An essential component of a trust-based estate plan is to ensure that all of your assets – with a few exceptions – are titled to your trust. Picture your trust as an empty basket and all of your assets as eggs: you need to make sure your eggs are in the basket. One of the many benefits of a trust-based estate plan is the avoidance of a conservatorship in the event of incapacity and the avoidance of probate upon death. However, if you do not have the majority of your eggs in the basket, you might end up with the very same costly and time-consuming court procedure you were trying to avoid.
It is not possible to over-emphasize the importance of making sure your eggs are in the basket. However, a thorough estate plan includes a “Plan B” in the event that some of your eggs never end up in the basket during your lifetime.
A “pour over will” is a will that simply names your trust as the beneficiary. If all of your eggs were already in the basket at the time of your death, then the pour over will is superfluous. However, if there were some assets that were not transferred to your trust during your lifetime, having a pour over will ensures that those forgotten eggs end up in the basket and your wishes about where your assets should go at death are carried out properly.
If a pour over will puts your eggs in the basket upon your death, why not simply rely on the pour over will to do your trust funding in the first place? The answer is that there is a limit on how many eggs can be transferred to the basket through the pour over will without the necessity of a probate. In California, that limit is $150,000 of personal property and $50,000 of real property. If the total value of your assets that are outside of the trust exceeds those limits, then your estate will be subject to probate and one of the key purposes of establishing your trust – probate avoidance – will be frustrated.
If the total value of the non-trust assets does not exceed the limits described above, having the pour over will in place will allow your successor Trustee to to take control of those “loose eggs” by signing a “small estate affidavit” without the involvement of the courts.
Retirement plans – such as 401(k) plans and IRA’s – cannot be titled to your trust during your lifetime. However, if you have a properly designated beneficiary named on such accounts, those assets will be transferred to your beneficiary without the necessity of a probate. Beware of failing to name a proper designated beneficiary however. Naming a person who is deceased or simply naming your “estate” will cause that asset be subject to probate if it exceeds $150,000. Furthermore, failure to name a proper beneficiary on a retirement plan often unnecessarily accelerates income tax for your beneficiaries.
Although your estate will be subject to probate if your “loose” eggs at death exceed the value limitations described, at least your pour over will nevertheless transfers those eggs to your trust upon death to ensure that your wishes are carried out. This is why a pour over will is both superfluous and necessary: it is superfluous if you properly title all of your assets to your trust during your lifetime; it is necessary in the event that you accidentally leave some of your eggs outside of your basket at the time of your death.
KRASA LAW is located at 704-D Forest Avenue, Pacific Grove, California, and Kyle may be reached at 831-920-0205831-920-0205.
Disclaimer: This article is for general information only. Reading this article does not establish an attorney / client relationship. Before acting on any of the information presented in this article, it is essential that you consult a competent attorney licensed to practice law in your community.