Having a Living Trust as the cornerstone of your estate plan can be advantageous, depending on your particular circumstances and estate planning goals. One notable advantage: A properly structured and funded Living Trust, unlike a Last Will & Testament, is a private document that avoids probate. Probate is the court-supervised process that can drain unnecessary fees from your estate and involve hassles and delays for your family after you pass on.
So when we prepare a Living Trust for our clients, they sometimes find it curious when we advise them that they also need to have a Will! But hold on: We are not talking about a traditional Last Will and Testament. We are talking about a special document called a Pourover Will. A Pourover Will is an essential component of a Living Trust-based estate plan. Read on to learn how it is different from a regular Will, and why it is needed.
Funding Your Living Trust
When you create your Living Trust, it becomes the owner of your assets (except for certain assets that are jointly owned or beneficiary-designated, that you should not place in your Trust). Transferring assets into your Trust is called “funding.” For example, a bank account owned by John Doe would be transferred to “The John Doe Living Trust,” making his Trust, not him personally, the effective owner of the account.
When you pass away, the instructions in your Living Trust tell your successor trustee how Trust assets should be distributed. Just as you planned, the Probate Court will not have to get involved, and your family will avoid the hassles of probate.
The Possibility of Omitted Assets
But suppose for some reason an asset you own that should have been placed in your Trust, was left out? This can occur during your lifetime or after. Here are a few examples of how this might happen:
- You forget about an asset you own. For example, you relocate and forget to transfer a small bank account to your new financial institution. It may seem inconceivable that anyone could forget about money they have, but it is a common occurrence. Just check out the Florida database and national unclaimed money database, which hold billions of dollars in forgotten and unclaimed funds.
- You pre-pay for a vacation but unfortunately, pass away before taking it. The credit card company may issue a refund that ends up in your estate, not your Trust.
- You are a plaintiff or defendant in a lawsuit. The wheels of justice are slow, and if the case settles in your favor after you pass on, the settlement monies will go into your estate, not your Trust.
- Your estate files a wrongful death lawsuit on your behalf, wins the case, and the settlement monies go into your estate. They will not be a Trust asset.
Your Pourover Will To The Rescue
Your Pourover Will is the contingency plan for these circumstances. It directs that when you pass on, any asset that is not in your Living Trust but should have been, is poured over into your Trust. Thus, the Trust becomes the beneficiary of the omitted assets.
The Pourover Will must be submitted to the Probate Court. This fact may lead you to ask: If the Pourover Will has to be submitted to the Probate Court, what’s the advantage of having a Living Trust? Probate will still be needed! Here is the answer to your question:
First, Probate may not be needed. If your Living Trust is properly drafted and funded and no assets have been accidentally omitted, your Pourover Will is never used. It is simply a backup plan.
But if omitted assets do exist, your Pourover Will ensures that those assets are distributed according to your wishes, not according to Florida intestacy law. We can illustrate this point with a simple example: Suppose your Trust says that you want 80% of your Trust assets to go to an adult child who is struggling economically, and 20% to your other child who is financially successful. If you pass away without a Pourover Will to pour the omitted assets into your Trust, the omitted assets will go directly through Probate. Then, the omitted assets will be distributed according to the dictates of Florida law, not according to the wishes in your Trust, with each child receiving 50% of the omitted assets. As you can see, having a Pourover Will is a safety net that ensures that your wishes, as embodied in your Trust, are honored.
To discuss the best estate planning options for you and your family, schedule a free consultation with The Karp Law Firm. Call 561-625-1100 or visit our How Can We Help? page.
