Trust Funding Mistakes That Can Undermine Your Estate Plan
Oct. 15, 2025
Creating a trust is often a central part of estate planning, but it’s not enough to simply draft the document. Proper trust funding is essential to make sure the trust functions as intended.
Many people may not realize that failing to fund a trust correctly can result in delays, additional costs, and even unintended consequences. At the Law Offices of Julie A. Schejbal, CHTD, we understand that managing your financial assets and planning for the future is overwhelming.
It's common to worry about whether a trust will be effective or if you might make mistakes that could undermine your estate plan. These concerns are valid, and taking steps to properly fund your trust helps reduce stress and gives confidence that your wishes will be carried out. Reach out to us to talk about your options with an experienced trust fund attorney and learn how trust funding plays a vital role in your estate plan.
Common Trust Funding Mistakes
Even with a well-drafted trust, mistakes during funding can undermine its purpose. These errors can prevent assets from transferring as intended, delay distributions, or increase administrative costs. Some common errors when funding a trust include the following:
Leaving assets out of the trust: Failing to transfer property, accounts, or investments into the trust can prevent it from controlling those assets.
Incorrect titling: Assets must be retitled in the name of the trust. If the title remains in your name, the trust may not have legal control.
Failing to update beneficiary designations: Accounts with beneficiary designations, such as retirement accounts or insurance policies, may override the trust if not properly aligned.
Failing to fund the trust promptly: Delays in funding can create gaps where assets remain outside the trust and are subject to probate.
Avoiding these mistakes is crucial because even a minor oversight can compromise the effectiveness of your estate plan and potentially lead to unintended consequences.
Mistakes with Bank and Investment Accounts
Bank and investment accounts are frequently overlooked when funding a trust. Without proper attention, these assets can remain outside the trust, potentially creating complications for your heirs or chosen beneficiaries. When funding a trust with bank or investment accounts, consider the following:
Account titling: Transfer checking, savings, brokerage, and other investment accounts into the trust’s name.
Beneficiary alignment: Update payable-on-death designations to reflect the trust where appropriate.
Regular review: Periodically check accounts to verify they remain appropriately titled and aligned with your estate plan.
Coordination with advisors: Communicate with your financial institutions to avoid any missteps during the funding process.
Proper handling of these accounts helps your trust function as intended and avoids unnecessary delays or court involvement.
Mistakes with Real Estate and Property
Real estate is a common source of errors in trust funding. Many property owners assume that merely drafting a trust automatically includes their home or other real estate holdings. Some key considerations when funding a trust with real estate and property include:
Deed transfers: Property titles should be formally transferred to the trust through the creation of a new deed.
Mortgages and liens: Make sure you understand how mortgages and liens interact with trust ownership to prevent future conflicts.
Joint ownership: Determine whether jointly held property requires special handling before using it to fund the trust.
Property in multiple states: If you own property in more than one state, additional steps may be necessary to fund the trust in accordance with state law.
Taking these steps helps prevent delays and makes sure that your real estate assets are governed according to your trust instructions.
Mistakes with Business Interests
If you own business interests, it may be easy to overlook trust funding for these assets. Failing to address your business holdings effectively can create complications or even require court intervention. Some key points to consider include the following.
Ownership structure: Review the ownership of any LLCs, partnerships, or corporations before using them to fund the trust.
Transfer restrictions: Check your operating agreement or corporate bylaws for any transfer limitations or specific language on usage.
Valuation updates: Maintain accurate valuations of your business assets to inform distributions and minimize disputes.
Succession planning: Address who will manage or inherit business interests to align with your trust goals.
Addressing business assets within your trust helps protect both your estate plan and the ongoing operation of your business.
Mistakes with Personal Property
Many people think of trust funding as only applying to financial assets or real estate. However, personal property can also be impacted if not handled carefully. Some points to consider include:
High-value items: Jewelry, art, collectibles, and other significant assets can often be used to fund the trust and should be appropriately listed.
Gifts and loans: Document any personal loans or gifts to ensure clarity in your estate plan.
Distribution instructions: Specify how personal items should be distributed to avoid disputes among beneficiaries.
Storage and documentation: Maintain records of appraisals, photographs, and descriptions for clarity.
Funding a trust using personal property properly often grants you the confidence that your wishes will be followed and reduces the risk of disputes.
Mistakes with Digital Assets and Accounts
Digital assets are increasingly important. However, many trusts overlook them when funding. Emails, social media accounts, cryptocurrency, and online business accounts can hold significant value or personal importance. Some key actions you should take include the following.
Inventory digital assets: Create a list of accounts, passwords, and any digital property.
Include access instructions: Clearly outline who can access or manage digital assets.
Consider legal requirements: Some states have specific rules for digital asset transfer.
Regular updates: Keep your digital asset list current as accounts or passwords change.
Properly including digital assets in your trust assures that nothing is unintentionally left out and helps your estate plan remain comprehensive.
Mistakes with Retirement Accounts and Insurance Policies
Even if you’ve drafted a trust, retirement accounts and insurance policies can often bypass the trust if the beneficiary designations aren’t coordinated. To avoid potential issues, consider taking the following steps when using retirement accounts and insurance policies to fund a trust.
Align your beneficiaries: Name your trust as the primary or contingent beneficiary wherever appropriate.
Consider tax implications: Transferring certain accounts may result in tax consequences, so plan carefully to avoid any unexpected tax liabilities.
Review periodically: Update your beneficiary designations whenever there are life changes, such as marriage or divorce.
Coordinate with advisors: Work with financial or insurance professionals to confirm proper alignment.
Handling these accounts carefully reduces the risk that trust funding gaps will undermine your estate plan.
Consequences of Improper Trust Funding
Mistakes in trust funding can lead to delays, disputes, additional expenses, or unintended beneficiaries receiving assets. Some common consequences of improperly funding a trust include the following:
Probate involvement: Assets that are not included in the trust may require probate, which can be time-consuming and costly.
Conflicts among beneficiaries: Misaligned or improperly allocated assets can often create disagreements or disputes.
Tax complications: Improperly funded trusts may not achieve the intended tax benefits.
Administrative burden: Executors or trustees may face additional work to address gaps or errors during the estate's administration.
Being proactive with trust funding reduces these risks and helps clients feel confident that their estate plan will operate as intended.
Strategies to Avoid Trust Funding Mistakes
There are several approaches you can take to reduce the risk of funding mistakes. While careful attention is needed, taking the following simple steps can make a meaningful difference.
Comprehensive inventory: List all assets, including property, accounts, business interests, and personal property.
Regular review: Revisit your trust and asset holdings periodically to confirm alignment.
Professional coordination: Collaborate with financial and legal advisors to align asset ownership with the trust.
Clear instructions: Document how assets should be transferred and any specific instructions for beneficiaries.
Taking these strategies seriously helps maintain the effectiveness of your trust and prevents unnecessary complications in the future.
Reach Out to an Experienced Estate Planning Attorney Today
Estate planning is an essential step in making sure your estate is cared for and divided according to your wishes after your passing. While trusts are commonly a key aspect of estate planning, improperly funding a trust can have potentially negative consequences on your estate plan as a whole. That's where an experienced estate planning attorney can help.
At the Law Offices of Julie A. Schejbal, CHTD, we help clients make certain that their trust funding is complete and accurate. Located in Dunkirk, Maryland, we serve clients in the nearby areas of Calvert County, Prince George’s County, Charles County, and St. Mary’s County. Contact us today to schedule a free consultation to review your trust and make sure it’s properly funded.