In order for a Revocable Living Trust to function properly, it's not enough for the Trustmaker to simply the sign 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?
What does it mean to “fund” a trust? This 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 insure that the Trustmaker’s property is governed by the terms of the trust agreement. This, in turn, will allow the Disability Trustee to manage accounts held in the name of the Trustmaker's trust in the event the Trustmaker becomes mentally incapacitated and the Death Trustee to easily manage and then transfer accounts held in the name of the Trustmaker's trust to the ultimate beneficiaries named in the trust agreement after the Trustmaker’s death.
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 the Revocable Living Trust can't be managed by the Trustee - The Trustee of the Revocable Living Trust has no power whatsoever over the Trustmaker’s property that hasn't been retitled into the name of the Trustmaker's trust. Thus, if the Trustmaker becomes mentally incapacitated, then the Trustmaker's loved ones will need to establish a court-supervised guardianship or conservatorship to manage the Trustmaker's assets that aren't held in the name of the Trustmaker's trust.
- Assets held outside of the Revocable Living Trust must go through probate - The Trustmaker's property that hasn't been retitled into the name of the Trustmaker's Revocable Living Trust will 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 the Revocable Living Trust may not go to the Trustmaker's intended beneficiaries - After the Trustmaker’s death, property that is held outside of the Trustmaker's Revocable Living Trust cannot be disposed 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 in the beneficiary designation form such as is used for a payable on death account or a 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's important to take the time to retitle your assets into the name of the after you've 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. In addition, you'll need to update the beneficiary designations for your assets that require a beneficiary designation.