You’ve done the hard work; you’ve finalized your estate plan. Congratulations! Estate planning is no easy feat. However, there is a final, important step in the process that sometimes gets overlooked: funding your trust.
If you have ever wondered what it means to fund a trust, or if you worry that your current trust might be sitting empty, you are not alone. It is very common for people to miss this step, but understanding how it works can save your loved ones a lot of extra paperwork down the road.
To understand trust funding, it helps to use a simple analogy. Imagine going out and buying a fireproof home safe. It is top-of-the-line, secure, and designed to protect your most valuable belongings. But if you take that safe home, lock it, and leave your jewelry sitting on the nightstand, the safe cannot do its job.
A living trust operates the same way. The living trust itself is like that empty safe. Funding your trust is the act of putting your assets inside it. Practically speaking, it involves changing the ownership or title of your assets, such as your home, bank accounts and investment accounts from your individual name into your name, as trustee of your trust.
When a trust is left unfunded, or partially unfunded, it means the legal instructions in your trust don’t automatically apply to those specific assets. If you pass away with an asset, like your primary residence, still listed in your individual name, your attorney will likely need to file what is known as a Heggstad Petition with the court (under California Probate Code Section 850).
The Heggstad petition will argue that the forgotten asset belongs inside your trust, even though the deed or title was never updated. To grant this request, the judge will consider whether there is clear written evidence that you intended for the asset to be part of your trust. Your attorney will typically use your pour-over will, as well as your trust’s “Schedule of Assets” to show the court your intent that the forgotten asset belongs in the trust.
Smaller assets left out of your trust can also potentially be addressed via a Small Estate Affidavit, if the cumulative value of the assets left out of your trust are worth less than $208,850 (for deaths on or after April 1, 2025). A Small Estate Affidavit may enable your executor to claim the property directly without requiring court involvement.
Despite the existence of these methods, forgotten assets are still at risk of requiring full-blown probate, which would result in additional costs and delays that could have easily been avoided. Furthermore, even if the above methods are successful in transferring the asset into the trust, they inevitably require extra time, effort and legal fees that could otherwise be avoided. It is much safer and easier to fund the trust correctly while you are healthy and able.
The assets that are left out of a trust may surprise you. Refinanced real estate, for example, is often forgotten about. When you refinance a mortgage, lenders often temporarily transfer your home out of your trust and back into your individual name to process the loan. Sometimes, the final step of transferring it back into the trust gets forgotten. Be sure to check your most recent vesting deeds to ensure your real property is held in trust.
It is also common for new accounts to be forgotten about. After all, opening a new savings or investment account is commonplace these days. If you don’t explicitly open it in the name of your trust, it remains an individual asset. Be sure to check your savings and investment accounts to ensure they are held by you as trustee of your trust.
Reviewing your trust funding is a straightforward process of paperwork, and there is no need to panic if you think an asset was left out. This is a very routine update, and it is entirely fixable while you are alive and well.
If you already have a revocable living trust but aren’t entirely sure whether all your current assets are correctly titled, you don’t have to navigate it alone. We are here to help you audit your estate plan, review your deeds, and handle the paperwork to bring your plan completely up to date.
Your living trust instructions only apply to trust assets. If you’ve recently refinanced your home, opened new financial accounts, or haven't reviewed your trust in years, let's secure your legacy together.