Creating a trust is only half the job. The other half is funding it correctly, and that’s where a lot of people fall short. A trust that exists on paper but hasn’t been properly funded with your actual assets doesn’t accomplish what you created it to accomplish. Understanding which assets belong in your trust, which are better handled other ways, and how the transfer process actually works saves your family from unnecessary complications down the road.
What does it mean to fund a trust?
Funding a trust means actually transferring ownership of your assets into the trust’s name. The trust becomes the legal owner of those assets rather than you as an individual. For most asset types that means retitling, meaning changing the name on the account or deed from your personal name to your name as trustee of your trust.
A trust that hasn’t been funded is essentially an empty container. If you die with assets still in your personal name rather than the trust, those assets may still go through probate even though you created the trust specifically to avoid that outcome.
Which assets should go into my Colorado trust?
Real estate is one of the most important assets to transfer into a trust. Your primary residence, vacation properties, and investment real estate in Colorado should all be deeded into the trust to ensure they transfer to your beneficiaries without probate. A Windsor trust lawyer at W.B. Moore Law can prepare the deed transfers needed to move real property into your trust correctly.
Bank accounts, including checking, savings, and money market accounts, can be retitled into the trust’s name. Some people prefer to keep a small personal checking account outside the trust for convenience, which is generally fine as long as it has a payable-on-death designation naming the trust or an individual beneficiary.
Brokerage and investment accounts that don’t have beneficiary designations should typically be transferred into the trust. Your financial institution can update the account registration to reflect trust ownership.
Business interests including LLC membership interests, partnership shares, and closely held stock can often be transferred into a trust, though this requires careful attention to the governing documents of the business entity to make sure the transfer is permitted and properly documented.
Personal property of significant value including jewelry, artwork, collectibles, and vehicles can be assigned to the trust through a general assignment document, though vehicles in Colorado are sometimes handled differently depending on whether they’ll be sold or kept long-term.
What assets shouldn’t go into my trust?
Retirement accounts including IRAs, 401ks, and other qualified plans should generally not be transferred into a trust. Doing so can trigger immediate income tax consequences. Instead, you name beneficiaries directly on the account, and you can name your trust as a contingent beneficiary if the primary beneficiary doesn’t survive you, though this requires careful planning to avoid adverse tax results.
Life insurance policies typically shouldn’t be owned by your revocable living trust either. The death benefit passes through the beneficiary designation, so keeping that designation current is more important than trust ownership. An irrevocable life insurance trust is a different planning tool used for estate tax purposes, but that’s a separate conversation.
Health savings accounts and flexible spending accounts generally can’t be transferred to a trust and should have individual beneficiary designations where the account type allows it.
What happens if I forget to put an asset in my trust?
That’s where a pour-over will comes in. Most estate plans that include a revocable living trust also include a pour-over will that captures any assets left outside the trust at death and directs them into the trust through probate. It’s a safety net, but it’s not a substitute for proper funding because those assets still go through probate before reaching the trust.
W.B. Moore Law reviews asset funding as part of every trust planning engagement, helping clients understand exactly what needs to be transferred and following up to make sure it actually gets done.
How do I know if my trust is properly funded?
Review your asset titles periodically. Check that real estate deeds reflect trust ownership. Verify that bank and investment account registrations show the trust as owner. Make sure new assets you acquire after creating the trust get transferred in as well. A trust that’s properly funded when created but never updated as you acquire new assets develops gaps over time.
If you’re not sure whether your existing trust is properly funded or you’re ready to create a new one, talking to a Windsor trust lawyer gives you a clear picture of where things stand and what needs to happen to make your plan actually work t