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A pour-over will is a form of will that “pours” all remaining assets into a trust upon the death of the maker of the will (the "testator") instead of designating specified individuals to receive bequests (gifts made as part of a trust or will). Then, the assets are apportioned among the trust’s designated beneficiaries. Because any assets that are unaccounted for in the will are automatically transferred into a living trust, pour-over wills are a useful way to ensure that all your assets are transferred to a beneficiary.
To create a pour-over will, the following sequence must be followed in your estate plan:
A pour-over will is a legal document that works in conjunction with a previously-established living trust. The living trust must be created prior to establishing the pour-over will. The documents will be created separately, because the pour-over will ensures that any remaining assets after probate is complete will automatically transfer into the living trust upon the death of the testator. Therefore, the pour-over will relies upon the terms set for the living trust. For example, the pour-over will designates the trust as the beneficiary of the pour-over assets and from the trust, the successor trustee will distribute the assets in accordance with the terms of the trust.
The primary difference between a standard will and a pour-over will is that a standard will is written to handle distributing the entirety of an estate. It includes specific provisions regarding how the assets are to be distributed. In contrast, a pour-over will simply moves any unaccounted-for and remaining assets into a living trust, and it makes no declaration as to how these assets are to be distributed. Instead, the pour-over will relies on the living trust to distribute the assets to the beneficiaries.
A pour-over will is most suitable for individuals that are:
A living trust must be established before creating a valid pour-over will. There are several considerations necessary when creating a living trust, mainly:
After the living trust has been created, the testator of the will needs to name the trustee of the living trust as the beneficiary of the pour-over will. The language must be drafted carefully. If it’s not done correctly, then the assets could be transferred directly to the trustee as an individual instead of to the actual living trust. An example provision could be written as:
I give, devise, and bequeath all the rest, residue, and remainder of my estate to the Trustee under that Trust Agreement executed [on date] by me as Settlor and Trustee, as it may hereafter be amended or restated, to be held, administered, and disposed of according to the terms of that Trust Agreement.
In addition, the testator will need to name an executor for the pour-over will itself. This executor will be responsible for administering the terms of the actual will. For example, this executor will be responsible for transferring all of the remaining assets to the living trust.
Probate is a legal process that must be completed when assets are left by someone who has died so that the assets are distributed correctly to heirs. In the context of a pour-over will, probate is the administration of the pour-over will. The probate process is carried out by the person named as the executor of the will. The will executor must file the will in probate court, collect and inventory the remaining assets, and transfer them to the designated trust.
Pour-Over Wills will not avoid probate because the assets are not yet in the trust. The probate process transfers those assets over to the trust. Meanwhile, the pour-over will does provide privacy as to the trust assets, descriptions and their values once those assets and the property passes into the trust because those are not public record.
As with wills, there are many different ways to create trusts, but trusts are either revocable or irrevocable living trusts. The type of trust is a very personal decision and depends highly on the specific circumstances. Pour-over wills can work with either a revocable or irrevocable trust. People with high net-worth estates may wish to utilize irrevocable trusts in order to avoid higher tax burdens, while others may wish to take advantage of revocable trusts to maintain more control over their assets.
Revocable living trusts allow the creator to amend the trust, change assets or beneficiaries, and revoke it entirely during the creator’s lifetime. Thus, revocable trusts allow the creator to maintain control over his or her valuable assets and valuable property within, and trust beneficiaries to, the trust during the creator’s lifetime.
Assets covered in a revocable trust also do not need to go through probate, which can save the beneficiaries time and money. However, assets in a revocable trust are still subject to income and/or estate taxes and are not protected from creditors.
As the name might suggest, an irrevocable trust is not as easily modified as a revocable trust. Transferring assets into an irrevocable trust means the creator of the trust no longer has any control over the assets.
An irrevocable trust can be designed to provide taxation protection for assets within the trust, which can be a useful planning tool for assets with high appreciation rates. And unlike revocable trusts, irrevocable trusts are protected from creditors.
It’s usually fairly simple to identify if a pour-over will is the correct one to use, but it can get a little trickier to make sure it is drafted correctly in conjunction with the trust. It makes sense to invest in a pour-over will that has been reviewed by an estate planning attorney and to customize it to your needs.
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