Funding the Trust — Why Proper Funding Matters More Than You Think
When most people think of trusts, they imagine a carefully drafted document that dictates how assets will flow to loved ones. But what is less widely appreciated is that creating the trust document is only the beginning. The equally critical — and often overlooked — step is funding the trust, meaning transferring or titling assets into the trust. If that step isn’t done properly, the trust may fail to deliver the very benefits it was designed to provide.
In this post, we’ll explore what funding the trust means, why it matters, and how proper funding supports essential estate-planning goals such as asset protection, avoiding probate, reducing taxes, and enabling timely distributions to beneficiaries.
What Does “Funding the Trust” Mean?
“Funding” a trust refers to the process of placing assets under the legal ownership of the trust (rather than remaining solely in the grantor’s name). In practice, this often means:
Retitling bank or brokerage accounts into the name of the trust
Executing and recording deeds to transfer real estate
Assigning ownership of personal property or business interests
Naming the trust as beneficiary of life-insurance or retirement accounts
Without these steps, the trust may exist only on paper — a document with no assets under its control — and thus unable to achieve its intended purposes.
Why Proper Funding Matters
When a trust is properly funded, it becomes a powerful estate-planning tool. When it isn’t, the trust’s protections may not apply. Below are four key benefits — and how funding is the key to unlocking them.
1. Protecting Assets from Medicaid and Clawback
One major reason to use a trust — especially in elder-law planning — is to protect assets from being lost to the cost of long-term care or clawed back under Medicaid rules.
If assets aren’t transferred into the trust, they remain exposed and can be counted toward eligibility or recovery. Properly funding the trust ensures assets are legally separated from your personal estate, preserving them for your loved ones.
2. Avoiding Probate
A properly funded trust allows assets to pass directly to beneficiaries without the delays, costs, and public exposure of probate.
However, only assets held by the trust at the time of death are exempt from probate — anything left in your personal name still goes through the court process. Funding the trust ensures those assets are safely within the trust and protected from probate proceedings.
3. Minimizing Estate and State Taxes
Trusts can be structured to minimize or eliminate estate taxes for amounts under federal and state limits.
But the tax benefits apply only to assets properly placed into the trust. Unfunded assets may remain part of your taxable estate, reducing the intended tax savings.
4. Accessing and Distributing Assets Without Delay
Funding the trust also improves efficiency. Once assets are titled in the trust, your successor trustee can access them immediately upon your death or incapacity, ensuring beneficiaries receive funds and property without unnecessary delay or court involvement.
Common Pitfalls and How to Avoid Them
Frequent mistakes:
Forgetting to retitle real estate or vehicles
Leaving new bank or investment accounts outside the trust
Overlooking beneficiary designations on insurance or retirement accounts
Assuming signing the trust document alone is sufficient
Best practices:
Keep a current schedule of assets included in the trust
Review and update funding whenever new assets are acquired
Coordinate with your attorney and financial institutions to ensure proper titling
Use a “pour-over will” as a safety net, but recognize that relying on it alone can still trigger probate
How Moskowitz Legal Group Can Help
At Moskowitz Legal Group, we guide clients beyond simply drafting trusts — we ensure the implementation phase, known as funding the trust, is properly completed and maintained. Our team assists with:
Reviewing existing estate-planning documents to confirm which assets are funded
Advising on titling requirements for various asset types
Coordinating with financial institutions, title companies, and advisors
Conducting periodic reviews to ensure new assets are aligned with your plan
Addressing multi-state property issues and minimizing potential probate exposure
If you’re unsure whether your trust is fully funded, or you’re setting up a new trust and want to ensure it’s done right, our firm is ready to help every step of the way.
Final Word
Creating a trust is an important milestone — but the real effectiveness lies in funding the trust. A trust without properly transferred assets is like a car without fuel: it looks ready but won’t go anywhere.
Proper funding protects assets from Medicaid recovery, avoids probate, minimizes taxes, and ensures smooth, timely distributions to your beneficiaries. Taking time now to verify your trust is fully funded can save your family time, expense, and conflict later.
