A pour-over will is a specific type of will that can be used in conjunction with a living trust to manage your assets after you’re gone. This kind of will can be helpful in estate planning, though it may not be right for everyone. Here’s more on how a pour-over works and how to include one in your financial plan. If you have more questions about building out your estate plan, consider speaking with a financial advisor.
What Is a Pour-Over Will?
In a nutshell, a pour-over will is a type of will that allows assets to “pour over” into a trust when you pass away. It’s different from a last will and testament, which specifies how you want your assets to be distributed among your legal heirs when you die. A pour-over will is only used in situations where you also have a trust as part of your estate plan. If you don’t have a trust in place, then you wouldn’t need to have a separate pour-over will.
How a Pour-Over Will Works
If you want to use a pour-over will, you’d first need to set up a trust. A revocable living trust allows you to direct how you want your assets to be managed during your lifetime and beyond. Ideally, when creating a trust, you transfer the assets you want to hold in the trust right away. For example, you might put your home, or any other real estate you own, in the trust. But that doesn’t always happen. You may decide to wait to fund the trust – that is, transfer assets into it – until some later date.
If you pass away before you do that, then those assets wouldn’t get moved to the trust. Then they’d be distributed according to the terms of your will, or if you don’t have a will, state inheritance laws. In that case, you’d have no say at all in how your assets are divided among your heirs. A pour-over will helps you avoid that situation.
When you set up a pour-over will, any assets included in the will that isn’t already held in the trust are transferred to the trust after you die. So if you intend to place your home in your trust but never get around to it, your pour-over will ensure that it still ends up in the trust. This type of will is like having a safety valve on your estate plan because it can get your assets into the trust, even if you don’t transfer them yourself.
An Example of a Pour-Over Will
Let’s use an elderly couple as an example, who have three children and seven grandchildren. The couple has a substantial amount of assets with a valuation of over $5 million. In order to avoid the legal mess of probate court after their deaths, they decide to establish a living revocable trust to help pass their assets to their family. In addition to the trust, both members of this couple end up executing pour-over wills that direct the remaining assets they own will be added to the trust once they die.
Let’s say the husband dies. He had a large boat that was titled in his name and not the name of his spouse. His wife is the trustee of the trust, where the ownership of the boat now resides. Since she is the trustee she gets to use the boat, if she wishes. When she dies then the boat will remain in the trust and be passed down to the next trustees, their children.
Pros and Cons of a Pour-Over Will
The main advantage of including a pour-over will in your estate plan is that it can help avoid headaches after you’re gone. If you have this type of will in place, then any assets you didn’t transfer to your living trust are covered. You should note, however, that this only applies to assets that don’t have a named beneficiary.
For example, if you have a life insurance policy or individual retirement account with your spouse listed as the beneficiary, those assets would go directly to them when you die. They wouldn’t end up as part of your trust. The same is true for assets that are held jointly with someone else using the right of survivorship. A bank account you share with your adult child, for example, would become theirs at your death if they have the right of survivorship.
One of the biggest cons of using a pour-over will is that any assets that get transferred to the trust after your death may first have to go through probate. This is a legal process in which your assets are inventoried and any debts owed by your estate paid prior to the assets passing on to the trust. Whether assets covered by a pour-over will are subject to probate depends on your state laws, but if they are, then this could mean a delay for trust beneficiaries who are waiting to receive those assets.
How to Create a Pour-Over Will
Creating a pour-over will is a little different than drafting a regular last will and testament. If you have a more complicated estate, then it may help to talk to an estate planning attorney about how to create one and to work with a financial advisor who can integrate your estate and financial plans.
But generally, including a pour-over will in your estate plan starts with establishing your living trust document. To create a trust, you’d need to name a trustee to manage the trust, name the beneficiaries who can receive assets from the trust and spell out how the trust should be managed. You’d then fund the trust by transferring assets into it.
Once you’ve done that you can establish your pour-over will. Instead of naming individuals as beneficiaries or heirs in the will, you’d name the trust. That way, your assets would go to the trust when you pass away.
From there, you can add language to your pour-over will stating that any assets you own that aren’t already in the trust or that don’t have a named beneficiary should be transferred to the trust at your death. Like a last will and testament, a pour-over will needs to be signed and legally witnessed by the number of witnesses required under your state’s probate laws.
Who Needs a Pour-Over Will?
A pour-over will is only necessary if you’re incorporating a living trust into your estate plan. If you’re not using a trust to manage assets during your lifetime and beyond, then a last will and testament would be sufficient. With this type of will, you can designate how you want your assets to be passed on to your heirs and name a legal guardian for your children if necessary.
This type of will may be more appropriate if you have a simpler estate with few assets to leave behind. You can easily make a will online or work with an estate planning attorney to create one. The most important rules for making a will are that you be of legal age, of sound mind and have the intent to make a will. You’ll also need appropriate witnesses to your will.
A pour-over will can be another way to protect your assets if you already have a living trust in place. This type of will can give you added peace of mind if you’re concerned about all of your assets making it into your trust eventually. Adding one to your estate plan isn’t difficult but it does require having the right paperwork in place so you may want to seek out professional guidance from a lawyer and financial advisor.
Tips for Estate Planning
- A financial advisor can help you build a financial plan that leaves the legacy you want for your loved ones, without causing them pain or time later on. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- There are other types of wills and trusts you can use for estate planning. For example, you may go the reverse route and use a will to create a testamentary trust after your death. Or you may prefer to use a grantor trust or special needs trust to manage your assets.
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