1. The signed, unfunded trust
A common and expensive mistake is signing the trust and never funding it. A revocable living trust created to avoid probate avoids nothing for an asset still titled in your own name at death — that asset passes through probate exactly as if the trust did not exist, and the document’s careful instructions govern an empty container. Assets that pass by joint ownership, beneficiary designation, or contract follow their own path instead, and a trust also controls property validly made payable to it; but the trust works for the property it owns or is payable to it, and an unfunded trust holds neither. This is not a rare oversight; it is the default outcome unless someone deliberately does the retitling described in the titling guide.
2. Retitling a retirement account into the trust
The mirror-image mistake is funding too much — sweeping a retirement account into the trust along with everything else. An IRA is individually owned, and assigning one to a trust during life can be treated as a distribution — potentially making the whole balance taxable that year (IRC § 408 contemplates an IRA owned by an individual; Treas. Reg. § 1.408-4). A six-figure account can generate a six-figure tax bill from a single well-intentioned retitling. Employer plans such as 401(k)s are governed by their own plan terms and federal anti-alienation and spousal-rights rules (29 U.S.C. §§ 1055, 1056(d)), so they are handled separately, not under one uniform rule. Do not retitle or assign an IRA or employer plan without account-specific advice. Beneficiary forms usually control under the governing plan or contract, but spousal rights, QDROs, waivers, disclaimers, slayer rules, divorce-revocation rules, and federal preemption can alter the result.
3. Giving away the basis step-up for nothing
This one is subtle and increasingly common as more families use irrevocable grantor trusts. The instinct is: “I’m the grantor and I’m taxed on the trust’s income, so my heirs will get a step-up.” That does not follow. Rev. Rul. 2023-2 confirms that property in an irrevocable grantor trust that is not acquired or passed from the grantor under IRC § 1014(b), and is not included in the grantor’s gross estate, does not receive a date-of-death basis adjustment merely because the trust is a grantor trust — the basis carries over unchanged, and the heirs inherit the full unrealized capital gain. Other irrevocable-trust assets may have different results under IRC §§ 1014 and 2036–2038: grantor-trust status for income tax and gross-estate inclusion for the basis adjustment are two different tests, and an asset can flunk the second while passing the first.
4. The deed prepared but never recorded
An unrecorded deed can create serious title, proof, priority, and insurability problems and may be ineffective against later purchasers or lienholders. Because execution, delivery, acceptance, and recording requirements vary by state, have the deed prepared and recorded promptly under local law rather than assume that recording universally determines validity between the parties. A signed deed that never reaches the land records can leave the property titled in your name — unfunded, and headed for probate — while everyone believes it was handled. Confirm each deed was actually recorded, and keep the recorded copy; a draft in the lawyer’s file is not a funded asset.
5. Beneficiary forms that fight the trust
Beneficiary designations and payable-on-death registrations usually control the assets they cover, ahead of the trust. An old designation naming an ex-spouse, or a POD instruction that contradicts the trust’s plan, will often control at death regardless of what the trust document says — though spousal rights, QDROs, waivers, disclaimers, slayer rules, divorce-revocation statutes, and federal preemption can change that result. Funding is not only about moving assets in; it is about making sure the assets that pass by designation are pointed consistently with the plan. Review every beneficiary form when the trust is funded, and again after every major life change.
A funding checklist
Print this and work down it with your own statement of assets. It collects nothing and asks for nothing — it is a worksheet, not a form.
Trust-funding checklist
- Real estate: new deed prepared, signed, and recorded with the county for each property — recorded copy kept.
- Due-on-sale and transfer-tax rules checked before recording each deed.
- Bank and non-retirement brokerage accounts re-registered in the trust’s name; linked transfers updated.
- Business interests assigned to the trust, consistent with the operating/shareholder agreement and S-corp eligibility.
- Retirement accounts not retitled into the trust — beneficiary designations reviewed instead.
- Deferred annuities: ownership and beneficiary reviewed against § 72(u) and § 72(s) before any change.
- Life insurance owner/beneficiary reviewed (and the three-year rule considered for any policy transfer).
- Every beneficiary and POD/TOD form checked for consistency with the trust.
- For any asset moved into an irrevocable trust: gift-tax reporting and the basis-step-up consequence (Rev. Rul. 2023-2) considered.
- A written schedule of what is — and is not — funded, kept with the trust document and reviewed periodically.
Educational worksheet only — not legal or tax advice, and not a substitute for a review of your own facts by a qualified professional.
Sources & methodology
Methodology & sources
The basis-adjustment limitation for irrevocable grantor trusts is Rev. Rul. 2023-2, 2023-16 I.R.B. 658, linked to the IRS’s published copy; the governing statutes are IRC §§ 1014 and 2035–2038, with statutory links pointing to the official government source rather than an unofficial mirror. Retirement-account treatment turns on IRC § 408 and Treas. Reg. § 1.408-4 for IRAs and on the federal spousal-rights and anti-alienation rules of 29 U.S.C. §§ 1055 and 1056(d) for employer plans. The § 72(u) and § 72(s) annuity rules are covered in full on the annuities-in-trust and trust-as-beneficiary pages. This page is re-verified at least annually and on any reported change in law — see our editorial standards.
This page is educational and is not legal or tax advice. Which of these mistakes applies to you depends on your assets and your trust; use the checklist to find the questions worth asking a qualified advisor.
Last verified July 29, 2026.
Corrections & updates
- — Legal-accuracy corrections applied and verified against official primary sources (Wave E-1 correction pass): removed the incorrect universal rule that a deed is effective only when recorded and described the real title, priority, and insurability risks of an unrecorded deed under local law; distinguished IRAs from employer plans and qualified beneficiary-form priority for spousal rights, QDROs, disclaimers, slayer and divorce-revocation rules, and federal preemption; and narrowed the Rev. Rul. 2023-2 basis point to trust property outside IRC § 1014(b) and the grantor's gross estate, noting other assets turn on IRC §§ 1014 and 2036–2038. Statutory links repointed to official government sources.
- — Re-review pass: deleted the superseded universal statement that assets left out of a trust must pass through probate — the sentence now carves out property that passes by joint ownership, beneficiary designation, or contract, and the 'most common and most expensive' superlative was softened.
- — Reviewer attribution activated (Evan Miller, Esq., Florida Bar No. 112646) and the page-level and related-card verification dates refreshed to July 29, 2026, per the signed Final URL Approval Memorandum.