A revocable living trust is a powerful tool for managing your assets during your lifetime and after your death. However, it’s crucial to understand that only assets properly titled and transferred to the trust will be subject to its provisions.
This begs the question: what happens to assets that you never transferred to your living trust?
The Fate of Personally Owned Assets
Without proper planning, assets left outside your living trust will become intestate property, meaning they will be distributed according to state laws. This can have several undesirable consequences:
- Probate: Unfunded assets will become subject to the probate process, which can be lengthy, expensive, and potentially public.
- Loss of Control: You will lose the ability to dictate how your unfunded assets are distributed, potentially causing unintended results or conflicts among beneficiaries.
- Delayed Inheritance: Beneficiaries may have to wait months or even years to receive their inheritance due to the probate process.
The Pour-Over Will: Bridging the Gap
A pour-over will can act as a safety net, ensuring that any assets unintentionally left outside your living trust are ultimately transferred into its control. This type of will specifically directs the executor of your estate to “pour over” all unfunded assets into your living trust, effectively bringing them under its terms and conditions.
The pour-over will offers several advantages:
- Protects Unfunded Assets: It ensures that all your assets, regardless of whether they were initially included in the living trust, are ultimately distributed according to your wishes.
- Reduces Probate Costs and Delays: By minimizing assets subject to probate, the pour-over will can significantly reduce the cost and time associated with settling your estate.
- Maintains Control: You retain the ability to dictate how all your assets are distributed, even those inadvertently left outside the trust.
Living Trust vs. Will: A Clear Advantage
Let’s look at some of the major differences between a living trust and a will.
Probate
- Living Trust: Assets held within the trust typically avoid probate, streamlining the distribution process.
- Will: Assets governed by the will are subject to probate, resulting in delays and potential legal fees.
Privacy
- Living Trust: Trust documents are private and not subject to public scrutiny.
- Will: Wills become public documents upon probate, revealing details about your assets and beneficiaries.
Flexibility
- Living Trust: You can easily amend or modify your living trust during your lifetime to reflect changing circumstances.
- Will: Significantly mending a will requires creating a new document, which can be inconvenient and potentially expensive.
Asset Protection for Beneficiaries
- Living Trust: A living trust will become irrevocable after the grantor’s passing, and the assets in the trust will be protected from the beneficiaries’ creditors.
- Will: Wills do not offer any asset protection for the inheritors.
Final Takeaways
To sum it up, a revocable living trust is a very effective asset transfer vehicle that is superior to a simple will in many ways. When you have a living trust, you should include a pour-over will to make sure that the assets are distributed according to your wishes outside of probate.
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