Consider the benefits of a pour-over will

Everyone needs an estate plan, regardless of age, assets or family situation. At a minimum, you should create a legally valid will that dictates the disposition of your assets after death. However, many people should take estate planning to the next level and at least consider Jeff Jackson, CPA, is the Managing Partner at Sol Schwartz & Associates and leads the firm's estate & gift tax planning team and the wealth transfer practice. establishing a living — also known as a revocable — trust. A living trust enables your estate to bypass the costly and public probate process.

But what about the assets you didn’t transfer during your life to your living trust? A second document known as a pour-over will is also recommended. Here’s how living trusts and pour-over wills work together.

Working In Tandem

The main purpose of a pour-over will is to maximize the benefits of a living trust. With this document in place, any property that isn’t specifically mentioned in your regular will is moved into your living trust after your death. The trustee then distributes assets to the beneficiaries under the trust’s terms.

Some estate planners favor using a single legal document — a living trust — as the sole guiding force for an estate plan. To this end, a pour-over serves as a conduit for any assets that aren’t already in the name of the trust or otherwise distributed.

Advantages and a Drawback

This setup offers several benefits, starting with convenience. It’s easier to have one document controlling your assets than it is to “mix and match.” With a pour-over will, it’s clear that everything goes to the trust. Then, it’s the trust document that’s used to determine who gets what. That, ideally, makes it easier for the executor and trustee charged with wrapping up the estate.

Generally, everyone maintains some assets outside of a living trust. A pour-over will covers any items that have fallen through the cracks or that have been purposely omitted. So it closes the door on your estate. What’s more, the pour-over items that are transferred to a living trust are shielded from public view, which they wouldn’t be if they passed directly through a standard will.

There is one disadvantage to consider. As with any will, your executor must handle specific bequests included in your will, as well as assets being transferred to the trust through the pour-over provision, before the trustee takes over. (Exceptions may apply in certain states for pour-over wills.) This may take months to complete. However, property transferred directly to a living trust can be distributed within weeks of a testator’s death.

Therefore, a pour-over will doesn’t avoid probate completely. But it’s generally less costly and time consuming than usual. And, if you’re thorough with the transfer of assets made directly to the living trust, the residue should be relatively small.

Note: If you hold back only items of minor value for the pour-over part of your will, your family may benefit from an expedited process. In some states, your estate may qualify for “small estate” probate, often known as “summary probate.” These procedures are easier, faster and less expensive than regular probate.

Trustee Responsibilities

After a trust’s executor transfers assets, it’s up to the trustee to do the heavy lifting. (The executor and trustee may be the same person and, in fact, they often are.) The responsibilities of a trustee are similar to those of an executor with one critical difference: They extend only to the trust’s assets. The trustee then adheres to the trust’s terms.

Although a trustee’s primary objective is to transfer assets to beneficiaries as soon as possible, the trustee’s role may be more complicated in certain circumstances. For instance, the trust document may include terms for handling assets of young children or those with special needs. In such circumstances, a trustee may be directed to leave assets in the trust until a child reaches a specified age. Or the trustee may be authorized to make distributions at various intervals.

Pass on Your Wealth

Whether you and your beneficiaries would benefit from a living trust, pour-over will or entirely different estate planning tools depends on many factors. Talk with your estate planning advisor about the most efficient way to pass on your wealth. The professionals at Sol Schwartz & Associates can apply their estate tax knowledge to help you minimize the tax burden on your estate and on your heirs.

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