Avoiding Common Mistakes When Funding a Trust
Creating a trust is one of the most powerful steps you can take to protect your assets and provide for your loved ones. Many families don’t realize that the process doesn’t end with signing documents; it continues with correctly transferring ownership of assets into the trust. Missing this step can lead to significant complications, the very thing you were trying to avoid.
As a Corpus Christi, TX estate planning attorney, I work with individuals and families throughout South Texas, helping them create and fund trusts the right way, so their wishes are honored.
If you’re thinking about setting up a trust, or already have one, it’s crucial to understand the common mistakes that can undermine its effectiveness. Let’s take a closer look at how to avoid these missteps and protect what matters most. Reach out to my firm Russell Manning Law PLLC today to set up a meeting and make sure your trust is properly funded and legally sound.
Why Funding a Trust Matters
Trusts are only as strong as the assets that support them. Funding your trust means transferring ownership of your property, like real estate, investments, or bank accounts, from your personal name into the name of the trust. This step allows the trustee to manage those assets according to your wishes and helps your loved ones avoid probate after your passing.
When trusts aren’t properly funded, they can’t function as intended. Assets left outside the trust may still go through probate, leaving your beneficiaries to deal with delays, costs, and unnecessary legal stress. Taking the time to complete this process correctly gives your estate plan the strength it needs to stand up to future challenges.
Forgetting to Transfer Assets Into the Trust
This is perhaps the most common and costly mistake people make. After creating a trust, they forget, or don’t realize, that each asset must be formally transferred into it. This typically means re-titling accounts, deeds, and ownership documents in the name of the trust. Some examples of assets that should often be transferred include:
Real estate: Homes, land, vacation properties, and rental units.
Bank accounts: Checking, savings, and money market accounts.
Investments: Stocks, bonds, and brokerage accounts.
Business interests: Ownership shares in companies or partnerships.
Valuable personal property: Art, jewelry, or collectibles.
If these transfers don’t happen, the assets remain in your personal name, meaning they may have to go through probate despite your trust’s existence. Reviewing your financial and property holdings with an experienced estate planning attorney can help confirm that every asset is properly titled and accounted for, helping to avoid headaches later on.
Failing to Update the Trust After Major Life Changes
Life changes quickly. Marriage, divorce, new children, or the loss of a loved one can all impact how you want your assets distributed. Unfortunately, many people forget to revisit their trusts when these changes occur. Your trust should reflect your current wishes and financial situation. For instance, consider the following changes:
Marriage or divorce: You may want to add or remove a spouse as a beneficiary or trustee.
Birth or adoption: Adding new family members makes sure that they’re included in your plans.
Inheritance or windfall: Large changes in wealth might require adjusting distributions or adding new assets to the trust.
Relocation: Moving to another state can affect how your trust operates under local law.
Failing to make these updates can create confusion and disputes among your heirs. Reviewing your trust at least once every few years, or after any major life event, can help keep it current and effective. Regular reviews also provide an opportunity to confirm that your trustee, beneficiaries, and financial goals still align with your overall estate plan.
Leaving Out Beneficiary Designations
Certain types of assets, such as life insurance policies or retirement accounts, pass directly to the named beneficiaries rather than through your trust. However, it’s common for people to forget to coordinate these designations with their estate plan. Double-checking these accounts can prevent unintended outcomes and keep your estate plan consistent.
For example, if your trust specifies that your children should receive equal shares of your estate but your life insurance names only one child as the beneficiary, that mismatch can lead to hurt feelings, disputes, and legal complications. Taking the time to align all designations with your trust helps protect both your intentions and your family’s peace of mind.
Check every beneficiary designation: Make sure they align with your overall estate plan.
Consider naming your trust as a beneficiary: In some cases, doing so can allow the trustee to distribute funds according to your specific wishes.
Review regularly: Update beneficiary information whenever your relationships or family structure change.
Taking these small but crucial steps helps make sure that your trust works in harmony with the rest of your financial plans. If you’re not sure what needs to be reviewed or updated, an experienced estate planning attorney can help. Contact my firm, Russell Manning Law PLLC, to discuss your situation and begin working together.
Not Retitling Real Estate Properly
Real estate is often the most valuable asset in a person’s estate, yet it’s also one of the easiest to mishandle when funding a trust. If the property title isn’t correctly transferred, it remains outside the trust and will likely have to go through probate. When transferring property, you must execute a new deed naming the trust as the owner. This typically requires:
Preparing a new deed: Usually a quitclaim or warranty deed, depending on your situation.
Recording the deed: File it with the county clerk where the property is located.
Updating insurance and mortgage records: Let your lender and insurer know about the trust transfer.
Failing to take these steps can leave your property vulnerable to delays and legal hurdles later. A real estate attorney can help confirm that the deed transfer meets local requirements and protects your rights. Properly retitling property can give you peace of mind that your home or investment real estate will transfer smoothly to your loved ones under the terms of your trust.
Overlooking Business Interests
If you own a business, funding your trust becomes even more critical. Many small business owners fail to include their business interests in their estate plans, leaving their companies in limbo if something happens to them. Business assets that can and often should be transferred to a trust include the following:
Partnership interests
Membership units in an LLC
Shares of a closely held corporation
Transferring ownership to your trust allows your successor trustee to continue operating or selling the business without court involvement. However, the process can differ based on your business structure, so it’s wise to work with an experienced estate planning attorney familiar with both trust law and business succession planning.
Failing to Fund New Assets as They’re Acquired
Even after your trust is funded, your work isn’t finished. Over time, you might open new bank accounts, buy property, or invest in new ventures. If those assets aren’t transferred into the trust, they won’t benefit from its protection. To keep your trust current, adopt a habit of reviewing and updating it whenever you acquire something significant. For example:
Add new property deeds immediately to your trust name.
Open financial accounts in the trust’s name whenever possible.
Consult with an experienced estate planning attorney annually to verify that all recent purchases or changes are reflected.
By staying proactive, you’ll prevent gaps in your estate plan and preserve your intentions for how your assets should be handled. Regularly reviewing your trust also allows you to catch errors or oversights before they become bigger problems. Staying engaged with your estate plan gives you peace of mind knowing your loved ones will be cared for.
Contact a Dedicated Estate Planning Attorney Today
Avoiding these common mistakes isn’t just about paperwork; it’s about protecting your family’s future. Funding your trust correctly allows your assets to be managed smoothly, privately, and according to your wishes. If you already have a trust, it’s not too late to review it. Confirming now that all assets are properly titled and up to date can prevent years of legal complications.
When you work with Russell Manning Law PLLC in Corpus Christi, you’ll get practical guidance every step of the way. I serve clients throughout South Texas and the Coastal Bend area, including Bee County, Kleberg County, Nueces County, Live Oak County, Jim Wells County, Aransas County, and Victoria County.
I’ll help you avoid costly mistakes and give you confidence that your trust will truly serve its purpose: protecting your legacy and providing for the people you care about most. Together, we can protect the financial future of your loved ones. Reach out to my firm today to schedule a consultation and make sure your trust is properly funded and legally sound.