Does a Trust Have to Be Funded to Be Valid?

Creating a trust is a smart step in estate planning, but for it to work as intended, it must be properly funded. Without transferring assets into the trust, it remains an empty legal document—one that won’t protect your estate from probate or ensure your wishes are carried out. A San Antonio trust attorney can help you navigate the process, ensuring your trust is legally effective and aligned with your estate planning goals.

What Is Trust Funding?

Trust funding is the process of transferring ownership of assets from your personal name into the name of your trust. This step is essential because it allows the trust to legally control and manage the assets according to the instructions you’ve outlined.

If a trust is not funded, assets left outside the trust may be subject to probate—the often lengthy and expensive court process of distributing an estate. Proper funding ensures a smooth transition of wealth while maintaining privacy and avoiding unnecessary legal complications.

Which Assets Should Be Transferred Into a Trust?

A variety of assets can be placed in a trust to maximize its benefits. Common assets to fund a trust include:

• Real estate – Homes, rental properties, and land can be transferred into a trust using a new deed.
• Bank accounts and investments – Checking, savings, and brokerage accounts should be retitled in the trust’s name.
• Tangible personal property – High-value items like jewelry, art, and collectibles can be assigned to a trust through a written transfer.
• Business interests – If you own a business, shares or ownership interests should be legally transferred into the trust.
• Life insurance policies – You can name the trust as the beneficiary to control how proceeds are distributed. Read more in our article, Can I Fund a Trust with Life Insurance?
• Retirement accounts (with limitations) – While IRAs and 401(k)s usually remain in your name, you may designate the trust as a beneficiary for asset protection purposes.

What Happens If a Trust Is Not Funded?

A trust without assets does not serve its intended purpose. Some common consequences of failing to fund a trust include:

• Probate exposure – Any assets outside the trust may go through probate, delaying distributions to beneficiaries.
• Conflicts among heirs – A poorly funded trust can lead to disputes if some assets are inside the trust while others pass directly to certain heirs.
• Lost privacy – Unlike trusts, wills become public records, meaning your estate details could be accessible to others.
• Limited incapacity planning – If you become incapacitated and your assets are not in the trust, court involvement may be required to manage them.

How to Properly Fund a Trust

Each type of asset requires a specific process to transfer ownership into a trust. Here are some key steps to consider:

Real Estate Transfers

To transfer real estate into a trust, a new deed must be created, signed, and recorded with the appropriate county office. A San Antonio trust attorney can help ensure the transfer complies with state laws and does not trigger unintended tax consequences.

Bank and Investment Accounts

Banks and financial institutions require formal documentation to change account ownership to the trust. This typically involves completing specific forms and providing a copy of the trust agreement.

Personal Property

Tangible assets like jewelry, artwork, and heirlooms can be assigned to the trust through a written declaration. Some items may require additional documentation for legal validity.

Life Insurance and Retirement Accounts

While retirement accounts are usually not retitled to a trust, you can update beneficiary designations to direct funds into the trust upon your passing. Life insurance policies can also be updated to name the trust as a beneficiary for better control over distributions.

Business Interests

Business owners should amend corporate documents, stock certificates, or partnership agreements to reflect the trust as the new owner. This step is crucial to ensuring business continuity.

Avoiding Common Trust Funding Mistakes

Even with the best intentions, people often make mistakes when funding their trusts. Some common errors include:

• Leaving assets out of the trust – Forgetting to transfer assets means they won’t be protected by the trust’s provisions.
• Conflicting beneficiary designations – If a will or trust conflicts with named beneficiaries on accounts, disputes may arise.
• Failing to review the trust regularly – Estate plans should be updated periodically to include newly acquired assets and reflect any changes in your wishes.

Read more in our article: Am I Making One of the Five Common Estate Planning Mistakes?

Work With a San Antonio Trust Attorney to Ensure Proper Funding

Setting up a trust is just the first step—funding it properly ensures it functions as intended. If you need assistance transferring assets into a trust or want to review your estate plan, a San Antonio trust attorney can provide the guidance you need.

Request a Consultation Today

At McCammon Law, P.C., we help individuals and families protect their assets and ensure their estate plans work as intended. Request a consultation today to discuss your trust funding needs

References: American College of Trust and Estate Counsel (ACTEC) (Aug. 31, 2023) “Funding Your Revocable Trust and Other Critical Steps” and American College of Trust and Estate Counsel (ACTEC) (Sep 21, 2023) “Tangible Personal Property in Estate Planning"