Why Funding Your Trust Is Just as Important as Signing It

Creating a Trust Is Only the First Step

Many people believe their estate planning is complete once they sign their trust documents.

In reality, creating a trust is only part of the process.

For a trust to work as intended, assets generally must be transferred into the trust. This process is commonly referred to as trust funding.

Without proper funding, a trust may not fully accomplish the goals it was designed to achieve.

What Does It Mean to Fund a Trust?

Funding a trust means changing ownership of assets so that they are held by the trust.

Depending on the circumstances, this may include:

• real estate;

• bank accounts;

• brokerage accounts;

• business interests;

• and other assets.

The specific funding requirements depend on the nature of the assets involved and the goals of the estate plan.

Why Is Trust Funding Important?

A properly funded trust can help ensure that assets are managed and distributed according to the terms of the trust.

Many individuals create trusts to:

• avoid probate;

• simplify administration after death;

• maintain privacy;

• and provide continuity during incapacity.

Those goals may be difficult to achieve if important assets remain outside the trust.

For more information about probate avoidance, see What Assets Avoid Probate in California?

What Assets Should Be Reviewed?

Every estate plan is different.

However, individuals commonly review:

• real property;

• financial accounts;

• investment accounts;

• business interests (e.g. LLC; Corporate Shares);

• life insurance policies;

• retirement accounts;

• and beneficiary designations.

A comprehensive review can help ensure that ownership and beneficiary designations work together as part of an overall estate plan.

What Happens If Assets Are Never Transferred Into the Trust?

One of the most common trust administration problems occurs when a trust is signed but assets are never properly transferred.

When this happens, beneficiaries may face additional legal proceedings after death.

In some situations, probate may be required even though a trust exists.

To learn more about probate administration, see How Probate Works in California.

How Heggstad Petitions Can Arise

California courts sometimes encounter situations where a trust clearly exists, but certain assets were never formally transferred into the trust.

Under certain circumstances, a petition may be filed asking the court to confirm that an asset belongs to the trust.

These proceedings are commonly known as Heggstad petitions.

For additional information, see Heggstad Petitions Explained: Fixing Trust Funding Problems in California

Does Funding End After the Trust Is Created?

No.

Trust funding is often an ongoing process.

For example, individuals may:

• purchase new real estate;

• open new financial accounts;

• acquire business interests;

• or receive inherited assets.

Periodic reviews can help ensure that newly acquired assets remain consistent with the overall estate plan.

Working With Your Estate Plan

A trust can be an effective estate planning tool, but signing the documents is only part of the process.

Reviewing asset ownership and ensuring that important assets are properly aligned with the trust can help the estate plan function as intended and reduce future complications for loved ones.

Families interested in trust planning and probate avoidance may also find these articles helpful:

• Do I Need a Trust or a Will in California?

• What Assets Avoid Probate in California?

• What Happens to a Mortgage in a Trust?

• How Probate Works in California

• Heggstad Petitions Explained: Fixing Trust Funding Problems in California

• What Are a Trustee’s Duties in California?

About the Author

Adam T. Evan is a California estate planning attorney serving individuals and families throughout Silicon Valley. His practice focuses on estate planning, probate, trust administration, and guardianships. He helps clients create practical estate plans designed to protect loved ones, avoid unnecessary probate proceedings, and ensure that assets transfer according to their wishes.

To schedule a consultation, contact the Law Office of Adam T. Evan at (408) 515-9005.