Most people use wills and trusts to pass accounts and property to their loved ones upon their death. These basic legal instruments can be used separately or together. For example, a revocable living trust can be used in place of a will, but the two are not mutually exclusive. A special type of will known as a pour-over will is commonly used along with a revocable living trust.
Examples of situations in which a pour-over will is very helpful:
- When a trust creator (grantor) forgets to transfer a piece of property or an account to their living trust before they die.
- When a grantor fails to designate the trust or another beneficiary as the recipient of property and accounts.
A pour-over will states that any property or assets that have not been funded into your revocable living trust should go there upon your death. Without a pour-over will, any property, money, or accounts that do not pass to your revocable living trust or beneficiaries at your death will be treated as though you had died without a Last Will and Testament and will be subject to the default laws in your state.
What is a pour-over will?
Many people opt to use a reversible living trust for the added protection it provides, such as
- Avoiding probate
- Reducing attorney’s fees and court costs
- Providing privacy
Ideally, you would transfer all your property, accounts, and other assets into your living trust while you are still alive. You change the ownership of your property, accounts, money, life insurance, and retirement accounts from you as an individual to you as the trustee of your revocable living trust.
While the trust is a legal entity separate from your estate, you will probably name yourself as the beneficiary of your trust. You will continue to use and enjoy your assets as you always have.
Any assets or property not in your trust will continue to be owned by you as an individual. If you don’t have a Last Will and Testament, property and accounts you own as an individual will be distributed according to state law. Unfortunately, there is no guarantee that your property and accounts will be distributed to the people you intended to receive them.
A pour-over will keeps this from happening. Your pour-over will names your revocable living trust as your beneficiary. Any property or assets that you forgot to transfer to your living trust will be moved there upon your death.
How does a pour-over will work?
A pour-over will and a living trust work together to provide a safety net to ensure your property and assets are distributed as you intended.
The parties involved in the process include:
- The testator: This is the person who creates the will.
- The beneficiary: The person or people who will receive the property and accounts owned solely by the testator when they die.
- The executor or personal representative: This person carries out the testator’s wishes as they are stated in their Last Will and Testament.
- The trustee: This person controls the accounts and property in the revocable living trust.
The same person can serve as the beneficiary under your Last Will and Testament, the trustee of your trust, and the executor of your will. When you create a pour-over will, you will name a beneficiary to receive all accounts and property you own in your name alone. This person is commonly also the trustee of your trust.
If the beneficiary and trustee are the same person, it is essential to refer to your trustee by name and not as your trust’s formal trustee. If you don’t, your property and accounts could pass to them as an individual and not to the trust. The executor of your pour-over will ensures that your property and accounts end up being owned by the trust as per the instructions in your will.
Does a pour-over will help you avoid the probate process?
Probate is a court-supervised process to distribute your property and accounts to your beneficiaries. Many people use trusts to avoid this costly, time-consuming, and public process.
All property and accounts that have been funded to the trust will avoid probate. However, property and accounts that have not been moved to the trust will need to go through probate first and will get funded to the trust only when that process is complete. Unfortunately, this means that the beneficiaries will need to wait to receive their trust distributions.
Since the property and accounts not funded to the trust are more likely to be lower-value items that are more easily neglected, your estate may qualify for small estate probate. This process is typically faster, simpler, and less expensive than standard probate. The threshold for using a small estate probate court varies from state to state.
Ideally, all your property and accounts will be transferred into your living trust during your lifetime. If not, a pour-over will can provide an extra layer of protection. You can change your revocable living trust as long as you are mentally competent. Try to be in the habit of reviewing your property and accounts yearly to ensure they are funded into your trust. Our estate planning attorneys can help you with your trust and pour-over will.