Creating a living trust can be one of the most important steps you take to protect your family, organize your estate, and simplify the transfer of your assets. But signing the trust documents is only part of the process.
A trust generally works as intended only when the appropriate assets have been properly transferred, titled, or otherwise coordinated with the trust.
This process is commonly referred to as funding the trust.
Unfortunately, people sometimes create a comprehensive estate plan and then overlook assets that should be addressed as part of that plan. Years may pass, new property may be purchased, financial accounts may be opened, or investments may change without the estate plan being updated accordingly.
The result can be a trust that does not control everything its owner expected it to control.
Here are some of the assets people commonly overlook when reviewing the funding of their living trust.
- Real Estate
A home is often one of the largest assets a person owns, making real estate an important part of many trust-based estate plans.
While a primary residence may be addressed when a trust is initially established, other properties can easily be overlooked.
These may include:
- Vacation homes
- Rental properties
- Investment properties
- Undeveloped land
- Second homes
- Newly purchased real estate
- Property located outside Arizona
Simply listing a property somewhere in your estate planning paperwork does not necessarily change legal ownership of the property.
Depending on the estate plan and circumstances, a deed or other legal documentation may be necessary to properly coordinate real estate with the trust.
This becomes especially important when additional property is purchased years after the original trust was created.
- Bank Accounts
Checking, savings, money market, and other deposit accounts are another area that deserves careful review.
People frequently change banks, close accounts, open new ones, or move money to obtain better interest rates. Those changes may occur without considering how the new accounts fit into an existing estate plan.
Depending on the structure of the plan, certain accounts may be owned by the trust, while others may use beneficiary or payable-on-death arrangements.
The important point is that these decisions should be intentional.
An account that was never incorporated into the estate plan may not be handled the way its owner expected.
- Brokerage and Non-Retirement Investment Accounts
Investment portfolios can represent a significant percentage of someone’s estate, particularly for retirees and higher-net-worth families.
Stocks, bonds, mutual funds, ETFs, and other investments held in taxable brokerage accounts may need to be reviewed when funding or updating a trust.
This is another area where assets can slip through the cracks.
Someone may establish a trust and properly address an existing investment account, only to open another brokerage account several years later and forget to coordinate it with the estate plan.
Consolidating or changing investment firms can create the same issue.
- Business Interests
Business ownership is frequently more complicated than simply changing the name associated with an asset.
An individual may own an interest in:
- A limited liability company
- Corporation
- Partnership
- Family business
- Professional practice
- Investment company
- Closely held business
The company’s operating agreement, shareholder agreement, partnership agreement, buy-sell provisions, and other governing documents may affect how an ownership interest can be transferred.
For business owners, estate planning and business succession planning should therefore work together.
Failing to properly address a business interest can create significant complications for both the family and the business if the owner becomes incapacitated or dies.
- Promissory Notes and Private Loans
This category is surprisingly easy to forget.
Perhaps you loaned money to a family member, financed the sale of property, or hold a promissory note from a business transaction.
That note represents an asset.
If money is still owed to you, the right to receive those payments should be considered when reviewing your estate and determining how the asset should be handled.
Because these arrangements often don’t appear alongside conventional bank and investment accounts, they can easily be left off an estate-planning inventory.
- Mineral Rights, Land Interests, and Other Property Rights
Certain property interests may not immediately come to mind when someone thinks about their estate.
Examples can include:
- Mineral rights
- Water rights
- Oil and gas interests
- Easements
- Land contracts
- Timeshares
- Fractional property interests
These assets can have meaningful financial value and may continue producing income long into the future.
They should not be overlooked simply because they aren’t part of someone’s everyday financial life.
- Valuable Personal Property
Personal belongings are another area where careful planning can help prevent confusion.
Depending on the estate and the terms of the trust, valuable personal property might include:
- Jewelry
- Fine art
- Antiques
- Collectibles
- Firearms
- Precious metals
- Coin collections
- Valuable watches
- Classic vehicles
- Family heirlooms
Some personal property may be addressed through broader provisions or assignments within an estate plan rather than individually retitling every item.
However, unusually valuable or legally regulated assets may require additional consideration.
Clear instructions can also reduce the potential for disagreements among family members over sentimental property.
- Newly Acquired Assets
One of the biggest problems with trust funding doesn’t happen when the trust is created.
It happens five, ten, or twenty years later.
People continue living their lives after completing an estate plan. They buy property. They sell businesses. They inherit money. They change banks. They open investment accounts. They acquire valuable collectibles.
But their trust remains exactly as it was when they originally signed it.
Every significant new asset should prompt a simple question:
How does this asset fit into my estate plan?
That habit alone can help prevent many estate-planning oversights.
What About Retirement Accounts?
Retirement accounts require special attention.
IRAs, 401(k)s, 403(b)s, and similar retirement assets are generally handled differently from ordinary bank accounts or real estate. Rather than simply retitling these accounts into a living trust, estate planning often involves carefully coordinating beneficiary designations.
The appropriate beneficiary strategy depends on the individual’s family situation, estate plan, tax considerations, and long-term objectives.
For that reason, retirement accounts should be reviewed individually with the appropriate legal and financial professionals rather than automatically transferred into a trust.
Life Insurance Also Requires Beneficiary Planning
Life insurance presents a similar issue.
The policy’s beneficiary designation can determine who receives the proceeds when the insured dies.
Depending on the estate-planning strategy, the beneficiary might be an individual, multiple individuals, or a properly structured trust.
The appropriate choice depends on factors such as the beneficiaries’ ages, financial circumstances, family situation, and the overall purpose of the estate plan.
This is why beneficiary designations should be coordinated with—not considered separately from—the rest of an estate plan.
Why an Unfunded Trust Can Create Problems
One of the primary reasons many Arizona families establish living trusts is to simplify the transfer of assets and potentially avoid unnecessary probate proceedings.
But a trust generally controls assets that have been legally placed under its ownership or otherwise properly coordinated with it.
If significant assets remain outside the trust without another effective transfer mechanism, those assets may require additional legal administration after the owner’s death.
That can undermine one of the primary reasons the trust was established in the first place.
A beautifully drafted trust cannot accomplish everything intended if the assets and beneficiary arrangements don’t match the plan.
Your Trust Should Change as Your Life Changes
Estate planning should not be viewed as something you complete once and then place in a drawer indefinitely.
Your financial life changes.
Your family changes.
Your assets change.
And occasionally, the laws affecting estate planning change as well.
Consider reviewing your estate plan after major events such as:
- Purchasing or selling real estate
- Starting or selling a business
- Receiving a significant inheritance
- Marriage or divorce
- Birth or adoption of a child or grandchild
- Death of a spouse or beneficiary
- Opening substantial new financial accounts
- Moving to another state
- Significant changes in wealth
Even without a major life event, periodic estate-plan reviews can help identify assets that may have been overlooked.
Creating the Trust Is Only the Beginning
A living trust can be an extremely valuable estate-planning tool, but the document itself is only one part of a comprehensive plan.
The ownership of real estate, financial accounts, investments, business interests, beneficiary designations, and other assets should all work together.
That coordination is what turns a collection of estate-planning documents into an actual estate plan.
Review Your Living Trust with an Arizona Estate Planning Attorney
If you already have a living trust, it may be worth asking a simple question:
Are all of the assets that should be part of my estate plan actually accounted for?
Fishbein Law Group helps Arizona individuals, families, retirees, and business owners create and review comprehensive estate plans, including Living Trusts, Wills, Powers of Attorney, Asset Protection strategies, Probate Avoidance, Trust Administration, and Business Succession Planning.
Whether your trust was created recently or many years ago, an estate plan review can help identify changes in your assets, family circumstances, and planning objectives that may need to be addressed.
Proper estate planning isn’t simply about creating documents. It’s about making sure those documents, your assets, and your wishes continue working together.
Frequently Asked Questions
What does it mean to fund a living trust?
Funding a living trust generally means transferring ownership of appropriate assets to the trust or otherwise coordinating those assets with the estate plan. The exact method depends on the type of asset and the individual’s circumstances.
Should every asset I own be transferred into my living trust?
Not necessarily. Different assets require different planning strategies. Retirement accounts, life insurance policies, certain business interests, and other assets may be handled through beneficiary designations or other estate-planning mechanisms rather than simply being retitled to a trust.
How often should I review the assets in my trust?
It’s wise to review your estate plan periodically and whenever you experience a significant financial or family change. Purchasing property, opening substantial new accounts, starting a business, receiving an inheritance, marriage, divorce, and changes in beneficiaries are all good reasons to review your plan.
For more information on Estate Planning Attorneys or if you would like information on Living Trusts or Medical Powers of Attorney call Fishbein Law Group at (520) 535-0419 for a courtesy conversation.
The text above is for general informational purposes and should not be considered legal advice
