Pour-Over Will: Not Your Average Will

What is a pour-over will (and do I need one?)

Wills and trusts are the two basic legal instruments that people use to pass accounts and property on to their loved ones at death. Although a revocable living trust is often used in place of a will, the two 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 adds peace of mind to your trust-based estate plan. If you neglect to transfer any accounts and property into a 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 the trust after you die. If you do not set up a pour-over will to go along with a living trust, any money or property that does not pass to the trust or other beneficiaries at your death and therefore remains outside the trust at the time of your death could be treated as though you had died without a will and will pass to your heirs under the default laws of your state.

What Is a Pour-Over Will?

If your estate plan is based around a living trust, you are probably familiar with the benefits that the trust provides over a standard will. Avoiding probate, reducing attorney’s fees, and providing privacy for you and your loved ones are the primary benefits of using a living trust.

Ideally, you transfer all of 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 (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 in tandem with a living trust, a pour-over will acts like a safety net to capture any accounts and property that you forgot—or did not have time—to place in the trust.

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)

When you create a pour-over will, you (the testator) 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 executor.

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 an executor of your pour-over will. The executor is legally responsible for ensuring that your accounts and property end up being 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 because they are now owned by the trust. 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.

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 beneficiaries. Only accounts and property owned solely in your name at your death are subject to probate; assets titled in the name of the trust are not. Thus, even though a pour-over will directs that accounts and property become trust accounts and property, the “leftover” accounts and property that you did not get around to transferring to the trust are subject to probate. In other words, they do not pour over to the trust until after probate wraps up. This can result in beneficiaries having 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. Some states also allow small estates to skip the probate process altogether.

Trusts should be updated regularly to reflect changing circumstances, 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 that acts as a safety device to protect your beneficiaries. At McDonald Law Firm, our experience estate planning attorney can help you create a living trust and a pour-over will to accompany it. Call Andre O. McDonald, a knowledgeable Howard County, Montgomery County and District of Columbia estate planning, special-needs planning and Medicaid planning attorney, at (443) 741-1088; (301) 941-7809 or (202) 640-2133 to schedule a no obligation consultation so we can explore the different ways, we can help secure your legacy.

DISCLAIMER: THE INFORMATION POSTED ON THIS BLOG IS INTENDED FOR EDUCATIONAL PURPOSES ONLY AND IS NOT INTENDED TO CONVEY LEGAL, INSURANCE OR TAX ADVICE.