Creating a trust can be an effective way to convey property and money to individuals and even organizations. However, just because you create a trust does not mean the trust automatically possesses the assets you want included in it.
A trust is merely a legal arrangement. The trust document itself does not give the trustee any actual property or assets to manage or distribute. As the grantor of the trust, you must affirmatively transfer ownership of your property to the trust.
Types of trust property
Some common types of property people place into a trust include real estate, investment accounts, business interests, life insurance policies and cash. To effectively shift ownership of these assets to your trust, you must actively retitle them.
For real estate, you must change the owner on the deed to the trust. For accounts, you must update the registration to show the trust has ownership. Failing to complete these formalities means the property still belongs to you personally.
Naming the trust as beneficiary
Some assets such as retirement accounts and life insurance policies can switch ownership to someone else through a beneficiary designation. If you do not wish to part with an account or asset today, you may instead name the trust as the beneficiary on the asset. This ensures that the asset goes into your trust and not through probate in the event of your death.
Consequences of incomplete trust funding
Failing to properly fund a trust jeopardizes the goals you hoped to achieve by creating it. If assets remain owned by you personally, they may be subject to probate, inheritance taxes, creditor claims or management by someone you would not want.
The terms of the trust cannot control disposition of assets that do not actually belong to it. This can lead to outcomes you do not intend. A full examination of steps needed to complete a trust should help prevent the derailment of your estate plans.