Many people mistakenly believe that simply obtaining a trust will enable their estates to avoid probate and save estate taxes. We are distressed that some of our clients sign their trust documents and then neglect funding their trusts. The real-life example that we use for this principle is that not funding your trust is like building a house and not living in it. Although we have an active probate department that handles the cases of our clients who did not follow our trust funding instructions, we know that the primary reason why many people want to obtain a trust is to avoid probate.
Although we ask those who have signed trusts to schedule a follow-up meeting with us to show us their trust funding efforts, some clients decide not to do so. The result is that the assets that are not in the trust may be exposed to probate and, possibly, estate taxes, which defeats several material reasons for setting up a trust.
Funding your trust is crucial because your trust controls only those assets actually owned by or payable on death (POD) or transferrable on death (TOD) to the trustee.
Any assets not owned by, POD, or TOD to the trust may (1) need to be probated after your death, (2) be subject to statutory marital rights if you remarry, or (3) not be eligible for transfer to your trust after your death to regulate distributions to the beneficiaries (such as minor children), which would once again defeat your key reasons for setting up your trust. Therefore, you should carefully attend to this important step in your estate plan.