In creating an estate plan, you are proactively taking steps to ensure that your assets will be distributed according to your wishes in the event of your death or incapacity.
One tool available to you in estate planning is known as a trust, which we talk about often in this column. There are numerous kinds of trusts. If you wish to maintain control over the assets you place in a trust while you’re alive, you may choose to establish a revocable, or “living” trust – most likely, along with a pour over will.
First, What Is a Living Trust?
A living trust is another estate planning strategy. When you create a living trust, you re-title assets in the trust’s name instead of in your individual name. This might include things like your home, a vacation home, a bank account, or an art collection.
With a living trust, you have the flexibility to modify or dissolve it at any point in your life, unlike some other types of trusts.
How Do Living Trusts Work?
When you place assets into this type of trust, you continue to have access to those assets. You can select a designated individual, called a trustee, who would serve as the manager of your living trust should you pass away or ever become unable to manage your affairs.
For example, you may become incapable of handling your property, finances, and other aspects of your life if you fall ill, suffer from dementia, or endure an injury or accident that renders you unable to communicate. Should you die or become incapacitated, the trustee you have chosen manages the living trust on your behalf, following any terms you have outlined in the trust document.
Assets in your living trust are distributed to your beneficiaries, according to your wishes – typically without having to go through probate. This is often seen as one of the main advantages of a living trust.
For some, depending on your state and the size of your estate, the probate process can last several months to a year or more.
Avoiding probate also means that information about the distribution of your assets to your loved ones is kept private. This could be helpful if you have people in your life from whom you would prefer to shield the details of your estate, such as children from a previous marriage or estranged or combative family members.
However, perhaps you acquired new assets, such as an investment property, a bank account, a car, or valuable furniture or jewelry, after setting up your living trust. You may not have titled those assets in the name of your trust or transferred them to your trust. This is where a pour over will comes in.
What Is a Pour Over Will?
Despite the name that may remind you of a certain slow-drip coffee method, a pour over will is simply a will that instructs your executor to transfer any assets that are not already titled in the name of your trust to your trust when you pass away. In such a scenario, this document ensures that any assets you had not transferred to your existing living trust are directed (or “poured over”) to it.
A pour over will ensures that your assets are ultimately passed on to your chosen beneficiaries as you intended. In addition, information about the distribution of any of your remaining assets, once moved to your living trust, will be kept confidential as part of the trust.
Do Pour Over Wills Mean You Avoid Probate?
While the property controlled by a pour over will eventually goes to your living trust after your death, that does not necessarily mean your family avoids probate. Before your assets are owned by the trust, they may first need to pass through the probate process. The regulations can also vary according to the state; in some states, for example, if your probate property is valued below a specific threshold, it is possible it could pass through probate more quickly.
If you want to avoid the probate process, you must ensure that your living trust has in it all of the assets that you wish to pass on to your beneficiaries. Essentially, a pour over will acts as a kind of backup.
Is It Right for Me?
Living trusts and pour over wills are also not suitable for everyone’s situation. If you are considering this strategy for yourself or have questions about using a pour-over will, it is important to consult with a qualified estate planner in your area.
