When you create a living trust, you also sign a pour-over will. One of the main benefits of a trust is avoiding a court proceeding on death called probate, which is when wills are used. If you are trying to avoid probate, it may seem counterintuitive to also sign a will. On the contrary, the pour-over will is essential for proper planning.
If you die with assets in your name alone, those assets go through probate. The pour-over will names the trust as the beneficiary of probate assets so that the trust controls who receives the inheritance. The pour-over will is a backup plan to the trust. The pour-over also revokes past wills and codicils.
Living trusts became more prevalent after a 1991 AARP study concluded most families should be using trusts rather than wills, and that wills were obsolete. Trusts were no longer just for the super wealthy. Middle class people started using trusts versus wills to save time and money, avoid “will contests” among family members, and keep financial and personal affairs private. Wills in probate are public documents that anyone may review.
Even a simple probate lasts about a year before the beneficiaries receive the inheritance. A trust may be settled in months. Regarding the cost of probate, it is estimated you may save between 2 and 4 percent of settling the estate by using a trust instead of a will. When a will is probated, certain family members must get notice, allowing them to contest the will. With trusts, no one receives notice, which helps avoid the cost, delay and aggravation of will contests.
It is not that the will is a bad thing. Rather, it is a specific legal document used in probate court with all its laws, rules and regulations.
King Henry VIII of England (the one with all the wives) invented wills almost 500 years ago. Yet most people still think wills are the preferred estate planning document, unaware of the government oversight and potential complications of probating a will. Most people mistakenly think wills avoid probate court when instead wills are exclusively used in probate court.
In addition to living trusts, there are two other ways to avoid probate on death. First, when you add a beneficiary to assets such as a bank account, IRA or stock fund, those assets transfer to the beneficiaries directly. Second, when you own assets “jointly with the right of survivorship,” also referred to as JTWROS, with others, your ownership interest transfers directly to the other owners.
Although the goal is to avoid probate and the use of a will when you have a living trust, a pour-over will is an essential part of a comprehensive elder law estate plan to ensure the trust is the main estate planning document.
Bonnie Kraham is an attorney practicing elder law estate planning with Ettinger Law Firm, 75 Crystal Run Road, Middletown. She can be reached at 845-692-8700, ext. 119, or at firstname.lastname@example.org. This column is intended to provide general information, not legal advice.