply not completing the transfer process for all eligible assets.
2. Not updating beneficiary designations: Failing to update beneficiary designations on life insurance policies, retirement accounts, and other assets can create conflicts with your trust provisions.
3. Assuming your attorney will handle all transfers: While your attorney may assist with some transfers, the ultimate responsibility for funding the trust rests with you.
4. Not verifying transfers: Always check statements and documentation to confirm assets have actually been transferred into the trust.
5. Forgetting to title new assets into the trust: Remember to properly title any new assets acquired after creating your trust.

Conclusion: Ensuring Your Trust Works as Intended

Creating a living trust is only the first step in your estate planning journey. How you fund your living trust is equally crucial to ensuring your estate plan works as intended. By properly transferring your assets into your trust, you protect your loved ones from the probate process and ensure your wishes are carried out efficiently.

Remember, an unfunded or partially funded trust can’t fully accomplish your estate planning goals. Take the time to properly fund your trust, and consider working with experienced professionals to ensure the process is done correctly.

With careful attention to the funding process, your living trust will provide the protection and peace of mind you and your loved ones deserve.