How to Fund a Living Trust

Signing a living trust creates it. Funding it is what makes it work. Funding means moving your things into the trust's name, or naming the trust to receive them at death, so your successor trustee can reach them without a court.

The short answer

To fund a living trust, you change who owns each asset from you to you as trustee of your trust. For a house, that usually means signing a new deed and recording it with the county. For bank and brokerage accounts, it means retitling the account or naming the trust as the payable on death or transfer on death beneficiary. Retirement accounts like IRAs and 401(k)s generally stay in your own name, and you name beneficiaries on the plan's form instead. The Consumer Financial Protection Bureau puts the core rule plainly: a trustee has no legal authority over money or property that is not in the trust.

What does it mean to fund a living trust?

A revocable living trust, a trust you can change or cancel during your life, is a set of instructions plus a container that starts empty. Funding fills it. While you are alive and well, you are usually the trustee, so day to day nothing changes. The difference shows up later. If you become unable to manage money, or when you die, your successor trustee, the person you named to take over, steps in and manages what the trust owns. Anything still in your own name sits outside their reach.

How each asset usually goes into a living trust

How do I put my house in a living trust?

The home usually matters most, and it needs a new document. The general process:

1. Find your current deed. It shows exactly how title is held today and the legal description of the property.
2. Prepare a new deed. The new deed transfers the property from you to you as trustee of your trust, using the trust's exact name and date.
3. Sign before a notary. Deeds are generally signed before a notary so the county will accept them.
4. Record it. The deed is filed with the county office that keeps land records. Many counties charge a recording fee, and some states charge a transfer tax or require a form, often with an exemption for transfers into a revocable trust.
5. Keep the recorded copy with your trust documents.

Will my mortgage lender call the loan due? Generally no, for a home with fewer than five units. Under the federal Garn St Germain Act, a lender may not use a due on sale clause, the loan term that lets a lender demand full payment when a home changes hands, because of "a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property." An inter vivos trust is simply a trust made during life, which is what a living trust is.

What about title insurance and the homestead exemption? These are the two questions people most often check before recording. Some title policies continue after a transfer to the owner's own trust and some ask for an endorsement, so people commonly call their title insurer. Property tax breaks for a primary home, often called homestead exemptions, are set by each state and county, so people commonly ask the county assessor whether any form is needed after the deed changes. Deeds are also where people often hire an estate planning attorney or title company, since an error in the legal description can cloud the title.

Should my bank account be in my trust?

There are two common ways.

• Retitle the account. The owner becomes the trust, for example "Jane Doe, Trustee of the Jane Doe Revocable Trust." The FDIC calls this a formal revocable trust account: one "established by a written trust agreement under which a deposit passes to one or more beneficiaries upon the owner's death."
• Name the trust as payable on death beneficiary. The account stays in your name while you live and passes to the trust at death. This is often simpler for an everyday checking account.

The difference matters if you become incapacitated. A retitled account can be managed by your successor trustee right away. A payable on death account stays in your name until death, so managing it during a long illness may depend on a financial power of attorney.

Brokerage accounts work the same way: retitle to the trust, or register the account with the trust as transfer on death beneficiary. Transfer on death registration of securities is the subject of a uniform law, the Uniform TOD Security Registration Act, drafted so owners can name who receives registered securities at death without probate.

Can an IRA or 401(k) go in a living trust?

Generally, no, and that surprises many people. Federal tax law defines an IRA as an account "for the exclusive benefit of an individual or his beneficiaries," so it belongs to one person. For workplace plans like 401(k)s, the tax code requires that "benefits provided under the plan may not be assigned or alienated." Moving the money into another owner's name generally means withdrawing it, and withdrawals from a traditional IRA are generally taxable income.

Instead, retirement accounts pass by beneficiary designation. The IRS describes a beneficiary as "any person or entity the account owner chooses to receive the benefits of a retirement account or an IRA after they die," and says the owner "must designate the beneficiary under procedures established by the plan." For workplace plans, the IRS notes that most plans require a married participant to get a spouse's written consent to change beneficiaries.

A trust can be named as a retirement beneficiary, but IRS Publication 590 B sets conditions for its beneficiaries to be treated as designated beneficiaries, and the choice affects how fast the account must be paid out. This is one of the areas where people commonly talk to a tax professional or estate planning attorney.

What assets should not go in a living trust?

• Retirement accounts, for the reasons above. The beneficiary form does the work instead.
• Vehicles, in many cases. Car titles are handled by each state's motor vehicle agency, and some people simply leave a car out, especially when its value is small or a small estate process would cover it.
• Accounts that already pass outside probate to the right person, such as life insurance with current beneficiaries. These do not have to change, though some people name the trust so one set of instructions controls everything.

What happens to assets left out of the trust?

Anything still in your own name at death, with no beneficiary named, is generally part of your probate estate. Probate is the court process that settles an estate.

That is why a living trust usually comes with a pour over will, a safety net that sends anything left outside the trust into it. It generally still runs through probate first, unless the leftover property is small enough for a small estate shortcut. The pour over will catches what was missed; funding keeps probate from being needed at all.

Funding checklist

• A list of every asset: home, other real estate, bank accounts, brokerage accounts, retirement accounts, life insurance, vehicles, business interests, valuables.
• A new deed recorded for each property, from you to you as trustee.
• A call to the title insurer and county assessor about the deed change.
• Each bank account retitled to the trust, or the trust named as payable on death beneficiary.
• Each brokerage account retitled to the trust, or the trust named as transfer on death beneficiary.
• Current beneficiary forms on every IRA, 401(k), and life insurance policy.
• A signed assignment of personal property to the trust.
• Business interests assigned as the company's documents allow.
• New accounts and new property titled in the trust's name as they come in.
• A written list of what the trust holds and where, kept where your successor trustee can find it.

For what your successor trustee will actually do with this list, see what a successor trustee does.

How Inhira fits

The Complete Trust Plan creates your revocable living trust and pour over will from attorney reviewed templates, along with the documents in the Complete Will Plan. Funding is done by you, as trust maker, with each bank, brokerage, insurer, plan administrator, and county office, since only they can change their own records. If your assets already pass by beneficiary forms and your state offers a small estate process, a will may be enough; our living trust page and wills vs. trusts compare the two.