A few months ago, someone sat across from me and asked a question I hear more often than you might think. Their parent had passed away, and I just gave them the difficult news that we would have to go through the probate process. “My parents had a trust,” they said. “Why are we having to go through probate? I thought that was the whole point of having a trust.”
It was a hard conversation. When they came to my office and we reviewed the trust and what assets were in the trust, we found the answer: the trust was not properly been funded.
If you have a trust, or you are thinking about creating one, this is one of the most important things you can understand. A trust does not automatically protect your family from probate just because it exists. It only protects what is actually inside it. Bottom line: a trust doesn’t avoid probate if it isn’t funded.
What Does It Mean to “Fund” a Living Trust?
Funding a trust means moving your property into the trust’s name. This usually means changing the title or deed on things like your house, other real estate, and bank accounts, so that the trust, not you personally, is the legal owner. If you want the trust to manage and distribute and asset at your death, the asset must be in the name of the trust.
Think of a trust like a container. When you sign the trust document, you are building the container. But building the container does not put anything inside it. You have to take the extra step of placing your property into that container, one item at a time, by retitling it.If you skip that step, the trust exists on paper, but it has nothing to manage. It is a shell. And a shell cannot protect your family from probate.
Why This Matters So Much: Does a trust avoid probate?
The entire purpose of a revocable living trust, for most people, is to avoid probate court after they pass away. Probate is the court process used to transfer property from someone who has died to their heirs. It can take months, sometimes over a year, it usually costs money in court fees and attorney time, and the records often become part of the public record.
A properly funded trust allows your successor trustee, the person you named to step in after you pass away or become incapacitated, to manage and distribute your property directly, without needing court approval. That is the entire benefit.
But here is the catch. The trust can only manage what is titled in its name. If your house is still deeded to you personally, and not to your trust, then your house is not protected. If you passed away tomorrow, your family would have to go to probate court to transfer that house, even though you have a trust sitting in a drawer somewhere.This is exactly what happened in the story I shared above. The parents had done the right thing by creating a trust. But somewhere along the way, either the deed to their home was never changed, or new property was purchased later and never retitled. The result was the same as if they never had a trust at all, at least for that piece of property.
Common Ways Trusts End Up in Probate Court
I see this happen in a few common situations. None of these are because someone was careless. Life is busy, and funding a trust involves extra paperwork that is easy to overlook.
- Buying a new property after the trust was created. If you set up your trust and later buy a house, land, or a rental property, that new property needs to be deeded to your trust separately. It does not automatically join the trust just because the trust already exists.
- Selling and buying property. If you sell a home that was titled in your trust and buy a new one, the new deed needs to name the trust as the owner. Otherwise, the new property is titled in your personal name by default.
- Refinancing your home. Some lenders will ask you to take your home out of the trust temporarily during a refinance. If the deed is not put back into the trust’s name afterward, the home is left unprotected.
- Opening new financial accounts. New bank accounts, investment accounts, or CDs opened after the trust was created need to be retitled or have the trust named as owner or beneficiary, depending on the account, if you want those funds managed and distributed through the trust.
- Never funding it in the first place. Sometimes a trust is created and signed, but the follow-up work of retitling property never gets done. This is more common than people expect.
How to Check If Your Revocable Trust Is Properly Funded
You do not need to guess whether your trust is doing its job. Take a little time to walk through what you own and ask, is this titled in the name of my trust?
Start with the big items. Your home and any other real estate are usually the most important, since they carry the most value and are the most likely to end up in probate if left out. Look at the actual deed. It should list your trust by name, not just you as an individual.
Next, look at your bank and investment accounts. Some accounts are retitled directly into the trust’s name. Others use a payable on death or transfer on death designation instead, which can work alongside a trust depending on how your plan is structured.
Then think about anything you have bought or sold since your trust was created. New property is the most common gap, since it is easy to complete a purchase and forget the extra step of retitling.
If you go through this list and anything is unclear, that uncertainty is a signal. It is worth having someone review it with you rather than assuming everything is fine. That’s why Huntsville estate planning attorney, Tanya Hendrix, offers a Family Protection Audit/Family Roadmap Session where she reviews your estate plan and trust funding.
What to Do If You Find a Gap
If you discover that some of your property was never moved into your trust, the good news is that this is usually a fixable problem. Depending on what type of property it is, this might mean preparing and recording a new deed, updating account paperwork with your bank or financial institution, or updating beneficiary designations.
This is not something you have to figure out alone. If your trust was created with our office, we are glad to sit down with you and review exactly what is and is not properly titled. If your trust was created somewhere else, or it has simply been a while since anyone looked at it, we can still help you check it and get any gaps closed.
Huntsville Trust Funding
A trust is a powerful tool, but only when it is used correctly. Signing the trust document is just the first step. Funding it, meaning actually moving your property into the trust’s name, is what makes it work the way you intended.
If you are not sure whether your trust is properly funded, do not wait until a family member is standing in a probate courtroom asking why. Take a little time now to check, or reach out and schedule your Family Protection Audit/Family Roadmap Session. It is one of the simplest ways to make sure the plan you built actually protects the people you built it for.
If you would like help reviewing your trust and confirming everything is properly funded, contact our office to schedule a time to go over it together.
