For the savvy investor looking to create a watertight estate plan, the pour-over will may be the perfect addition to a living trust. Named after the fact that it “pours” all a decedent’s remaining assets into the living trust, a pour-over will can be an effective estate planning strategy worth looking into.
So ... Let's look into it!
A pour-over will is a standard will form stating that whatever has not been put into the trust when you die should be moved into the trust and distributed per the terms of the trust. Essentially, a pour-over will makes the living trust the sole vehicle for passing assets to whomever you named as beneficiary of the trust. With it, your living trust can be the sole mechanism for handling your estate if you pass away.
Note: A pour-over will and a last will and testament are the same thing if the will names the living trust as the beneficiary. Doing this "pours over" the assets into that living trust. To put it another way, when the document called "last will and testament" names the living trust as the beneficiary, you have a pour-over will.
A pour-over will enables the living trust to make a smooth transfer of assets. The key advantage is that none of your assets will have to be settled according to the intestate laws of the state. “Intestate” simply means you pass away without having a legal document to determine how your estate and assets should be divided. How your estate is controlled and divided up your estate will depend on legal procedures (probate), rather than your wishes.
Estate administration is always handled by the executor/personal representative of the estate named in the will. Probate comes into play when the beneficiary of the will is not the living trust.
A probate court has the jurisdiction to “probate” wills, handling conservatorship and estate administration.
Probate is no fun for your heirs, trust us. However, with a pour-over will guiding the process, things tend to be much cleaner, simpler and faster.
Understanding pour-over wills starts with understanding living trusts. A revocable living trust is an estate planning tool that lets you transfer legal ownership of your assets to the trust while retaining control during your lifetime. Similar to a will, the trust has a nominated beneficiary (or beneficiaries) to receive your assets when you pass away.
However, a living trust offers substantial benefits over a will as an estate planning tool.
Unlike a will, a living trust enables asset transfers to be a completely private affair. Living trusts are easier than wills to modify and more difficult to contest. Also, a living trust can be set up to stipulate what happens to your property should you become incapable of managing it yourself.
With a pour-over will, you can ensure that your living trust is the only method by which your assets are transferred to your chosen beneficiaries. That said, you may choose to leave life insurance policies (and occasionally brokerage accounts) outside of the living trust. A life insurance policy can have its own beneficiary designated and not be connected to the living trust. So there ARE ways to pass assets outside of the living trust.
Any property not owned by a living trust is distributed by the existing will, if there is one. If there is no will, this is called intestate succession. Intestate succession means that transfer of assets is governed by the intestacy laws of the state.
Again, we’re talking about probate. And as we alluded to already, probate is often a long and arduous process that can take more than a year for your bereaved loved ones to deal with.
Some states have complicated intestacy laws, meaning that a transfer of assets involves complex legal proceedings. Furthermore, probate can be messy if you own real estate or other assets across multiple states.
Having a pour-over will relieve you of the stress of needing to continually update your living trust. When you transfer an asset into your living trust you change the ownership of the asset. The pour-over will simply transfers any assets not already owned by the trust into it when you die. An example of this would be the money in your personal bank account.
Here’s a fairly typical scenario that may help you get the picture.
Say a husband and wife wish to leave their assets to their children and grandchildren. Although they have set up a living trust to which they have transferred their assets, they later purchase rental property (or any other type of real estate) and hold the title in their name.
With a pour-over will, that investment real estate will be transferred to the living trust in the event of their deaths. Subsequently, everything will be distributed according to the trust without going through any red tape or court proceedings.
If you are a real estate investor, it is worth updating your estate plan whenever you acquire new investment properties. An attorney can establish the living trust and pour-over will to ensure the seamless transition of assets without the need for probate court. A new home of any kind can drive up your estate’s value, but fortunately asset protection strategies (including titling property to a land trust) may help prevent legal issues and ensure a smooth and seamless transition of assets. For those who have already put thought into an estate plan by setting up a revocable living trust, the pour-over will is the addition needed to make it as watertight as possible.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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