It is time to get back to basics.
A Living Trust takes the place of a Will. The Trust specifies how the estate is going to be disposed and who has the responsibility for carrying out its instructions. See our previous post on Living Trusts for more info. But an estate plan with a Living Trust should also include a Will. If a Trust takes the place of a Will, why have both a Trust and a Will?
The short answer is belt and suspenders. If one fails, the other one comes through.
In California, a Living Trust is a great estate planning vehicle for all of those assets that are included in the Trust, but what about assets that are left out of the Trust? If you have a Will, then it can direct that any assets left out should be transferred into the Trust, thus preserving the wishes of the testator. The alternative is that the asset would go into the Estate and be distributed according to the laws of intestacy. The Will that would prevent this is called a Pour-Over Will because it pours the assets over into the Trust.
Why would assets be left out of the Trust? When a Trust is created, assets have to be transferred into the Trust by changing the title of the assets. Thus for real estate a new deed is executed. If that is not done or if an asset is inadvertently transferred out of the Trust, the estate plan is still effective because of the Pour-Over Will. More information on funding Trusts can be found in previous posts here and here.
If it is necessary to rely on a Will to fund the Trust, will we have to go through the probate process? Since Wills, unlike Trusts, must be probated, there is a risk of going through the probate process in order to transfer the asset from the estate to the Trust. Therefore it is important to exercise best efforts to put all assets in the Trust. However, there are exceptions to the necessity for probate. In California, if the asset or assets left out of the Trust are worth less than $150,000, then the assets can be transferred to a Trust without going to court. Even if the asset is worth more than $150,000, it still may be possible to transfer the asset to the Trust by court order rather than going through a full probate. This is called a Heggstad petition and will be the subject of an upcoming post.
A Pour-Over Will, if drafted correctly, can serve another important function that is often overlooked. Sometimes Trusts are found to be defective. A standard provision of a Pour-Over Will is to incorporate the terms of the Trust into the Will if it turns out that the Trust is defective. Again, the wishes of the testator are preserved, rather than subjecting the estate to the whims of intestacy law.
A Pour-Over Will is like a backstop in baseball. It catches things that the Trust misses, just in case. Thus anytime you have a Living Trust, you should also have a Pour-Over Will.
Be informed. Knowing the basics of estate planning is essential to creating a plan that actually carries out your wishes. It’s your life and your legacy. It should be your plan.
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