Why Trust Funding Is Critical

Creating a trust is only half the battle. The most important step—and the one most often neglected—is funding the trust by transferring ownership of your assets into it. An unfunded trust is essentially worthless because it controls nothing. If you die with an unfunded trust, your assets will go through probate just as if you had never created the trust at all.

Funding a trust means transferring legal ownership of your assets from your individual name to the name of the trust. Once funded, the trust owns the assets, and you (as trustee) manage them according to the trust terms. When you die, your successor trustee can immediately distribute or manage the trust assets without probate court involvement.

This comprehensive guide explains exactly how to fund every type of asset into your Illinois trust, common mistakes to avoid, and best practices for maintaining proper funding over time.

Understanding Trust Ownership

When you fund your revocable living trust, you're changing how your assets are titled. Instead of owning assets as "John Smith," you now own them as "John Smith, as Trustee of the John Smith Revocable Living Trust dated January 15, 2024" (or similar language).

This change in title is crucial because:

• Only assets titled in the trust's name are controlled by the trust
• Assets in your individual name still go through probate
• The trust can only do what you've authorized in the trust document
• Your successor trustee can only manage assets properly transferred to the trust

How to Fund Each Type of Asset

1Real Estate

Real estate is one of the most important assets to transfer to your trust because it's typically valuable and would otherwise require probate (or multiple probates if you own property in different states).

Step-by-Step Process:

1. Prepare a Deed: Create a new deed transferring the property from yourself to yourself as trustee. Common deed types include quitclaim deeds or warranty deeds.
2. Check Your Mortgage: Review your mortgage documents. While federal law (the Garn-St. Germain Act) prevents lenders from calling a loan due when you transfer property to your revocable living trust, it's courteous to notify your lender.
3. Complete the Deed:
   • Grantor: Your name as you currently own the property
   • Grantee: "Your Name, as Trustee of the [Your Name] Revocable Living Trust dated [date]"
   • Legal description: Copy exactly from your current deed
   • Sign and notarize: Most Illinois deeds must be notarized
4. Record the Deed: File the executed deed with the county recorder's office in the county where the property is located. There will be a recording fee (typically $50-$150).
5. Update Insurance: Notify your homeowner's insurance company of the title change. The trust should be named as an additional insured.
6. Update Property Tax Information: Notify the county assessor so property tax bills are sent to the correct name.

2Bank Accounts and CDs

Bank accounts and certificates of deposit should be retitled in the trust's name to ensure your successor trustee has immediate access to funds.

Step-by-Step Process:

1. Contact Your Bank: Visit the bank in person or call their trust department. Each bank has its own procedures for retitling accounts.
2. Provide Documentation: The bank will typically require:
   • A copy of your trust document (or a "certification of trust"—a shorter document that summarizes key trust terms without revealing private information)
   • Your identification
   • Completion of their specific forms
3. Retitle Accounts: The bank will change the account ownership to: "[Your Name], as Trustee of the [Your Name] Revocable Living Trust dated [date]"
4. Update Signature Cards: Sign new signature cards in your capacity as trustee
5. Confirm Tax ID: Your revocable living trust uses your Social Security number, not a separate EIN, so ensure the correct tax ID remains on file

3Investment and Brokerage Accounts

Investment accounts, including stocks, bonds, mutual funds, and brokerage accounts, should be transferred to your trust.

Step-by-Step Process:

1. Contact Your Financial Institution: Reach out to each brokerage firm, investment company, or financial advisor
2. Provide Documentation: Similar to banks, they'll need:
   • Trust document or certification of trust
   • Completed account transfer forms (specific to each institution)
   • IRS Form W-9 showing your Social Security number
3. Transfer Securities: The firm will retitle all securities in the trust's name. This is typically a straightforward internal process that doesn't trigger taxes
4. Update Beneficiary Designations: If you had POD or TOD designations on these accounts, decide whether to maintain them or rely on the trust for distribution

4Business Interests

Business interests—including LLC memberships, partnership interests, and closely-held corporate stock—require careful handling when transferring to a trust.

Step-by-Step Process:

1. Review Governing Documents: Check your:
   • Operating Agreement (for LLCs)
   • Partnership Agreement
   • Shareholder Agreement
   • Buy-Sell Agreement
   These often contain transfer restrictions that may require consent of other owners or trigger buyout rights.
2. Consult Your Business Attorney and Accountant: Business transfers can have tax implications and may require specialized planning
3. Obtain Necessary Consents: If required by your operating agreement, obtain written consent from other owners
4. Execute Assignment Documents: Prepare and sign an assignment or transfer document moving your interest to the trust
5. Update Company Records: Notify the company to update its ownership records, membership certificates, and tax reporting

5Vehicles, Boats, and RVs

Vehicles, boats, and recreational vehicles present special challenges because transferring them to a trust can be cumbersome and may cause insurance complications.

Common Approach:

Most estate planners recommend NOT transferring vehicles to trusts. Instead:

• Option 1: Keep vehicles titled in your name and rely on your pour-over will to transfer them to the trust at death
• Option 2: Use Illinois's Transfer-on-Death (TOD) designation if available for the vehicle title
• Option 3: For high-value vehicles, boats, or RVs, consider transferring to the trust if the value justifies it

If You Choose to Transfer:

1. Complete a new title application with the Illinois Secretary of State (or appropriate agency for boats/RVs)
2. List the trust as the new owner
3. Pay title transfer fees and taxes
4. Update insurance policies to reflect trust ownership

6Personal Property and Tangible Items

Personal property includes furniture, jewelry, art, collectibles, electronics, and other tangible items. These are typically transferred to your trust using a general assignment or bill of sale.

Step-by-Step Process:

1. Execute an Assignment of Personal Property: Sign a document that transfers "all personal property and tangible items" to the trust. Your attorney should provide this document when you create your trust.
2. Specific High-Value Items: For particularly valuable items (expensive jewelry, art collections, etc.), consider:
   • A separate schedule listing specific items
   • Appraisals documenting value
   • Updated insurance riders in the trust's name
3. Create a Personal Property Memorandum: Many trusts include a provision allowing you to create a separate memorandum listing who should receive specific personal items. This can be updated without amending the trust.

Assets That Should NOT Be Transferred to Your Trust

While most assets should be transferred to your trust, some assets should generally remain outside the trust or require special handling:

Creating Your Funding Checklist

Use this comprehensive checklist to ensure all appropriate assets are transferred to your trust:

• Primary residence—deed prepared, signed, notarized, and recorded
• Vacation home or rental properties—deeds prepared and recorded
• Out-of-state real estate—deeds prepared and recorded in each state
• Checking accounts retitled or POD designation updated
• Savings accounts retitled or POD designation updated
• Certificates of deposit retitled
• Brokerage accounts retitled
• Individual stocks and bonds transferred
• Mutual fund accounts retitled
• Money market accounts retitled
• Business interests—LLC, partnership, or corporate stock transferred (if appropriate)
• Life insurance policies—ownership transferred or beneficiary updated
• Personal property—general assignment executed
• Valuable collectibles—specific assignments or schedules created
• Safe deposit box—access updated to trust name
• Promissory notes or loans receivable assigned to trust
• Intellectual property (copyrights, patents, trademarks) assigned if applicable
• Homeowner's insurance updated to reflect trust ownership
• Umbrella liability insurance updated
• Property tax records updated with trust name
• Retirement accounts—beneficiary designations reviewed and updated (but do NOT retitle accounts)
• HSA beneficiary designation reviewed
• 529 college savings plans reviewed (ownership may remain in your name)
• Digital assets—cryptocurrencies, domain names, etc. transferred if possible

Common Funding Mistakes to Avoid

Mistake #1: Never Completing the Funding

This is by far the most common and devastating mistake. Many people pay an attorney to create a trust but never transfer assets into it. When they die, their entire estate goes through probate as if they never had a trust.

Solution: Create a specific funding plan with deadlines. Check off each asset as it's transferred. Follow up within 60-90 days to ensure all transfers are complete.

Mistake #2: Funding Some Assets But Not Others

Partial funding defeats the purpose. If you transfer your home but not your bank accounts, those accounts still go through probate.

Solution: Use a comprehensive checklist (like the one above) and methodically transfer each asset. Don't stop until the list is complete.

Mistake #3: Transferring Assets and Then Purchasing New Ones in Your Individual Name

You properly fund your trust, but then buy a new rental property or open a new investment account in your individual name instead of the trust's name.

Solution: Develop the habit of acquiring all new assets in the trust's name. When you buy real estate, take title as trustee. When you open new accounts, title them in the trust from the start.

Mistake #4: Transferring Retirement Accounts to Your Trust

This triggers immediate income taxes and penalties, potentially costing tens of thousands of dollars or more.

Solution: Never retitle retirement accounts. Instead, review and update beneficiary designations. Consult with your attorney about whether the trust should be named as a beneficiary.

Mistake #5: Forgetting to Update Insurance

You transfer your home to the trust but don't update your homeowner's insurance. If there's a claim, the insurance company might deny coverage due to the mismatch between the policy holder and property owner.

Solution: Notify insurance companies immediately after transferring real estate and ensure policies name the trust properly.

Mistake #6: Inadequate Documentation

You transfer assets but don't keep copies of transfer documents, deeds, or updated account statements showing trust ownership.

Solution: Create a trust binder or file containing:

• The trust document
• All deeds transferring real estate
• Copies of account transfer confirmations
• Updated account statements showing trust ownership
• Assignment documents for personal property and business interests

Mistake #7: Failing to Fund Trust Amendments or Restatements

You amend or restate your trust and forget that the new document typically changes the trust date. You must update financial institution records with the new trust date.

Solution: After amending or restating your trust, notify all financial institutions of the change and provide updated certifications of trust.

Maintaining Proper Funding Over Time

Funding your trust isn't a one-time event. You must maintain proper funding as your assets and circumstances change:

Annual Review

Set a calendar reminder to review your trust funding annually. Check:

• Have you acquired new assets that should be transferred to the trust?
• Have you sold or disposed of trust assets?
• Are all current assets still properly titled?
• Have you opened new accounts in your individual name that should be transferred?

Review After Major Life Events

Certain events should trigger an immediate funding review:

• Inheritance: If you inherit assets, transfer them to your trust
• Real Estate Purchase: Buy property in the trust's name from the start
• Business Formation: Ensure your business interest is held by the trust if appropriate
• Large Gifts: If you receive substantial gifts, consider transferring to the trust
• Lawsuit Settlement: Settlement proceeds should typically be transferred to the trust
• Retirement: Review and update beneficiary designations on retirement accounts

Work With Your Attorney

Schedule a review with your estate planning attorney every 3-5 years to:

• Confirm all assets are properly funded
• Update the trust if needed for law changes or family circumstances
• Review beneficiary designations on retirement accounts and insurance
• Discuss any new assets or planning opportunities

Frequently Asked Questions