1. The signed, unfunded trust
The most common and most expensive mistake is signing the trust and never funding it. A revocable living trust created to avoid probate avoids nothing for any asset still titled in your own name at death — those assets pass through probate exactly as if the trust did not exist, and the document’s careful instructions govern an empty container. The trust works only for what it owns, and an unfunded trust owns nothing. 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 or 401(k) is individually owned by law; assigning ownership of one to a trust during life is treated as a complete distribution, and the entire account balance becomes taxable income in that year. A six-figure account can generate a six-figure tax bill from a single well-intentioned retitling. Retirement accounts pass by beneficiary designation; whether to name a trust as the beneficiary is a separate, deliberate decision with its own rules, not something to do by retitling.
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.” They will not. The IRS confirmed in Rev. Rul. 2023-2 that assets held in an irrevocable grantor trust that are not included in the grantor’s gross estate receive no basis step-up at the grantor’s death — the basis carries over unchanged, and the heirs inherit the full unrealized capital gain. Grantor-trust status for income tax and estate inclusion for the step-up are two different tests (IRC § 1014); an asset can flunk the second while passing the first.
4. The deed prepared but never recorded
A deed transferring real estate to the trust is only effective when it is recorded with the county. A signed deed that never reaches the land records leaves 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 override the trust for the assets they cover. An old designation naming an ex-spouse, or a POD instruction that contradicts the trust’s plan, will control at death no matter what the trust document says. 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-step-up limitation for irrevocable grantor trusts is Rev. Rul. 2023-2, linked to the IRS’s published copy; the step-up statute is IRC § 1014, linked to Cornell’s Legal Information Institute. 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 20, 2026.