I know what a Last Will and Testament is; but, what the heck is a Pour-Over Will? It's a great question that we often get asked. It's also one around which a great deal of confusion exists. Let's sort it out.
Pour-Over Wills Work with Trusts
Pour-Over Wills work in conjunction with a Trust – be they Revocable Living Trusts (the most common) or Irrevocable Trusts. Does that mean that you need both a Trust and a Will? Probably. Let's make sure we know the difference between a Trust and a Will.
A Will is a legal document that specifies where your assets go upon your death. It can name specific tangible assets and assign them to whom you want them to go. Or it can describe a class of assets or a group of assets and define how they are to be disposed of when you pass. The person who oversees this process is your personal representative (sometimes referred to as an executor). The document that guides them is your Will. And the whole process is overseen by the court. That's called probate.
A Trust is created before you die and is governed by and defined in a trust document. The most typical type of Trust is a Revocable Living Trust. In this case, you are the grantor or creator of the Trust and you also control the Trust during your lifetime as its trustee. Your Trust document, among other things, says where do the assets go that are in the Trust upon your death. The Trust is managed by the grantor/trustee or the successor trustee if the previous trustee is incapable of administering the Trust or passes away. The administration of the Trust is not overseen by the court. In other words, there is no probate.
Funding the Trust and the Role of the Pour-Over Will
One of the most important aspects of a Trust is that it has to be funded. In other words, the Trust document creates a legal entity called the Trust. The grantor (you) must transfer assets into the Trust prior to your death in order for the Trust to be funded. Assets are typically retitled in the name of the Trust as the mechanism for funding the trust. Or else, in the case of some funds or assets that have a beneficiary, the Trust is named as the beneficiary. Thus, in the case of the Trust, all of the assets it is intended to control are moved into and titled in the name of the Trust before the grantor passes away. Then the successor trustee just follows the directions in the Trust document to determine where the assets are distributed. In a Will, the personal representative must obtain legal authority to disperse the assets in accordance with the Will from the court as part of the probate process. In some sense, the hard work is done with a Trust before the person dies and with a Will after the person dies.
So then, what role does the Pour-Over Will play? A companion pour-over Will transfers any assets that the deceased owned at the time of their passing that was not already titled in the name of the Trust to that Trust to be distributed in accordance with the trust document. In essence, it “pours over” any assets not otherwise accounted for into the Trust. So it is protection for anything that the grantor forgot to add to the trust or that they might have acquired prior to their death that they hadn't gotten around to retitling in the name of the Trust. It can also provide protection to ensure that the assets intended to be funded into the Trust are distributed to the proper beneficiary should the Trust be declared invalid by a court.
One of the big estate planning mistakes that people make is creating the Trust (by executing the trust document a legal entity is created) and then not funding the Trust. It's like having the world's most secure treasure chest and not putting anything into it. It's empty. So it's vitally important that the Trust get funded and this can be a bit cumbersome or time-consuming. But generally, it is pretty straight forward. And a pour-over Will can act as a backstop or insurance to make sure that the intent ic carried out and an unfunded Trust gets funded. But you wouldn't want to rely solely on the pour-over Will to do that. It's just a safety net – an important part of the Trust based approach to estate planning to be sure.
If you are ready to safeguard your assets and take care of your loved ones, start by calling our office in at 301-315-0811 to schedule an appointment!