One major benefit of a living trust is probate avoidance. If titled in the name of your living trust, assets you own that do not have a co-owner or named death beneficiary can be managed and distributed by your trustee when you pass on. This will spare your family the hassle and delays of probate court.
If you recently created a living trust, chances are you have been meticulous about transferring your probatable assets into it. But as time goes on, assets that should be in your living trust sometimes don’t end up there. How can this happen? There are several ways:
- Money may flow into your estate after you are gone. One example is a settlement from a lawsuit. Another situation we have seen is someone receiving a travel insurance refund posthumously for an expensive trip the person never got to take.
- You just do not get around to putting new assets into your trust because life gets demanding, you get busy, you get distracted, or you or a loved one gets sick.
- Another scenario may arise when you refinance your home. Most title companies require the home to be outside of the trust while the process is ongoing. After removing it, some people may forget to transfer it back in.
What Happens To Your Asset If It Ends Up In Probate?
Obviously, your loved ones will have to deal with the probate court, the very situation you were trying to avoid when you set up your living trust. Moreover, since you do not have a will, the probate court will consider you to have died intestate. That means the asset will be distributed according to state law. However, state law may not align with your wishes, and your money could end up in the wrong hands.
For example, suppose you wanted to leave 80% of ABC savings account to a child who is struggling financially, and just 20% to your more financially secure child. That is what your living trust says, and how you wanted your trustee is to handle things when you pass on. However, if the account is not in your trust when you die and instead goes to probate, state law will split the account equally between your two children. (To read the Florida law regarding who gets what in an intestate estate, click here.)
Pourover Will Provides A Safety Net
Everyone who creates a living trust should also create a pourover will. Think of it as a kind of insurance or safety net for your trust.
Clients are sometimes surprised when we tell them they need a will in addition to a living trust. They correctly think that having a will means their assets go to probate. But here’s the thing: the pourover will is a special type of will. Here’s how it works:
The pourover will does not prevent an asset from ending up in probate. It only controls what happens if an asset accidentally ends up in probate. It states that any assets that end up in probate should be transferred – i.e., “poured over” – into your living trust. Once the asset is transferred from probate into your living trust, your trustee can then distribute it as you wanted it distributed, in accordance with your trust provisions.
Let’s use the above-mentioned example of the ABC bank account you forgot to put in your trust and has now landed in the probate court: If you have a pourover will, it will be be transferred into your living trust. Then, rather than being split 50-50 as state law requires, your trustee will distribute it 80-20, in accordance with your living trust. The pourover will, the safety net, has come to the rescue.
If all goes according to plan and every asset that belongs in your trust is in the trust when you pass on, the pourover will won’t even be necessary. But it is a comfort to know that it’s there if ever needed.
The Karp Law Firm attorneys can assist you with all aspects of your estate planning! Please call us at 561-625-1100 to schedule your appointment.
