Pour-Over Wills 2.0

We’ve discussed how both Wills and Living Trusts can serve as important parts of an estate plan and how a Living Trust acts as a substitute for a Will, eliminating he Probate Court interference. With that knowledge, many clients wonder why they should bother to have a Will at all. In most cases, the inclusion of a Will in an estate plan is a form of insurance to protect against the unexpected.

It is important to remember that a Living Trust allows the avoidance of the Probate court because the Trust owns property instead of the individual, but the Trust does not automatically become the owner of property. Clients need to fund (“transfer”) their assets to the Trust (a process that we will discuss in detail in the coming weeks) in order for the Trustee of the Trust to control the assets. While we work with our clients and their advisors to assist with the funding, occasionally there will be an asset the client fails to fund to their Trust. The Will fills the gap in administering such an asset.

When a person has a Living Trust and still owns assets in their own name at death, the terms of their Will, commonly termed a Pour-Over Will, provides instructions to the Probate Court regarding the distribution of the person’s assets. In this case, the Will instructs the court to distribute all of the person’s assets to the successor Trustee of the person’s Living Trust, ensuring that the Trust remains the vehicle for controlling the final distribution of assets. Having a Will in place to give the Probate court these instructions simplifies the Probate process and assures that a person’s wishes for asset distribution are used instead of the intestate statute under Michigan law.

While Probate is never a desirable option for administering an estate, a Probate using a Pour-Over Will is much better than a Probate without any Will. In the absence of a Will, assets not funded to a Living Trust would be subject to the Michigan intestacy statutes, requiring a formal Probate proceeding and appointment of a Personal Representative who is required to distribute assets directly to the deceased’s heirs at law under the intestacy statute rather than what might be they specific desires of the deceased. In addition to distributing significant amounts of assets to heirs the deceased would not want to benefit, such distributions may be inefficient or undesirable if the heir is a minor or under some form of incapacity and unable to responsibly manage their own affairs. This type of situation could contradict the terms of the deceased’s Living Trust and require the ongoing supervision of a court appointed Conservator for many years.

Even when a client is meticulous with their funding, a Pour-Over Will can protect against the unexpected. The Pour-Over Will ensure that all of a person’s assets, even those they do not know exist, become part of the Trust assets. It also allows assets that only arise after a person’s death, such as the proceeds from a Wrongful Death Lawsuit, to become part of the Trust assets. 

A Pour-Over Will, coupled with a Living Trust, serves as a safety net to an estate plan. It makes sure that the Living Trust remains in control of asset distribution even when circumstances do not go as expected. In this way, it is just one of many forms of protection that make up a properly drafted estate plan designed to ease the difficulty of an already trying time for family and friends. There are other more complex methods of using a Will in conjunction with Trusts but we will discuss such things in future blogs.

Matt and Al