Deciding to use a trust to distribute most or all their estate assets is a common choice my clients make as their assets and families grow. One thing I stress to clients when making the change to a trust for asset distribution is the importance of adding a “Pour Over Will” to their estate plans when they incorporate the trust into their comprehensive plans. For those of you contemplating the use of a trust to distribute your estate assets, let me explain why you also need a Pour Over Will in your estate plan.
Last Will and Testament Basics
A Last Will and Testament is a legal document that lets the Testator (the creator of the Will) make specific and/or general gifts of estate assets to beneficiaries with the gifts being honored at the time of the Testator’s death. The Testator can distribute all or some of his or her estate via bequests made in a Will. The Testator also appoints a Personal Representative, (called an Executor in some states), in the Will. The Personal Representative is responsible for overseeing the probate of the estate after the Testator’s death. For parents with minor children, a Will also provides for the nomination of a Guardian for the child(ren) if one is ever needed. A Last Will and Testament can act as your entire estate plan; however, people often decide that more sophisticated estate planning tools and strategies are necessary as their family grows and their asset structure becomes more complex, or they simply want to avoid the Probate process.
Trust Basics
A trust is a legal relationship where one party holds property for the benefit of another. Created by a Settlor (also known as Maker, Grantor or Trustor), the trust transfers property to a Trustee, who manages it for the trust’s beneficiaries. Trusts fall into two categories: testamentary and inter-vivos (living trusts). A testamentary trust arises upon the Settlor’s death, usually activated by a Will provision whereas a living trust takes effect once the trust agreement is created and executed. Like a Will, a trust can distribute estate assets after death, offering advantages such as:
- Probate Avoidance: Assets in a trust bypass probate and pass directly to beneficiaries.
- Privacy: A Will’s terms become public during probate, but a trust’s terms remain private.
- Protecting Minor Children’s Inheritance: Trusts safeguard a minor child’s inheritance until adulthood.
- Incapacity Planning: Trust terms apply in case of incapacity and death, unlike a Will.
Why Might I Want to Include a Pour Over Will in My Estate Plan?
Like many people, you may have decided to use a revocable living trust to distribute your estate assets instead of relying on a Will. The numerous additional benefits gained by establishing a trust make this a wise choice for many people; however, beware of a common misconception that could lead you to believe that a Will becomes unnecessary once you have a trust in place. You may no longer need the complex Will you once used, but you should keep a “Pour Over” Will in your estate plan if you are using a trust as your primary distribution mechanism.
Although the goal of your revocable living trust may be to distribute your entire estate, there is a good chance that some assets will remain outside the trust at the time of your death. Personal items, vehicles, less valuable assets, everyday bank accounts, and even valuable assets acquired just before death might inadvertently be left out of the trust. If that happens, these unaccounted-for assets will effectively create a separate, intestate estate that requires probate, contrary to one of the goals that prompted you to create the trust in the first place.
As the name implies, a Pour-Over Will “pours over” assets left outside of the trust into the trust after your death. Essentially, a Pour-Over Will serves as a “catch-all” tool, backing up your primary revocable living trust, to ensure that all assets are distributed through the trust and without the need for probate, even those assets that were not actually titled in the name of the trust.
Do You Have Additional Questions About How a Pour Over Will Works?
For more information, please contact our estate planning office in Owings Mills, Maryland by calling 410-654-3850 to schedule an appointment.
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