The Hidden Danger: What Happens When You Don’t Fund Your Trust in California

Creating a trust is a smart step in planning for the future, protecting your assets, and ensuring your loved ones are taken care of. But in California, simply creating a trust is not enough. Funding the trust is one of the most overlooked yet critical steps in estate planning. Failing to do so can unravel even the most well-drafted plan, which can leave your estate vulnerable to probate, delays, expenses, and confusion.

What Does “Funding a Trust” Mean?

Funding a trust refers to the process of transferring ownership of your assets—such as real estate, bank accounts, business interests, and personal property, into the name of your trust. This means changing titles, deeds, and account ownerships to reflect that the trust is now the legal owner.

Many people mistakenly believe that after the trust document is signed, they’re finished. In reality, without funding the trust, it can be like building a safe but never putting anything inside it.

The Consequences of an Unfunded Trust

1. Assets May Go Through Probate

The primary reason many people establish a trust can be to avoid probate, a time-consuming and expensive court process that can take months or even years. If assets are not properly titled in the name of the trust, they are still considered part of your estate and must go through probate upon your death. This not only undermines the purpose of your trust but also burdens your beneficiaries with unnecessary legal fees and delays.

2. Your Wishes Might Not Be Honored

An unfunded trust may not control your estate as you intended. For example, if you included detailed instructions in the trust about how to distribute your real estate or business, but you never transferred those assets into the trust, those instructions could be ignored. The court will likely follow California’s intestate succession laws instead, which may not align with your wishes.

3. Increased Legal Costs and Confusion for Your Heirs

Without a properly funded trust, your loved ones may face legal challenges trying to transfer assets after your death. Your executor or successor trustee may need to go to court to petition for authority to move assets into the trust after the fact—a costly and time-consuming process. This is known as a Heggstad petition in California, and while it can sometimes resolve the issue, it’s not guaranteed to be successful and often requires additional legal fees.

4. Potential Tax Consequences

Improperly titled assets may also create tax problems. If you intended to take advantage of certain tax planning strategies within the trust but didn’t fund it correctly, your estate could miss out on key tax exemptions or benefits. This could mean a larger tax bill for your beneficiaries or the loss of other protections.

5. Loss of Privacy

One major benefit of a trust is the privacy it offers. Unlike a will, which becomes a matter of public record when filed with the probate court, a trust remains private—but only if it’s properly funded. If your assets end up in probate, your estate becomes public information, and your family’s financial affairs could be exposed.

How to Make Sure Your Trust is Funded

Funding a trust isn’t a one-time task—it’s an ongoing process. Here are some key steps:

• Real estate: Execute and record new deeds transferring title from your name to the trust.
  
• Bank accounts and investment accounts: Update account titles and beneficiaries as needed.
  
• Personal property: Use a general assignment document to transfer tangible personal property.
  
• Business interests: Update ownership documents or corporate records to reflect the trust as the new owner.
  
• Beneficiary designations: Coordinate life insurance and retirement account beneficiaries with your overall estate plan.
  

At Cannon Legal Firm, we specialize in guiding California residents through every step of the estate planning process—including ensuring your trust is fully funded and effective. If you’re unsure whether your trust is properly funded or if you need help creating one, we’re here to help.

Contact us today for a free consultation and protect the future you’ve worked so hard to build.