Your estate plan determines how your assets are distributed after you pass away. A popular way to set up your estate is with a living trust, which often works in conjunction with a pour-over will, a legal document that ensures that any assets not in the trust are moved there after you pass.
About Living Trusts
A living trust allows you to place your assets into the trust and continue to use, control, and spend them during your lifetime. After you pass away, the trustee distributes the assets to the beneficiaries you've named in the trust. The living trust avoids the probate process and also offers privacy since it is not public record. One problem with relying on a living trust is that all of your assets must be in the trust for it do what you intend. Because it's easy to make mistakes and oversights in this area, a pour-over will acts as your backup plan.
What a Pour-Over Will Does
It can be challenging to make sure every single one of your assets is placed in your living trust. You might forget to move some assets or you may simply run out of time and pass away before you get a chance to move them all. A pour-over will is a just-in-case will that states that your living trust is the beneficiary for any property in your name that's not in the trust at the time of your death, thereby moving any forgotten or remaining assets into the trust.
The difference between a simple will and a pour-over will is that a simple will is meant to handle your entire estate, such as by leaving it to your spouse or your kids. A pour-over will exists only to move assets into the trust and works in conjunction with either a revocable living trust or an irrevocable trust.
One of the main reasons to create a living trust is to avoid probate. A pour-over will does need to be probated, which is why you want it as a backup plan. You should still put as many assets as possible in the trust and have the pour-over will just in case you left something out.
Pour-Over Wills vs. Testamentary Trusts
Pour-over wills and testamentary trusts are different types of estate planning tools that perform different functions. A pour-over will transfers assets into your trust while a testamentary trust is set up by your will. Both accomplish the result of transferring assets into a trust, but a pour-over will moves your assets into an already existing trust.
Dying Without a Pour-Over Will
If you pass away with a living trust and no pour-over will, what happens depends on what estate planning actions you took during your lifetime. If you put every single asset into your trust, the trust handles distribution of your assets and your estate does not go to probate court. If you left an asset out of the trust, it must be handled by the probate court under your state's laws of intestate succession. When you die without a will, state laws determine who inherits your property, regardless of what your wishes are.
Updating Your Estate
When you have a living trust, it's a good idea to review your assets annually to ensure the document covers all your current assets. Changes happen as you buy or sell property, inherit property and possessions, or open new bank or investment accounts, so you want to do a thorough review to make sure you've placed everything in the trust.
You can create a pour-over will yourself by researching your state's will requirements and drafting the document. To ensure the document is properly crafted, you may want to work with an attorney or use an online service provider.