Revocable Living Trust With Pour-Over Will

We have discussed quite a few topics on wills and trusts. By now, it should be clear that neither a will nor a trust alone can take care of all aspects of estate planning.
If you only have a will, the assets must go through the probate process to reach your beneficiaries. If you only have a trust, there is always a chance you missed funding the trust with some assets, and a trust is not the right place to specify guardians for minor children. So, what is the right solution?

Revocable Living Trust with a Pour-Over Will

Yes, this is the way to go. You create a Revocable Living Trust and fund it with all your assets. Assets titled in the trust will avoid probate when the grantor passes away. Along with the trust, you also need a pour-over will to handle the following.

1. Guardians for the minor children
   
   While the trustees of the trust ensure assets are passed to beneficiaries, they are not the caregivers for minor children. Guardians must be specified in a will. In this approach, we specify guardianship in a pour-over will.
   
2. Assets that you missed funding the trust with
   
   You might fund the trust with all your assets when it is formed. But with new acquisitions such as real estate or bank accounts, there is always the chance you miss to retitle them in the trust’s name. In some cases, you might also keep certain assets outside the trust on purpose. A pour-over will acts as a catch-all. A pour-over will can say something like, “Everything I own goes to my surviving spouse and children”. However, keep in mind that assets moved by a pour-over will still pass through probate before being transferred into the trust.
   
3. Assets kept out of the trust
   
   Retirement accounts such as 401k and IRA accounts should not be retitled in the name of a trust. Instead, you use beneficiary designations. Often the spouse is listed first, but in situations involving minor children, blended families, or special needs, you may consider naming a trust as the beneficiary. The SECURE Act rules generally require most non-spouse beneficiaries to withdraw the entire account within 10 years.
   
   Health Savings Accounts (HSA) also cannot be retitled to a trust. Here again, you use beneficiary designations. If the beneficiary is a spouse, they can take over the HSA as their own. If it is a non-spouse, the account value usually becomes taxable income in the year of death.
   
   For automobiles, it is often more practical to use transfer-on-death titles or keep them outside the trust, since titling them in a trust adds little benefit and may complicate matters with insurers or the DMV.
   
4. All miscellaneous personal belongings
   
   While you can title bank accounts and real estate in the trust’s name, it is trickier with personal belongings such as jewelry, antiques, or collections with sentimental value. The pour-over will can handle these items by including instructions like, “All my jewelry goes equally to my daughter and daughter-in-law,” or “My antique collection goes to my son.”

Also note that the term pour-over will simply describes its function. Legally, there is no distinction between a regular will and a pour-over will. Both are the same type of document.

That’s a wrap this week. Happy learning!