Wills and trusts are two basic legal instruments used to direct the transfer of assets after someone passes away. A revocable living trust is often referred to as a will substitute, but wills and trusts are not mutually exclusive. You can have both a will and a trust, and in fact, a special kind of will—known as a pour-over will—is commonly used alongside a living trust.
A pour-over will acts as a safety net, to ensure that your assets end up in your trust after you die. If you somehow fail to transfer some account or asset into living trust during your lifetime, or fail to designate the trust or anyone else as a beneficiary at your death, the pour-over will ensures that those assets end up in your trust. Without the pour-over will, if there were some asset or account that was not titled properly into your living trust during your lifetime, probate proceedings may be necessary to transfer the asset to the next beneficiary, as determined by the default laws of your state.
What Is a Pour-Over Will?
For many, a living trust offers benefits over a standard will. Primarily, a living trust plan provides the benefits of avoiding probate, reducing expenses, avoiding unnecessary delays, and providing privacy for you and your loved ones.
Ideally, you transfer all your accounts and property into the living trust while you are still alive by changing ownership from you as an individual to you as the trustee of the living trust or naming the living trust as the beneficiary of items such as life insurance or a retirement account. The trust, in effect, is a legal entity that is separate from your estate and the money and property you own. Since you create the trust while you are alive and you will most likely name yourself as the beneficiary, you will continue to use and enjoy the accounts and property. But if you do not transfer those accounts and property into the trust, they remain owned by you as an individual and are part of your estate. 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 want them to be distributed.
A pour-over will prevents this scenario from happening. The pour-over will names your living trust as the beneficiary, which allows any money or property still owned by you individually at death to be transferred, or poured over, into your living trust upon your death. When used along with a living trust, a pour-over will acts like a safety net to capture any accounts and property that you did not title into your trust properly, things that were overlooked, forgotten, not titled properly, or that you did not have time to deal with.
How Does a Pour-Over Will Work?
There are four parties involved in a pour-over will and the related trust:
- The testator or testatrix (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 or testatrix when they die)
- The personal representative (the person who carries out the testator’s or testatrix’s wishes as stated in their will)
- The trustee (the person who controls trust accounts and property)
When you create a pour-over will, you (the testator or testatrix) name a beneficiary. 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 beneficiary under your will, trustee of your trust, and personal representative.
However, if the beneficiary and the trustee are the same person, your pour-over will must be drafted very 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 a personal representative of your pour-over will. The personal representative is legally responsible for ensuring that your accounts and property end up being owned by the trust according to the instructions in the will.
Does Using a Pour-Over Will Avoid Probate?
Probate is the court-supervised proceeding in which the court oversees the transfer of your accounts and property to the proper beneficiaries. Only accounts and property owned solely in your name at your death are subject to probate; assets titled in the trust are not. So even though a pour-over will directs that accounts and property become trust assets, those assets not already in the trust are subject to probate. The probate process is necessary to pour those assets over to the trust. Even though the pour-over will results in the assets being added to the trust, the probate process and its delays, costs, and publicity are not avoided.
Trusts should be reviewed and updated regularly to reflect change in circumstances and changes in the law, but personal accounts and property might remain outside the trust for a variety of reasons. A pour-over will is a valuable addition to a living trust, acting as a safety device to protect your beneficiaries. To explore the different ways we can help secure your legacy, please schedule an appointment today.