Do You Still Need a Will if You Have a Trust?
The use of revocable living trusts is becoming increasingly common. Compared to a stand-alone Last Will & Testament, a properly prepared and funded living trust provides many benefits. If done correctly, a trust can help avoid going through the time consuming and costly probate process. Additionally, a trust is a private process compared to public estate administration. While setting up a well-drafted trust is more costly upfront, it provides increased flexibility and more options for customization compared to a standard stand-alone will. Together, a revocable living trust and pour-over will can be a useful tool for managing your assets.
A common misconception many people have is the mistaken belief that a revocable living trust is a replacement for a will. In reality, it is not necessarily a one-or-the-other decision. Even if you use a trust as the core of your estate plan, there is still a need for a specific type of will that is required even when a well-drafted trust is properly funded. That type of will is called a pour-over will.
The mere signing of a trust does not mean your estate is necessarily guaranteed to avoid probate. You must then “fund” the trust, i.e., update titles and beneficiary designations of all assets to transfer those assets to your trust. In other words, your trust can only control assets owned by the trust. Even if you create a living trust, it is pointless if you do not subsequently coordinate your assets with your trust and bring everything you own under the umbrella of protection that the trust provides.
It is quite common for an asset in an individual’s name to fall through the cracks and for the owner to not transfer ownership to the trust. Whether accidentally or intentionally, if the owner dies with an asset in his or her sole name without a beneficiary designation, that asset must first go through the probate process.
This is where a pour-over will comes in. The pour-over will is a separate document that must be compatible with your trust. Essentially, the pour-over will serves as a safety net in case you pass away with any probate assets (i.e., assets in your name alone without a named beneficiary). When ownership of an asset is not transferred to your trust and, therefore, probate is needed, the pour-over will instructs the personal representative of your estate to distribute those assets to your living trust upon the closure of the administration of your estate. The beneficiary of your estate is your living trust. This type of instrument is called a pour-over will because those probate assets essentially “pour-over” into your trust.
One of the main goals when deciding to prepare and fund a living trust is to avoid probate. In an ideal world, if you have a revocable living trust, there would never be the need for the pour-over will. However, it is vital for those with a revocable living trust to also have the will counterpart even if you (hopefully) never need to use it.
There are multiple common scenarios where an asset owned individually falls through the cracks and does not end up under the umbrella of the trust. For example, if you sign your trust but pass away before transferring the assets to the name of the trust, probate will not be avoided. Also, it is common for people to accidentally forget about certain assets when funding their trust. Whether it is old savings bonds that have gone unnoticed for decades or an investment account where ownership was never transferred to the trust, if any asset you own was not transferred to the trust for any reason, those assets must be probated. Furthermore, even if a trust is created and perfectly funded, it is common for items subsequently acquired by the settlor to not be lined up with the trust. In this scenario, those subsequently acquired assets would need to be probated. Of note, there are certain instances where it is beneficial for ownership to be in an individual’s name and not in the name of a trust. For example, sometimes insurance companies charge higher premiums to insure motor vehicles owned by a trust.
Essentially, whenever one creates a living trust for their estate plan, it is a necessity that a pour-over will, naming your trust as the beneficiary of your estate, also be a part of your estate plan. If it were ever needed, the pour-over will would guarantee that the probate process would merely be a layover stop in order to get those forgotten assets under the control of the trust. While there are different schools of thought and preferences, I believe it is best practice to name the same individual as both personal representative of your estate and trustee of your trust. After all, both roles are a part of the same job; to marshal a decedent’s assets to his or her ultimate beneficiaries so those beneficiaries receive their rightful inheritance according to the decedent’s intentions as efficiently as possible.
As a final sidenote, for those with minor children, the will is where you typically would nominate the guardians of your children if the need ever arose. All parents of minor children should have such a document to establish who they want to be the guardians of their minor children, even if they leave behind no assets to be probated.
Zachary W. Worshtil is a Partner at the Law Office of Ralph W. Powers, Jr., P.C. He is also a member of the PGCBA Board of Directors and co-chair of the Probate, Estates, Trusts & Elder Law Section. He concentrates his practice primarily in estate planning, estate and trust administration, and probate litigation.