When considering options for estate planning, the terms used can be confusing: wills, trusts, power of attorney, living will. But one that is not as common is pour-over will. While most people make a choice between a will and a trust, a pour-over will actually works with a trust to make sure that everything that should be in it is in it. Creating a trust is the best option for many people. But creating the trust isn’t the last step.
In order for the trust to be useful at all, it must be funded. That means that whatever assets should be in the trust must be transferred into the trust. But sometimes, for a variety of reasons, all of those assets do not end up in the trust when the person who made the trust dies. Some assets may be forgotten, or sometimes people just drag their feet and don’t get everything into the trust before it is necessary. That’s where the pour-over will comes in. As the name indicates, this type of will pours over into the trust any assets that have been left out.
While a pour-over will isn’t the perfect solution – fully funding your trust is – it is designed to eventually get all of the appropriate assets into your rust. But, just like any other will, it must be probated to properly transfer the assets into your trust, which of course invites contests of the will when notices of probate are sent to the required parties. And filing a contest of the pour-over will may even open up the contents of the trust itself to scrutiny, creating a violation of privacy which is one of the benefits of the trust. So in order to make the best use of the trust, how do you make sure that it is properly funded?
Because the trust must hold title to the assets it contains, those assets must be legally transferred, just as a car title must be transferred to a new owner to make the sale legal. As with many other legal matters, the question of what assets should be transferred into the trust is not always black and white. An asset that is appropriate for one person’s trust may be ill-advised for another. For example, many people transfer their home or other real estate into the trust. If you own the home alone (i.e., there is no other co-owner), it may be advisable to transfer your home into your trust to avoid the cost and trouble of transferring it to some else when you die. But if you already own your home with someone else such as a spouse as a joint tenant, the property should automatically pass to the other person anyway without having to go through probate.
For most trusts, assets like real estate owned in joint tenancy that would transfer outside of probate anyway do not need to be transferred into the trust and can actually complicate the distribution of those assets if they are. Generally, any asset that names a beneficiary should not be transferred into a trust (although there are some trusts that can be set up specifically for these purposes). These include life insurance and retirement accounts such as 401(K)s, IRAs and some annuities. As with most other parts of estate planning, it is not advisable to create or fund a trust without the advice of an experienced estate planning attorney.
Putting the wrong asset into a trust or leaving one out could undo the outcome you want. And properly funding the trust will keep as much of your estate as possible out of the assets in a pour-over will, preventing any complications that the probate of the will could cause.