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Why Funding a Trust Is Important and What It Means

Troy Werner and his family

Written by Troy Werner

Troy Werner has been an indispensable asset to The Werner Law Firm since joining in 2009, providing exceptional legal service to its clients.

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POSTED ON: February 19, 2021

To understand how a trust should be built, you need to first understand what a living trust is, how funding a trust works, and why it's important.   A trust is only worth what you fund it with – so if you decide against funding a trust, it is effectively useless. Learn more about funding […]

To understand how a trust should be built, you need to first understand what a living trust is, how funding a trust works, and why it's important.


A trust is only worth what you fund it with – so if you decide against funding a trust, it is effectively useless. Learn more about funding a trust. Even only selectively funding a trust or neglecting to add new assets to your trust can present issues in your estate planning process, and leave your loved ones with several problems.

For one, all assets not in a living trust obviously cannot be managed by your trustee. While most people are their own trustee when first creating a living trust, part of the process of writing a trust document involves naming a successor for trust management. If you do not fund a certain asset into your trust, however, your trustee will not have the power to see to it that that asset goes to whomever you decided it goes to.

If you have not funded your trust, then everything you own will either be subjected to your state’s intestate and inheritance laws or a probate court. Of course, there are ways to avoid all these problems: chief among them being properly executing the creation of a trust. To understand how a trust should be built, you first need to understand what a living trust is.

How Do Trusts Work?

A revocable living trust is an estate planning tool that allows you to create a document detailing where all your assets and belongings will go in the event of your incapacitation. This includes death but also includes brain death, or a debilitating disability with no hope of recovery. It has its differences from a regular will and testament – first, a trust goes into effect as soon as it is signed and notarized, whereas a will goes into effect upon your death.

A trust can be funded with nearly anything, including your portion of ownership in a joint ownership of property, whereas a will cannot. A trust can also give you a greater amount of control over exactly how your property should be distributed upon your death, including giving you the ability to distribute your assets provisionally if you wish to ensure that your children are not burdened with the entirety of your wealth while they are still minors. The few things you cannot or should not place in a trust include:

      • Certain accounts (401ks and other qualified retirement accounts, HSAs/MSAs, accounts for the benefit of someone else such as UTMAs/UGMAs).
      • Life insurance (you may name your trust as beneficiary).
      • Motor vehicles (some states view the retitling of motor vehicles as a sale, with significant tax costs; instead these can be made transferable-upon-death in California).

Furthermore, a trust guarantees privacy where a will (which is on public record) does not. Because of its complexities, a living trust does not require probate either – allowing you to skip the process by which a will’s legitimacy is tried and tested. To summarize, a trust is useful to:

      • Plan for your incapacitation.
      • Avoid probate.
      • Fine-tune your estate planning and inheritance.
      • Keep your financial information strictly private.
      • Encompass nearly all your possible possessions.

However, a trust is ultimately more complicated than a will. Setting up a trust may require more experience and knowledge than a will, and even those shouldn’t be written solely on the experience and knowledge provided through the Internet.

How Is a Trust Created?

The gist of the process is not as complicated as many make it out to be. The usual steps to the creation of a living trust are:

Drafting of the Initial Trust Document

This includes determining the trust’s grantor (the creator of the trust), trustee (the manager of the trust), and beneficiaries (to whom the trust will be transferred). Typically, a simple living trust will involve you as the holder of all these titles, including the first beneficiary. Then, naming other beneficiaries allows you to detail how each beneficiary will receive the contents of the trust upon your death or incapacitation.

Funding a Trust

A trust only protects its contents from probate – so an empty trust is not going to do you very much good. Funding a trust requires you to change the ownership of your properties and amend your deeds, specifically in the trust’s name. Focus first on any real estate you own, then fund a trust with any other assets and accounts you possess, including bank accounts, securities, and other financial instruments. If you have not already, consult your attorney for these steps. When funding a trust and amending ownership to your properties and assets, there are tax considerations to be made, legal constraints per state, and other factors that may heavily affect the way you should plan your estate.

Managing a Trust

There’s more to a trust than setting one up and then forgetting all about it. A trust must be managed – its contents must be updated, new properties must be funded into it, and you may have to consider creating a pour-over will to ensure that anything you own and neglect funding into your trust will be moved into upon your death. Furthermore, a trust does not help you determine the guardianship for your minor children, or help you determine power-of-attorney for healthcare or financial purposes in-case you are incapacitated and need someone to look after both you and your financial obligations, fees, debts etc.

How Does Funding a Trust Work?

Any trust has a trust title – a full name for the trust, which should be used on deeds, assignment-of-interest documents when designating beneficiaries and on certificates of title. When you first write and sign a trust document, funding a trust involves going over every valid asset or property and amending your ownership of that property to transfer ownership over to the trust, rather than your own name. This goes for real estate, and other property such as vehicles if applicable in your state.

Assets held without proof of ownership, such as jewelry, can be funded into a trust through a signed ownership document. Bank accounts and financial instruments can be retitled in your trust. Shares and interest in partnerships can be retitled as well. In some cases, your trust can be made the beneficiary of your life insurance rather than an individual, which gives you more control over how to provision your insurance after your death.

There is always the possibility that you gain ownership of a property or asset and do not have the chance to amend ownership to your trust. This is where a pour-over will comes into play, to ensure that anything you own not already in your trust can be transferred into your trust upon your death.

Final Remarks

As long as you consult with a legal professional on your estate planning, funding a trust, and, meticulously review the literature, you can look forward to knowing your assets will safely transfer over to those you care about the most.

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