A revocable living trust is more than a legal document. It’s a promise to your family that you’ve taken steps to protect them. However, a trust that isn’t funded is powerless. It cannot shield your assets from probate, nor can it guarantee that your wishes will be honored.
Here’s the reality: in Arizona, if your estate includes real property worth more than $100,000 or personal property over $75,000, your loved ones will likely face probate court. That means delays, public records, and unnecessary costs. The solution? Properly funding your trust with all the assets designated as part of the trust. This guide explains how to fund a trust, which assets to include, and how to avoid the pitfalls that catch so many families off guard.
What Does Funding Your Trust Mean?
Funding your trust is the process of transferring ownership of your assets from your name to the name of your trust account. When you create a revocable living trust, you establish a new legal entity. Funding your trust also ensures the trust can work as intended for tax purposes. For your trust to work, it must actually own your assets. You, as the trust creator (sometimes referred to as the grantor or settlor), typically serve as the initial trustee, allowing you to maintain complete control during your lifetime.
Think of your trust as a secure vault. The trust agreement builds the vault, but funding is what fills it with your property. Only assets inside the trust are protected from probate and managed by your successor trustee if you become incapacitated or pass away.
Each type of asset may require a different process to transfer ownership or update beneficiary designations. The goal is always the same: ensure your trust, not you as an individual, is the legal owner or primary beneficiary.
The Consequences of an Unfunded Trust
Failing to fund a trust is a common pitfall in estate planning. If you don’t transfer assets into your trust, those assets are not governed by its terms. The result? Your family may face the very probate process you hoped to avoid.
Probate in Arizona is triggered when the value of your personal property exceeds $75,000 or your real property is worth more than $100,000, according to A.R.S. § 14-3971. Probate is public, time-consuming, and can drain your estate with court costs and legal fees.
Here’s a scenario we see too often: A couple creates a revocable living trust and signs all the paperwork. They intend for their home and savings to pass smoothly to their children. But they never record a new deed transferring their house into the trust. When they pass away, their children discover the home is still in their parents’ names and is not a trust asset. The result? A year or more in probate court, thousands in legal fees, and family stress that could have been avoided.
Other risks of an unfunded trust:
- Missed tax benefits and asset protection opportunities
- Family disputes or unintended asset distribution
- Delays in accessing funds for funeral expenses or debts
- Estate taxes on assets held outside of the trust
- Loss of privacy, as probate records are public
A trust only protects what it owns. If you want your successor trustee to step in seamlessly, every asset must be properly transferred.
What Assets Should You Fund Into Your Living Trust?
Funding your trust is not a one-size-fits-all process. Each asset class has its own rules and best practices. Here’s how to approach the most common types of property:
Real Property
To fund a trust with real estate, you must prepare and record a new deed transferring ownership from your name to the trust. This applies to your residence, vacation homes, and investment properties. The deed should reference your trust agreement and be filed with the county recorder. If you refinance, your lender may require you to temporarily transfer the property out of the trust and back in after closing. Always keep a copy of the prior deed and consult your estate planning attorney to avoid mistakes.
Bank Accounts and Credit Union Accounts
Visit your bank or credit union with your trust document in hand. Request to retitle all your bank accounts, including checking, savings, and money market accounts, in the name of your trust. For joint trusts, both trustees may need to be present. The account numbers stay the same, but the formal title changes.
Investment and Brokerage Accounts
Contact your financial advisor or brokerage firm to request the forms needed to transfer ownership to your trust. This includes stocks, bonds, and mutual funds held in non-retirement accounts. The institution may require a copy of your trust agreement and the social security number or tax identification number for the trust. Once transferred, your successor trustee can manage these accounts without court intervention.
Tangible Personal Property
Items like furniture, art, jewelry, and collectibles are typically transferred using a general assignment of property. This legal document declares that the trust now owns all tangible personal assets. You don’t need to list every item, but you should keep a detailed inventory for your records.
Motor Vehicles
Arizona law allows vehicles to be transferred after death using an affidavit, as long as the total value of all personal property is under $75,000 (A.R.S. § 14-3971). For most families, it’s simpler to leave vehicles out of the trust and use the Arizona MVD’s beneficiary process. If you own valuable or collectible vehicles, discuss the best approach with your estate planning attorney.
Business Interests
- Sole Proprietorship: Assign business assets to the trust using a written assignment.
- Limited Liability Company (LLC): Amend the operating agreement and transfer your membership interest to the trust. Some LLCs require approval from other members.
- Partnership: Review the partnership agreement for restrictions. You may need a partnership agreement amendment or written consent.
Business interests often require coordination with a tax advisor to avoid triggering transfer tax or violating partnership or LLC agreements.
Retirement Accounts and Life Insurance Policies
Do not retitle retirement accounts (IRAs, 401(k)s, pensions) into your trust. The Internal Revenue Service treats this as a taxable distribution. Instead, update the beneficiary designation to name your trust as the primary or secondary beneficiary. This ensures policy proceeds or retirement funds are paid to the trust after your death, then distributed according to your wishes.
The same applies to life insurance policies. Change the beneficiary, not the owner, to your trust. This keeps the policy outside of probate, allowing your successor trustee to manage the proceeds.
Digital Assets and Other Property
Digital assets—such as cryptocurrency, online accounts, and intellectual property—should be addressed in your trust document. Provide your successor trustee with access instructions and ensure the assets are properly assigned to the trust.
Boats and aircraft registered with the Coast Guard or FAA can be transferred by updating the registration to the trust’s name. For other assets, consult your estate planning attorney to ensure proper transfer.
Keeping Your Trust Funded: The Importance of Regular Reviews
Funding your trust is not a one-time event—life changes. You may buy a new home, open a new investment account, or inherit property. Newly acquired assets must be properly transferred to your trust to remain protected.
We’ve guided countless Arizona families through this process. Regular estate plan reviews should be included in the estate planning process to help keep your plan current with your family or financial situation. An estate planning attorney can recommend strategies for phased or gradual funding, help you update beneficiary designations, and ensure your trust is ready for any change.
A pour-over will can serve as a safety net, directing any assets left outside the trust at your death to be transferred in. But this still requires probate, so it’s far better to keep your trust fully funded during your lifetime.
Is Your Trust Fully Funded?
If you’re unsure whether your trust is properly funded or if you’ve experienced a recent change in life circumstances, schedule a comprehensive estate plan review. Our team is here to help you secure your assets and your family’s future.Contact Sorrell Estate & Probate Attorneys or call (480) 660-6940 to schedule your estate plan review today.