You created a revocable living trust and think you are covered. You might be wrong. The most important step after signing your trust is funding – the process of transferring your assets into the trust. Without this step, the trust may not control everything you intended, and your estate plan could fail when your loved ones need it most.
Funding a trust means changing ownership or beneficiary designations so that your trust, not you individually, owns or controls your assets. For example, retitling your home in the name of the trust or designating the trust as the beneficiary of a life insurance policy. If you don’t take these steps, the trust document is little more than a stack of paper; it cannot do its job.
If an asset isn’t properly transferred, it remains in your individual name. When you die, that property may have to go through probate, a court process that can be time-consuming, costly and very public. Probate defeats one of the main purposes of a living trust: avoiding court involvement.
For instance, if you signed a trust but never deeded your house into it, your heirs may still have to open a probate case just to transfer the home. Similarly, if you forgot to retitle a bank account, the court may need to determine who should inherit it.
Many people assume that because “most” of their property is in the trust, their family will avoid probate. Unfortunately, even one unfunded asset can trigger probate if its value exceeds California’s small estate limit. A single oversight could undo all the time, money, and planning you invested in your trust.
Most trusts are paired with a pour-over will. This will directs any assets left outside the trust at your death to be “poured over” into the trust. Sounds reassuring, but here’s the catch: The will must still go through probate before those assets reach the trust. In other words, the pour-over will is a backup, not a replacement for proper funding.
Funding your trust protects you if you become incapacitated. Assets in the trust can be managed by your successor trustee without court involvement, while property still in your name may require a costly conservatorship. A durable power of attorney is also essential, letting a trusted agent handle financial matters not in the trust, like retirement accounts or insurance, so your family can act quickly without legal hurdles.
Signing a trust is only the first step. Funding is where the real protection comes from. Without it, your estate plan may fail, your heirs could face probate and your loved ones could be left scrambling during a crisis. This is the most critical step to make sure your plan works exactly as you intended.
Send your questions to ccolan@colanlegal.com and use “Alpine Mountaineer estate planning question” as the subject. We’ll answer your questions in our upcoming issues. This article is provided by your local estate planning attorney, Corina Colan. The Law Office of Corina I. Colan / (909) 265-3315 / www.colanlegal.com
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