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Pour Over Will: Definition – Explanation – Example

What Is a Pour-Over Will?

Pour Over WillA Pour Over Will is a special type of last will and testament used in conjunction with a trust-based estate plan. A pour-over will is simply used to direct any assets that have not been funded into your revocable living trust to go there after you die.  It is not used to regulate the transfer of all your property. In other words, it effectively designates your trust as the beneficiary of any property that your trust does not currently own. A pour-over will is a type of last will and testament that acts as a safety net for any assets not given to or included in a living trust. An important part of creating a living trust is that it needs to be properly funded.  This requires that your personal assets must be transferred into the trust and retitled into the trust’s name.

Getting the most out of your living trust’s probate-avoidance benefits requires transferring as many of your assets as possible before you die. However, you’ll most likely continue to acquire more property over your life.  As a result, this necessitates ongoing upkeep. People sometimes forget or don’t have time to transfer new property into their trust before they die away. If you don’t transfer property into your trust before you die, your pour-over will is designed to catch it.  Your will tells the court that you want any remaining property transferred to your trust. It effectively names your trust as the beneficiary of any property it does not already hold.

Funding a living trust initially is usually a straightforward process.  But, sometimes assets don’t always make it to the trust for a variety of reasons. A pour-over will is a legal document that simply ensures an individual’s remaining assets will automatically transfer to a previously established trust.

How a Pour-Over Will Works

Trusts are used in estate planning to avoid probate when transferring assets after the grantor’s death. A pour-over will is a type of will that is used in combination with a living trust.  When it comes time to settle an estate, assets placed in the trust are transferred to beneficiaries according to the grantor’s instructions. A pour-over will protects assets that the grantor hasn’t yet put into the trust before his or her death. If there are no express instructions in a will, the remaining assets will be subject to the rules of intestate succession in the jurisdiction where the person died.

A pour-over will is intended to safeguard against concerns that might otherwise impede a living trust’s smooth operation. It ensures that any assets that a grantor fails to add to the trust will wind up in the trust once the will is executed. For example, consider a trust that becomes invalid, contested, or becomes legally difficult or impossible to fund at the time of the grantor’s death.  The will can provide additional protection against legal issues with the trust.  It does this by stipulating that the assets intended for the trust be distributed to the trust’s beneficiaries.

A Safety Net

In an ideal world, you won’t ever need the Pour-over Will. No one will need to refer to it because all of your assets were transferred to your living trust prior to the time of your death. However, in the worst-case situation, you’ll be happy that it exists.  At the very least, sit down with your trust paperwork on a yearly basis. Check to see whether you’ve bought any new property in the recent 12 months that should be put into the trust. You can then add a provision in your trust agreement if you want a specific beneficiary to receive the new asset upon your death. As long as you’re mentally competent, you can amend your revocable living trust at any time throughout your life.

Revocable and Irrevocable Trusts

Pour-over wills are frequently combined with living trusts.  These trusts compel grantors to transfer assets to them before death.  Once assets are transferred to an irrevocable trust, the trustees have complete power over them. Pour-over wills are suitable for both types of trust.

  • Revocable Trust – Most modest estates employ revocable living trusts, which give grantors authority over the trust’s assets until they die.
  • Irrevocable trusts – These are commonly used by larger estates to decrease the tax burden for beneficiaries, especially if they are subject to an estate tax. Once assets are transferred to an irrevocable trust, the trustees have complete power over them. Pour-over wills are suitable for both types of trust.

Pour-Over Will: Advantages and Disadvantages

Why do you need a will if all it does is transfer property to your trust? For that matter, why do you need a will at all if you’re leaving your property to a living trust? Many estate planners believe that having all of your assets covered by the provisions of just one instrument, the trust document, is a smart idea. This arrangement has a number of benefits.

Pros

  • Simple –  When everything is governed by a single document, the trust, it’s easy to see who receives what. It also makes things easy for the executor and trustee in charge of your inheritance once you pass away.
  • Complete – You’re not going to put all of your assets into a living trust. (There isn’t anyone who does.) A pour-over will is simply in place to catch whatever assets you don’t get around to transferring to the trust before you pass away.
  • Private –  Unlike wills, trusts remain confidential after your death.  They are not accessible to anybody who wants to look at them. This protects the identity of the person who will inherit your property. For example, Michael Jackson was one of several celebrities who wrote a will that simply transferred all of his assets to a trust. When the will was filed with the court, reporters and the inquisitive raced to study it.  However, they learned nothing about who would inherit. (Source: nolo.com)

Cons

  • Probate – The fundamental disadvantage of pour-over wills is that the property that goes through them, like other wills, must go through probate. That implies that any property destined for a living trust may become stuck in probate before the trust can distribute it. This might cause the living trust to languish for months after the will and the trust maker’s death. Property bequeathed directly through a living trust, on the other hand, may normally be delivered to beneficiaries within weeks of the trust maker’s death. (Source: ibid)

Pour-Over Will Example

The majority of John Smythe’s assets and property are currently held in a Living Trust. However, to properly secure himself, his wife, and his children, he also writes a Pour-Over Will.  The will stipulates, “Any assets or property not in my Trust at the time of my death, and are not unambiguously bequeathed to a beneficiary of my Will, should immediately go into my Living Trust.” When Rob dies, his Pour-Over Will is probated, and his remaining property “pours over” to the Trust.  Once transferred, it may be given to the Trust’s beneficiary or beneficiaries as per John’s instructions for the Trust’s distribution.

Frequently Asked Questions

Do assets in a pour-over will avoid probate?

It depends on the state you live in and the applicable probate statutes. In general, anything you don’t transfer to your living trust must go through probate court. The pour-over will is designed to deal with personal, not trust assets.  However, assets held in a trust can be distributed to your beneficiaries without going through the probate process, saving time and money. That’s why it’s important to maintain your trust and promptly transfer any new property into it during your lifetime.

Nevertheless, depending on your state’s probate laws, the assets not transferred to the trust may be subject to probate. For instance, many states require probate for estates that have over a certain dollar amount in assets or any real estate. However, some states also have small estate carve-outs so estates under a certain value do not need to go through probate.

What Should Be Included In A Pour-Over Will?

The pour-over will should be consistent with the trust and may name the trust as a beneficiary. Ensure that naming the trust as the beneficiary has no negative tax implications by discussing your specific situation with a certified public accountant.

Also, know that the pour-over will is only meant to deal with personal, not trust assets. That means that when bequeathing certain assets in a pour-over will, they must not be the trust’s assets as it can create confusion about what is a personal asset and what is a trust asset. In the most simple circumstances, the pour-over will names the trust as the remainder beneficiary and/or the trust’s beneficiaries as remainder beneficiaries in the same percentages as detailed in the trust.

I Have A Revocable Trust, I Thought That Is All I Need?

To avoid probate, you might set up a living trust to make it easier to distribute assets to your heirs. Revocable living trusts are the most common of these trusts. The living trust establishes a separate legal entity that permits the assets of the trust to be dispersed without going through the probate procedure. The living trust has its own assets, which are independent of your personal assets because it is a different legal body. Personal assets must be transferred into the trust via the trust agreement or retitling in order to become trust assets. Personal assets that are not transferred remain personal assets. A pour-over will is designed to catch any missed assets and transfer them to your trust at the time of your death.

Up Next: What Is a Block Trade?

Block TradeA block trade is an agreement between private parties to buy and sell a large number of financial securities outside public financial markets. As a result, block trades are large transactions arranged confidentially and conducted outside of public markets to reduce the impact on the price of the security. For example, hedge funds and institutional investors often conduct them through investment banks and other intermediaries.  Also, high-net-worth accredited investors may be eligible to participate as well.  A block trade is defined by the New York Stock Exchange and the Nasdaq as a transaction involving at least 10,000 shares of stock or a value of more than $200,000.  In reality, the majority of block trades are much larger than these minimums.

Block trading is normally reserved for institutional investors due to the sizeable number of shares that are purchased and sold in a single transaction. These significant transactions can use a private middleman, such as an investment bank or hedge fund, to facilitate the transaction. Block trades may be broken down and further transacted through a number of different middlemen for convenience and faster execution.

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