Families often leave a signing appointment believing the work is done. It is not. A trust governs only the assets that have been transferred into it, and the transfers are a separate job from the drafting.

What you need to know

  • Funding means changing the title or the beneficiary on each asset so the trust controls it. Signing the trust document does not move anything.
  • Real property is funded by a new deed, prepared and recorded in the county clerk’s office where the property sits.
  • Bank and brokerage accounts are funded by retitling, not by adding the trust as a beneficiary of a joint account.
  • Retirement accounts generally should not be retitled into a revocable trust during life. Naming a trust as beneficiary is a separate decision with real tax consequences.
  • A closely held business interest is usually funded by an assignment of membership or stock interest, and the operating agreement often has to be checked first.
  • Anything left out at death may still require probate — which is exactly what the trust was meant to avoid.

Why unfunded trusts are so common

The drafting is visible and the funding is not. A client receives a bound document, files it in a drawer, and reasonably assumes the plan is complete. Meanwhile the house is still deeded to two individuals, the brokerage account is still in one name, and the credit union account still lists a child as joint owner.

Years later the family brings the trust to counsel and learns that the trust holds nothing. The successor trustee has authority over an empty vessel, and the estate goes to Surrogate’s Court after all. The remedy at that point may be a probate proceeding and a pour-over of assets into the trust — slower and more expensive than funding would have been.

The test. Pull out a recent statement or deed for each significant asset. If the owner line does not read something like “Jane Doe, as Trustee of the Jane Doe Revocable Trust dated [date],” that asset is not in the trust.

Real property: the deed

Funding a house, a condominium, or a rental property means preparing a new deed from the current owners to the trustee of the trust and recording it with the county clerk — Suffolk County in Riverhead for most of the firm’s clients, Nassau County in Mineola for others. The transfer forms that accompany the deed have to be completed correctly, and the recording should be confirmed rather than assumed.

Several items deserve attention before the deed is signed.

  • The mortgage. Federal law generally protects a transfer into a revocable trust in which the borrower is a beneficiary and occupies the property, so the due-on-sale clause is usually not triggered. Notifying the servicer in writing is still the safer practice.
  • Title insurance. Confirm that existing coverage continues after the transfer, or arrange for it to.
  • Homeowner’s insurance. The trust generally should be added as an additional named insured. Carriers have denied claims where the named insured no longer matched the record owner.
  • Property tax exemptions. STAR, senior, and veterans exemptions have their own rules about trust ownership. The assessor should be contacted before, not after, the deed is recorded.
  • Co-op apartments. These are shares of stock and a proprietary lease, not real property, and the co-op board’s consent is generally required. Some boards refuse; that has to be known in advance.

Deed work is handled through the firm’s real estate practice, which also handles the title questions that surface during funding.

Bank and brokerage accounts: retitling

Financial accounts are funded by opening or converting the account into the name of the trustee. Most institutions want a certification of trust — a short summary confirming the trust exists, who the trustee is, and what powers the trustee holds — rather than the full trust document. Providing the certification instead of the whole trust keeps the dispositive terms private.

Two shortcuts cause trouble. The first is adding a child as a joint owner “so someone can get at it.” That creates a present ownership interest, exposes the account to the child’s creditors and divorce, and overrides the trust entirely at death. The second is naming the trust as a payable-on-death beneficiary of a joint account; the joint survivorship right generally takes priority, so the trust never receives it.

What about the everyday checking account?

Many plans leave a modest operating account outside the trust for convenience and cover it with the power of attorney and the pour-over will. That is a deliberate choice, not an oversight — but it should be a choice, made with counsel, and the balance should be kept small enough that it does not push the estate into a full probate proceeding.

Retirement accounts: usually not retitled

An IRA, 401(k), or 403(b) generally cannot be retitled into a living trust without triggering a taxable distribution of the entire account. These are funded, if at all, through the beneficiary designation.

Whether to name a trust as beneficiary is its own analysis. Federal rules limit how long most non-spouse beneficiaries can stretch distributions after the owner’s death, and trust drafting has to be coordinated with those rules or the trust can end up with a compressed payout and an unfavorable tax result. There are good reasons to name a trust — a minor beneficiary, a beneficiary with a disability, a spendthrift, a blended family — and equally good reasons not to. The current rules should be confirmed for the applicable year before the form is signed.

Life insurance and annuities. These stay where they are and are directed by beneficiary designation. Naming the estate as beneficiary is generally the outcome to avoid, because it pulls the proceeds into probate and exposes them to estate creditors.

Business interests: the assignment

An interest in a family LLC is funded by a written assignment of the membership interest from the individual to the trustee, usually paired with an amendment to the operating agreement or a consent from the other members. The operating agreement frequently contains transfer restrictions, and an assignment that violates them may be void or may trigger a buyout right.

Closely held corporation shares are funded by a stock transfer recorded on the company’s books, and a shareholders’ agreement may impose the same kind of restriction. Where there is an S corporation election, the trust must qualify as a permitted shareholder or the election can be jeopardized — a revocable grantor trust generally qualifies during the grantor’s life, but the analysis changes after death and has deadlines attached to it.

Partnership and professional practice interests carry their own consent requirements. These issues are addressed through the firm’s business planning and succession practice, ideally at the same time the trust is drafted rather than years later.

A funding checklist

  • Deed for the primary residence, recorded and confirmed
  • Deeds for any rental, vacant land, or out-of-state property
  • Bank accounts retitled, with certification of trust on file at each institution
  • Brokerage and non-retirement investment accounts retitled
  • Certificates of deposit retitled at maturity to avoid early withdrawal penalties
  • Beneficiary designations reviewed on every retirement account, annuity, and life insurance policy
  • LLC membership interests assigned; operating agreement amended or consent obtained
  • Corporate shares transferred on the company’s books
  • Promissory notes and mortgages held as a lender assigned to the trust
  • Safe deposit box retitled, or its contents inventoried and addressed
  • Vehicles and boats considered — often left out deliberately, since New York has simplified transfer procedures
  • Personal property assigned by a general assignment of tangible personal property

Funding is not a one-time event

Assets change. A CD matures and is reinvested in a new account in the wrong name. A house is refinanced and the lender insists on taking title out of the trust, then never puts it back. An inheritance arrives. A new brokerage account is opened online in an individual name because that was the fastest path through the sign-up screen.

Refinancing is the single most common way funding quietly comes undone. If a lender requires the property in individual names to close, the deed back into the trust should be prepared and recorded promptly after closing, and someone should verify the recording. It is a small step that is missed constantly.

A periodic review — after any refinance, sale, purchase, marriage, divorce, or death in the family — keeps the plan aligned with reality. The firm’s checklist of life events that should trigger a review covers the triggers in more detail.

When funding was never done

If a trust was signed years ago and nothing was transferred, the situation is fixable during life. Counsel can inventory the assets, prepare the deeds and assignments, and coordinate the retitling with each institution. After death the options narrow considerably: the pour-over will has to be probated, and the family absorbs the delay and expense the trust was created to avoid. If a family is already in that position, the probate and estate administration page describes what the court process involves.

The Law Offices of Christine Thea Rubinstein & Associates P.C. offers a free and confidential initial phone consultation to review an existing trust and confirm what is actually in it. Call 1-800-488-6734 or reach the firm through the contact page.

Frequently asked questions

How do I tell whether my trust is funded?

Look at the ownership line on your deed and your account statements. If it names you individually rather than you as trustee, the asset is outside the trust. A quick inventory of every deed and statement usually takes an afternoon and answers the question definitively.

Will transferring my house into a trust raise my property taxes or cost me my STAR exemption?

A transfer to a revocable trust for your own benefit generally is not treated as a sale for assessment purposes, and exemptions frequently continue where the trust is drafted properly. The rules differ by exemption, so the assessor should be contacted before the deed is recorded rather than after.

Should I name my trust as the beneficiary of my IRA?

Sometimes. It can be the right answer where a beneficiary is a minor, has a disability, or should not receive a lump sum. It can also compress the payout period and increase income tax. The decision depends on the trust language and the distribution rules in effect for the applicable year.

Can my bank refuse to open a trust account?

Institutions have their own documentation requirements, and some are slow. A certification of trust satisfies most of them. If a branch resists, counsel can usually resolve it with the institution’s trust department rather than by handing over the entire document.

My lender made me take the house out of the trust to refinance. What now?

That is common. A deed transferring the property back to the trustee should be prepared and recorded after the closing, and the recording should be confirmed. Families who skip this step often do not discover it until the property has to be probated.