- Estate Planning
- Real Estate
- Probate
- 16 mins
However, many people don't realize that signing a Trust agreement is only the first step.
For your Trust to work as intended, it must be properly funded.
At Lane, Lane & Kelly, LLP, one of the most common issues we see is when clients legally execute their estate planning documents, but never actually transfer their assets into their Trust. Unfortunately, an unfunded Trust may leave your family facing the very probate process you hoped to avoid. When it comes to Credit Shelter Trusts designed to reduce or possibly eliminate estate taxes, improper funding will squander the very tax benefits that these Trusts are designed to achieve.
In this guide, we'll explain what Trust funding means, why it's so important, and how Massachusetts residents can properly fund their Revocable or Irrevocable Trusts.
What Does It Mean to Fund a Trust?
Funding a Trust simply means transferring legal title and ownership of an asset from yourself to your Trust. Instead of owning an asset in your individual capacity, ownership is transferred into the name of your Trust.
It is important to note, however, that a Trust is not its own distinct legal entity (like a Corporation or Limited Liability Company). This simply means that the Trust itself does not hold title to the assets, but instead the assets must be titled in the name of the then-serving Trustee.
For example, instead of a bank account being titled in the name of Walter White, it would be retitled to be held as:
“Walter White, Trustee of the Walter White Revocable Trust u/d/t dated January 1, 2026”
For most individuals or married couples, they will establish the Trust (as Settlors) and also serve as the Trustees while they are alive. This is a standard setup for a Revocable Trust, as the Settlors maintain full control of the Trust assets while they are alive, as they retain the right to amend or revoke their Trust at any time.
This highlights the flexibility of a Revocable Trust structure. From an every-day, practical perspective, nothing changes in regards to the actual management of the asset. Walter White can still use that bank account to pay bills, withdraw money, etc.
The only change is the legal title on paper. Walter White now owns the asset in his capacity as Trustee instead of in his individual capacity (which would otherwise leave the asset at risk of passing through probate absent a Pay-on-Death beneficiary designation).
Although the Trust becomes the legal owner, you still maintain complete control over your assets while serving as Trustee.
Why Is Trust Funding So Important?
Many people assume that once they've signed their Trust, everything they own automatically becomes part of it.
Unfortunately, that's not how Trusts work.
If you die with assets that are titled in your individual name, they must pass through probate court before they can be distributed to your beneficiaries. For a full overview of the Massachusetts Probate Process, what happens to your assets when you die, and how to avoid probate, click here to read our full legal blog.
Even with a properly executed Trust, failing to adequately fund the Trust can lead to:
- Lengthy probate court proceedings;
- Additional legal expenses;
- Additional court fees;
- Delays in distributing assets;
- Increased administrative burdens for your family;
- Confusion regarding ownership of assets;
- Opening up your estate to third party creditor claims;
- Opening up your estate to possible disputes.
Proper Trust funding ensures your successor Trustee can begin Trust administration immediately after your death. Trust assets are not subject to probate court, which means any successor Trustee does not have to file anything with the court, or obtain authority from the Probate Court in order to act on the Trust assets. It also ensures that the Trust assets are readily available to the Trustee to pay any active Trust or estate expenses such as mortgage payments, taxes, etc.
Which Assets Should Be Transferred Into a Trust?
Every estate plan is different, but many assets are commonly transferred into a Revocable Trust. These include but are not limited to:
Real Estate
For a majority of Massachusetts families and homeowners, transferring real estate into their Trust is imperative to avoid probate court and ensure a smooth transition of the property to the Trust beneficiaries.
Transferring your residence into your Trust is often one of the most important funding steps. For all real estate transfers, legal title is solely established and determined by the deed.
To retitle real estate, this involves preparing, executing, and recording a new deed that transfers ownership from yourself, individually, to yourself as Trustee of your Revocable Trust. Or for a married couple that owns their home as joint tenants or tenants by the entirety, they can execute a deed that transfers title from both of them, to themselves as co-Trustees. For a full overview of the different ways to hold title to Massachusetts real estate, read our full legal blog here.
Funding your Trust with real estate is not just limited to your primary residence. Based on your situation, it may also be advantageous to transfer the following types of properties into a Revocable Trust:
- Vacation homes;
- Rental property;
- Investment property;
- Vacant land.
The transfer of any real estate should be heavily scrutinized to ensure the transfer complies with Massachusetts recording requirements and title standards. A proper transfer of real estate is crucial to avoid title defects down the road that could cause complications with the eventual sale or transfer of the property after your death.
The transfer typically does not change your property tax treatment, mortgage obligations, or homeowner's insurance, although insurance carriers should be notified of the ownership change to add the Trust as an additional insured.
Lane, Lane & Kelly will handle all of these aspects for you when we create your estate plan. We take great pride in making the entire estate planning as smooth as possible. We handle all of the deed preparation, recording with the applicable Registry of Deeds, and guide you through updating your homeowner’s insurance policy. If you are interested in creating a Revocable Trust and you own real estate, contact us today to get started.
Bank Accounts
For any financial accounts you intend to transfer into Trust, you will need to contact each respective financial institution or custodian, and transfer title out of your individual name, and into the Trust. The types of bank accounts you can transfer to your Trust include:
- Checking accounts
- Savings accounts
- Money market accounts
- Certificates of deposit
It is often advisable to retain some accounts in your individual name depending on your situation. Many clients prefer to maintain their individual checking account that they use for everyday expenses in their individual name. If you take this approach, however, it is important to ensure that the account is setup with a Pay-on-Death beneficiary designation which names the Trust.
Brokerage and Investment Accounts
Investment accounts are often among the easiest assets to transfer into your Trust. These often include:
- Brokerage accounts;
- Mutual funds;
- Individual investment accounts;
- Non-retirement investment portfolios.
Your financial institution will typically have its own Trust transfer paperwork.
Business Interests
If you own a business, your ownership interest may be transferable into your Trust.
Examples include:
- LLC membership interests;
- Closely-held corporation shares;
- Partnership interests.
However, business ownership transfers should always be reviewed carefully, as operating agreements or shareholder agreements may restrict transfers. We regularly work with business owners to advise them as to how they should incorporate their interests into their estate plan.
Another consideration is for individuals and married couples that own investment properties and they want additional liability protection that a Trust alone cannot provide. We regularly assist clients with the creation of a Massachusetts LLC to hold title to their real estate. For an overview of the advantages and disadvantages of holding property in an LLC, read our full legal blog here. Our team can assist you with establishing the LLC and filing with the Secretary of State, creating the LLC operating agreement, and incorporating a succession plan for the LLC property that aligns with your overall estate planning goals.
Assets That Should Not be Retitled into your Trust
While funding your Trust is a crucial step, it is important to note that not every asset you own belongs in a Revocable Trust. Assets that should remain in your individual name include:
- IRAs;
- Roth IRAs;
- 401(k)s;
- 403(b)s;
- Pension plans;
- Health Savings Accounts (HSAs).
Transferring these assets into a Trust would create a taxable event, where the full value of the account would be taxed immediately due to the change in ownership. Any and all retirement accounts should stay in your individual name.
Instead, you can name the Trust as a beneficiary or contingent beneficiary of the account (i.e. if your Spouse is listed as the primary beneficiary, the Trust would be the contingent beneficiary). This will avoid any unintended tax consequences during your lifetime, and ensure that these assets are distributed in accordance with your Trust following your death.
Similarly, life insurance policies are typically not transferred into a Revocable Trust. Instead, the ownership and beneficiary designations should be reviewed as part of your overall estate planning strategy, especially if your asset levels exceed the current Massachusetts estate tax exemption amount of $2 Million Dollars.
Why Beneficiary Designations Still Matter
One of the biggest misconceptions about Trusts is that once established, beneficiary designations no longer matter.
They absolutely do. Complete probate court avoidance often hinges on adequate beneficiary designations on any account that is not titled in the name of your Trust while you are alive.
Whether it is a small checking account at a local bank, or your entire savings in a retirement account such as a 401(k), setting up beneficiary designations is crucial. Failing to name a beneficiary on these accounts will require your loved ones to file a petition with the probate court in order to claim these assets.
This is why a comprehensive estate plan reviews all beneficiary designations to ensure they work together. For many clients, the best course of action is to name the Trust as the beneficiary to ensure all funds are funneled into the Trust. This is an especially important tactic if the Trust has minor beneficiaries, has special provisions for beneficiaries that may be going through a divorce, struggle with addiction, etc., or the Trust terms otherwise control how the assets may be distributed. While naming individuals as the beneficiary will avoid probate for those accounts, it puts absolutely no guardrails around that inheritance. Naming an individual as the beneficiary distributes all assets in the account to the beneficiary outright. Oftentimes this can cause more harm than good if that individual is not financially mature enough to handle those funds, which makes naming the Trust as the beneficiary on all of your accounts the best option.
It is also important to note that all beneficiary designations will override the testamentary provisions of your Trust or Will.
For example, if you had three children and your Trust leaves all assets to each child in equal shares, but you have an IRA that only names your oldest child as the beneficiary, then the oldest child will receive 100% of the IRA. Moreover, they will have absolutely no legal obligation to share that asset with their siblings. Only assets held in the Trust are governed by the Trust terms.
This creates situations where outdated beneficiary designations can unintentionally override your overall intent and estate planning goals. For a full analysis of a recent Massachusetts Superior Court case that outlines the importance of updating your beneficiary designations, read our full legal blog here.
Don't Forget Newly Acquired Assets
Trust funding is not a one-time event. It is important to keep your Trust assets updated as they are bought and sold or replaced by other similar asset-types.
It’s important to consider Trust titling any time that you:
- Purchase a new home;
- Open investment accounts;
- Acquire new investment or rental property;
- Buy commercial real estate;
- Start a new business or sell a business interest.
Keeping your Trust updated and adequately funded helps ensure that it will continue to accomplish its intended purpose. For a full legal blog outlining when you should consider updating or changing your estate plan, click here to read more.
When it comes to real estate, using the law firm of Lane, Lane & Kelly ensures that both your estate planning and real estate needs are met. We regularly assist clients that have established their Trusts with us with the purchase of a new property and sale of their home. We can ensure that the proper steps are taken to keep all current assets in the name of your Trust.
Common Trust Funding Mistakes
Even well-prepared estate plans can fail if Trust funding is overlooked.
Some of the most common mistakes include:
- Signing and executing the Trust but never changing ownership;
- Transferring real estate to the Trust but leaving all bank accounts individually owned;
- Failing to update beneficiary designation across all accounts;
- Failing to name the Trust as a beneficiary to ensure the assets are adequately protected and that distributions are governed by the terms of the Trust;
- Purchasing new real estate individually, or as husband and wife, and not as Trustees of your Revocable Trust;
- Assuming that because you’ve executed a comprehensive Trust, everything else is automatically covered.
It is important to remember that each individual asset must be accounted for. This means contacting each respective financial institution to ensure the entirety of your estate plan will be carried out as you intended.
What Happens If You Forget to Fund a Trust?
Not all is lost if you forget to fund your Trust during your lifetime. At Lane, Lane & Kelly, all Revocable Trust plans are accompanied with what is commonly referred to as a Pour-Over Will.
A Pour-Over Will includes a provision that directs all assets that are held in your individual name at the time of your death to be distributed into your Revocable Trust.
This method comes with a price, however. First, this method requires that all assets in your individual name pass through the probate process first. Your Will is included in the probate proceeding, and once approved by the court, authorizes the Personal Representative of your estate to transfer all assets to the Trustee then-serving under your Trust. As a result, this method does not avoid probate, and will be subject to the additional court costs, legal fees, and delays that you intended to avoid.
Secondly, and as previously mentioned, your Will does not override any beneficiary designations on a respective account. Any financial account with a beneficiary designation pass to the listed beneficiary by operation of law. This means that if you failed to fund your Trust while alive and you had beneficiary designations on all financial accounts, then no assets will make their way to the Trust and it will become completely futile after your death.
Frequently Asked Questions
Does signing a Trust automatically transfer my assets?
No. Assets generally must be individually transferred or retitled into the name of the Trust. Think of creating the Trust and funding the Trust as two, distinct actions.
Can I still control my property after transferring it to my Revocable Trust?
Yes. As Trustee of your Revocable living Trust, you retain full control over your assets during your lifetime. You will also retain the right to amend the terms of the Revocable Trust document itself.
Will transferring my house into my Trust affect my mortgage?
In most cases, transferring your home into a Revocable Trust does not trigger the mortgage's due-on-sale clause under federal law. This is because you, as the borrower on the mortgage and promissory note, remain a beneficiary of the Trust while you are alive. This is not the case, however, for MassHealth Irrevocable Income-Only Trusts used to protect assets from the costs of long-term nursing home care. For a thorough overview of the Garn-St. Germain and whether a transfer may trigger the due-on-sale clause, read our full legal blog here.
Do retirement accounts belong in a Trust?
No. Retirement accounts should almost always remain individually owned, with beneficiary designations carefully coordinated with your estate plan to name either a Spouse or the Revocable Trust as the Pay-On-Death Beneficiary. Changing ownership of any tax-deferred or tax-advantaged retirement account will immediately trigger a taxable event.
Is Trust funding a one-time process?
No. Whenever you acquire new assets, sell Trust assets, or your financial situation changes, you should review whether additional funding is needed.
Trust Funding Is Just as Important as Creating the Trust
A thoughtfully drafted Revocable Trust can provide tremendous benefits for you and your family, but only if it is properly funded. A Trust only governs the assets that it holds, and failing to fund the Trust either during your lifetime or after your death will completely eliminate the Trusts utility.
Transferring your assets into your Trust helps ensure your estate plan functions as intended, any tax strategies of your estate plan can be adequately carried out, minimizes the likelihood of probate, and makes the administration process significantly easier for your loved ones.
At Lane, Lane & Kelly, LLP, we help Massachusetts individuals and families not only create comprehensive estate plans, but also ensure those plans are properly implemented through Trust funding and ongoing estate plan reviews.
If you are in need of a Trust, you've recently established a Trust, or you're unsure whether your existing Trust has been adequately funded, our experienced estate planning attorneys can help you review your assets and ensure your estate plan is working the way it was designed.
Contact Lane, Lane & Kelly, LLP today to schedule a consultation and learn how proper Trust funding can help protect your family and your legacy.
This blog is made available for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By reading this blog you understand that there is no attorney client relationship between you and Lane, Lane & Kelly, LLP.
Suggested Articles from the Lane, Lane & Kelly Legal Blog
- Why You Need a Trust in Massachusetts: Probate Avoidance, Estate Tax Planning, and Asset Protection
- What You Need to Know About Creating a Will or Trust in Massachusetts
- Understanding the Difference Between a Trust Account and an Estate Account
- Why Estate Planning Is Crucial Even If You Don't Have Children
- How to Protect Your Children's Inheritance from Divorce in Massachusetts
- What Happens When You Die Without a Will? A Guide to Understanding Massachusetts Intestate Succession Laws