Will Your Trust Work

Will your Trust work the way you intend it.  Many people have created Revocable Trusts, which are also known as Living Trusts. They have done so for a number of reasons (avoiding probate, avoiding court guardianship, tax planning).  But if your Trust is not funded it may not work the way you want.

A recent post on an trust and estate planning e-mail list illustrates what happens if a trust is not properly funded.

Dear Listmates:

Can a revocable trust be properly funded by simply attaching a schedule to the trust document that states that the settlor “hereby sells, transfers, and conveys” to himself the property listed therein? The listed property includes real estate and bank accounts.  The real estate is identified by address and tax ID. The bank accounts are identified simply by bank name and address. The schedule containing the listed property is signed by the settler and one witness but is not notarized. The main trust document, to which the schedule is attached, is notarized.

This was the answer posted to those questions.

The short answer is no.

The reply to that answer illustrates the terrible consequences that can occur from not properly funding the Trust.

The settlor [the person who set up the Trust] passed away. If this trust is not upheld, then the settlor's estate will pass to the very persons he intended to disinherit.

So how do you fund a Trust to avoid this terrible result.  A Trust is funded by transferring assets to the Trust.  The procedure for legally transferring assets to a Trust depends upon the type of asset.

For a bank account or a stock brokerage account, the name of person who owns the account needs to be changed to the name of the current trustee as trustee of the trust identified by its proper name.  For example, if John Smith has a Revocable/Living Trust and he is the current trustee then account needs to be changed from John Smith to John Smith as Trustee of the John Smith Trust (what ever the Trust designates as the proper name of the Trust).

For real estate, a Deed needs to be prepared transferring the real estate to the Trust.  For example, John Smith would need to Deed his property from John Smith to John Smith as trustee of the John Smith Trust. This Deed would need to be recorded in the County where the real estate was located with the County Recorder of Deeds.  Also, you may need to obtain an endorsement to your title insurance policy to cover the trust.  Whether this needs to be done will depend upon the specific language in your title insurance policy.

You can transfer personal property such as airplanes, automobiles and boats by transferring the title with the Secretary of State to the Trustee (John Smith as Trustee of the John Smith Trust).  Unless this property is of significant value most people deal with this property through their Pour Over Will.

A Pour Over Will is a Will that includes a provision stating that any property that I own, which I have not specifically provided for at my death is to be transferred to to my Trust.

A Pour Over Will will not be effective if the property is held in joint tenancy or if a payable on death beneficiary has been named. Property that it is held in joint tenancy automatically passes to the surviving joint tenant.  It is not part of a person’s estate.  Therefore, the Pour Over Will would not be effective to transfer the joint tenancy property.  Likewise an account that has a payable on death beneficiary designation like a bank account, life insurance policy, stock brokerage account, pension plan will also pass directly to the beneficiary.  It too will not be included in your probate estate.

So, it is a good idea to check the beneficiary designations on your accounts to make sure that they list the people that you intend to receive the money.  The same is true for any accounts that you hold in joint tenancy.

If you have gone through the effort and expense of creating a Recovable/Living Trust you should make sure that it is properly funded.


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