You’re probably familiar with wills and trusts as the essential tools to pass assets on to their loved ones at death.
But you may not be familiar with a pour-over will, which is commonly used alongside a living trust.
A pour-over will adds peace of mind to your trust-based estate plan. Suppose you haven’t transferred certain accounts and property into a living trust during your lifetime or failed to designate the trust or anyone else as a beneficiary at your death. In that case, a pour-over will ensures those assets end up in the trust after you die.
If you don’t set up a pour-over will, any money or property that isn’t set to pass to the trust or other beneficiaries at your death could be treated as though you died without a will. It will pass to your heirs under the default laws of your state.
What is a Pour-Over Will?
A pour-over will works alongside a trust. Ideally, you would transfer all of your assets into the living trust while you’re still alive. But that doesn’t always happen - you’re constantly acquiring new assets, so you might forget or not have time to transfer them to your trust before you die. Without a will, when you pass away, your accounts and property will be distributed according to state law - which could end up being very different from how you wanted them to be distributed.
Think of a pour-over will like a safety net, capturing assets you didn’t transfer to your trust before you died.
How Does a Pour-Over Will Work?
There are four parties involved in a pour-over will and the related trust:
The testator (the person who creates the will)
The beneficiary (the person or entity who receives the accounts and property that are owned solely by the testator when they die)
The executor or personal representative (the person who carries out the testator’s wishes as stated in their will)
The trustee (the person who controls trust accounts and property)
You (the testator) name a beneficiary when you create a pour-over will. The beneficiary receives any accounts and property that you own in your name alone at the time of your death. This person is usually the trustee of your living trust. They may also serve in the triple roles of the beneficiary under your will, trustee of your trust, and executor.
However, if the beneficiary and the trustee are the same person, your pour-over will must be drafted carefully. Referring to the trustee by name and not as your trust’s formal trustee could result in your accounts and property passing to them as an individual instead of to the trust.
You will also name an executor of your pour-over will. The executor is legally responsible for ensuring your accounts and property are owned by the trust per the instructions in the will.
If these distinctions are confusing, think of a chain of command: you are telling your will’s executor to move your accounts and property into the trust at your death. From there, the trustee is in charge and controls the distribution of the accounts and property as the trust now owns them. Again, the executor and the trustee could be the same person, but they do not have to be. You can split these roles among different people to create checks and balances in the chain of command so that one individual does not control the entire asset transfer process.
Will a Pour-Over Will Avoid Probate?
Probate is the court-supervised proceeding when a court oversees the transfer of your assets to beneficiaries. Only accounts and property owned solely in your name at your death are subject to probate; trust accounts and property are not. So even though a pour-over will directs that accounts and property become trust accounts and property, the “leftover” accounts and property that you didn’t get around to transferring to the trust are subject to probate. In other words, they don’t pour over to the trust until probate is complete. This can mean that beneficiaries have to wait longer to receive their trust distributions.
On the plus side, since the accounts and property that pass through probate on the way to becoming trust accounts and property are likely to be of relatively low value, the estate may qualify for small estate probate, which is generally faster, simpler, and less expensive than standard probate. The threshold value that qualifies an estate as small varies by state, and some states also allow small estates to skip the probate process altogether.
Trusts should be updated regularly. But life happens, and certain assets might not make it in. That’s why a pour-over will can be a valuable addition to a living trust that acts as a safety device to protect your beneficiaries.
Our estate planning attorneys can help you create a living trust and a pour-over will to accompany it.
We can also discuss other trust and will options that might be better for you. Schedule a consultation by calling Santaella Legal Group, serving San Ramon, Danville, Dublin, Pleasanton & the Tri-Valley area, at (925) 831-4840.