Most people fund trusts at the time of their creation. A trust technically only exists to own and manage the distribution of various resources. Occasionally, the people creating a trust do not necessarily want to transfer all the assets that the trust should manage immediately.
Sometimes people decide to use a pour-over will as part of a more comprehensive estate plan. A pour-over will allows assets to transfer to a trust after the testator dies. What are the benefits and drawbacks of using a pour-over will to fund a trust?
Pour-over wills can provide enhanced control
People often dislike the idea of giving up control over their assets as they age. The more property they transfer to a trust, the more vulnerable they may feel. Using a pour-over will to fund a trust allows an individual to remain the legal owner of various resources until they die. At that point, assets that they select or the entirety of their estate can transfer to the trust.
Trusts overall offer better control than wills. The trustee can oversee the distribution of assets. The testator establishing the trust can impose restrictions on when and how people use trust assets. Pour-over wills allow people to retain control while they are alive and also give them enhanced control over the use of their property after they die. A pour-over will can help an individual establish a long-lasting positive legacy.
What are the drawbacks?
There is one primary drawback to the use of a pour-over will and several related concerns. The main issue with a pour-over will is that the transfer of resources to the trust is part of the probate process. Therefore, the assets transferred by the pour-over will are subject to the oversight of the probate courts.
The assets are potentially vulnerable to creditor claims or Medicaid estate recovery efforts. Additionally, the value of those assets can contribute to the overall value of the estate for the purposes of estate tax.
Pour-over wills are one of multiple options available for those creating robust estate plans. Reviewing a variety of different documents, including different types of wills and trusts, can help people protect themselves and establish a meaningful legacy.