Why Your Texas Trust Won’t Work Unless You Fund It

Creating a trust is one of the most powerful tools in estate planning. A properly prepared trust can avoid probate, streamline asset transfers, and protect your family from unnecessary expense and delay. But there’s one common mistake that prevents many families from receiving these benefits: failure to fund the trust.

What Does It Mean to “Fund” a Trust?

When we say “funding a trust,” we’re talking about the process of transferring assets into the trust. A trust is not automatically in control of your property just because you signed the trust agreement. Instead, assets must be retitled in the name of the trust or otherwise designated to the trust.

For example:

• A house must be deeded from your individual name into the name of the trustee of your trust.
• Bank accounts must be retitled in the trust’s name.
• Beneficiary designations on life insurance or retirement accounts may need to list the trust as a primary or contingent beneficiary.

Until this step is complete, your trust may exist on paper but won’t actually control your assets.

The Vehicle Analogy: Why Funding Matters

Think of your trust as a vehicle—let’s say a brightly painted VW bus. It’s designed to carry your family’s assets safely from Point A (your lifetime) to Point B (your beneficiaries after you pass away).

But here’s the catch: the bus only works if you actually put your passengers (your assets) inside. If your house, bank accounts, or investments never get on the bus, they can’t make the trip. Instead, they’ll be left standing on the curb—and your loved ones may have to go through probate court just to pick them up later.

Imagine a colorful bus filled with happy passengers (your properly titled assets), driving smoothly down the road. But on the sidewalk, a few confused people are left behind (the assets you forgot to transfer). That’s what happens with an unfunded or partially funded trust.

The Reality: Partially Funded Trusts Still Require Probate

Too often, clients come to my office with a beautifully prepared trust but only a handful of assets actually transferred into it. The rest remain in their individual names. When that person passes away, the trust may govern some property—but everything outside the trust must still go through probate.

This defeats the primary reason most people create a trust in the first place: to avoid the court-supervised probate process.

Trusts Do Not Automatically Control Beneficiary Designations or Real Estate

Another common misunderstanding is the belief that once a trust is signed, it automatically governs all assets. Unfortunately, that is not the case.

• Beneficiary Designations – Life insurance, retirement accounts, and payable-on-death (POD) accounts only go to the trust if the trust is specifically named as the beneficiary.
• Real Estate – Property deeds must be formally transferred into the trust. Simply creating the trust does not change title ownership.

Remember: a trust is a contract. Officially called a Trust Agreement, it states that assets are held by a trustee for the benefit of one or more beneficiaries, pursuant to the terms of that agreement. Until you legally transfer your property to the trustee, the contract doesn’t control it.

A Critical Titling Detail

When transferring assets into your trust, it’s important to title them correctly.

⚠️ Callout: Assets should never be transferred simply into the name of the trustee as an individual. Instead, they must be titled to the trustee as trustee of the [Name of Trust], dated [Date].

Example: John Smith, Trustee of the Smith Family Living Trust dated January 1, 2023.

This ensures that the asset is legally owned by the trust and governed by the trust agreement.

Final Thoughts

Creating a trust is only step one. The real power of a trust comes when it is properly funded. Without funding, your trust may look impressive, but it won’t achieve its purpose.

At the Law Office of Laura Vale, PLLC, we help clients not only design their trusts but also complete the crucial step of funding them—so that every “passenger” makes it onto the bus and arrives safely at their intended destination.

If you’d like to review your estate plan or ensure your trust is fully funded, call us today at 210-588-9881 to schedule a consultation.