A pour over will is a special type of will that lists a living trust as the sole beneficiary. In order for this arrangement to work, the will creator (called a testator) must have already created the trust during their lifetime — hence the term “living trust.”
If you have already created a trust or plan to in the near future, a pour over will is an excellent option for your estate plan. It can also be an excellent option for your family’s future.
Trusts offer many advantages over a will, not the least of which is their ability to retain assets and allow them to grow before they are distributed to beneficiaries.
Pour over wills also do not need to transfer every bit of property in an estate. Assets with sentimental value, such as family heirlooms, jewelry, or prized collectibles, can be given to separate beneficiaries while the pre-existing trust absorbs the rest.
Talk to a New Mexico pour over will lawyer to learn the best strategies for maximizing the benefits a pour over will can offer. You can schedule a no-obligation consultation and estate plan review with a New Mexico pour over will lawyer today when you call 505-503-1637 or contact us online.
Wills are more complicated than they seem. Without precise language and a structure that’s personalized to your unique financial and family situation, your will could have unintended consequences.
Worst case: your will may be declared invalid, forcing your executor (called a personal representative in New Mexico) to distribute your estate entirely to next-of-kin, according to the state’s intestate probate laws. Hiring a New Mexico pour over will attorney can help you avoid this outcome.
We at New Mexico Financial & Family Law want you to feel in control and confident about what happens to your estate when you pass on. With our thorough, personalized approach, we will help you craft a one-of-a-kind estate plan.
By listening to your goals and going over the factors unique to your estate, your pour over will and other estate planning mechanisms gain the highest chances of producing the outcomes you want to achieve.
Considering the role trusts play in pour over will-based estate plans, consulting with our New Mexico pour over will attorneys is particularly important in these situations. Whether you have an existing trust or need to create a new one, your lawyer can go over all the options available.
They can help you create or re-structure your trust to arrange for the best pour over will and trust combination for your unique goals.
In addition, you can rely on our services any time you have questions about your pour over will or need to make changes to your estate plan. By working with our experienced New Mexico pour over will law firm, you can build a lasting relationship that ensures you are able to leave behind an enduring positive legacy.
There are two main components to a pour over will: the will itself, and the trust that assumes ownership over the contents of the estate.
For a pour over will to work, there should be a pre-existing trust for the will to distribute assets into.
Often called a “living trust,” the type of trust is less important than the fact that it was created before the testator dies. Otherwise, the trust counts as a testamentary trust, which means all parts of the estate are going to be processed through probate.
A trust has three main components: the trust creator (called a grantor or settlor), the trustee, and the beneficiary (or beneficiaries) who eventually receive assets from the trust.
To create the trust, the grantor signs over ownership of key assets to the trust itself. Assets that can be used to fund a trust include bank accounts, investment accounts, real estate, cash, ownership in certain types of closely held businesses, and other property owned by the grantor.
The trustee then assumes control of the trust, managing it according to instructions left by the grantor. Assets held in the trust can gain in value, generating trust income that can either be reinvested or distributed to beneficiaries.
Eventually, the trust will transfer ownership of all its assets to the beneficiaries, dissolving in the process.
The creator of a living trust must also take the time to draft a pour over will for both to work together. As mentioned before, this type of will lists the already-created trust as a primary (or sole) beneficiary.
This way, any parts of their estate not transferred to the trust during the grantor’s lifetime “pour over” into the trust, which catches the assets like a funnel catching water poured from a jug.
When the testator/grantor dies, their most valuable property then becomes the property of the trust. The trustee can continue managing the trust, as before. They will be responsible for paying out income and, eventually, distributing principal assets to the grantor’s heirs.
Yes, any assets transferred via a will have to be processed through probate court.
To avoid probate, the assets need to be transferred out of the grantor’s estate prior to their death. With a pour over will, the remaining assets held in the estate only transfer to the trust after probate is completed.
This arrangement is similar to a testamentary trust, where any assets used to fund the trust have to first go through probate. The only difference is that with a pour over will, only some assets need to be probated since the living trust has already assumed ownership over the rest.
There are many reasons for using a pour over will compared to a regular will.
The biggest reason is that trusts offer greater control over how and when assets are distributed. With a will, trusts get transferred to beneficiaries at the conclusion of probate.
The estate must be completely dealt with (“disposed of”) before probate is closed.
When a trust receives assets from an estate, though, it can hold onto those assets for an extended period. This arrangement can provide many benefits. For example, if a beneficiary is a minor, they can receive the money from the decedent once they turn 18 (or another designated age) rather than having the money go to their parent or guardian immediately after probate.
Another major benefit of a pour over will and trust combination is that the trust can allow for complex investment and income schemes. Rather than receive property in one large transfer, beneficiaries can receive income from the trust for an extended number of years — potentially even the remainder of their life.
The trust can also pay some proceeds to charity or transfer part of its assets to a charity at a later date (see more on charitable trusts below).
Perhaps the biggest advantage, though, is that the use of a living trust allows many assets to skip probate. With this arrangement, probate can be made shorter, and major assets can be protected from creditor or beneficiary claims that threaten to eat away at the estate’s value.
Any assets that avoid probate are also kept private — probate requires that the estate’s contents be made publically available.
Trustees provide a valuable service during the transition from a living trust to an irrevocable trust. If the trustee is someone different than the personal representative of the estate (an arrangement that is often recommended by New Mexico pour over will lawyers), then they can continue managing the assets and distributions while the representative deals with probate itself.
These arrangements lessen the burden on your personal representative and your beneficiaries, overall.
A living trust can either be revocable or irrevocable.
Revocable trusts can be altered by the grantor at any point during their life. They have the ability to pull assets out of the trust, in many cases.
The advantages of this type of trust are that it allows for continuous management of assets, and those assets also bypass probate.
Irrevocable trusts cannot be significantly changed by the grantor, except in cases where all beneficiaries agree to have the trust dissolved. These trusts provide the same advantages as an irrevocable trust, but they can incur additional tax benefits.
By removing assets from the grantor’s estate, the trust can lead to estate and gift tax savings.
In addition, an irrevocable trust can safeguard assets to a greater extent because the grantor no longer owns them. This arrangement can prevent creditors from accessing assets held in the trust.
The next section covers revocable and irrevocable trusts commonly used with a pour-over will.
Some of the most common types of trusts that are coupled with a pour over will include a:
A joint trust is created between two people, usually a married couple. Community property laws in New Mexico actually require a joint trust to be created in most situations since spouses are supposed to have equal access to most property acquired during a marriage.
A separate trust may be allowed when it is funded with assets that the grantor owned separately because it was acquired:
Joint trusts often split off into two trusts when one of the spouses dies — a survivor’s trust and a bypass trust (sometimes called a credit shelter trust or other names).
When one spouse dies, and the couple has a joint trust, the deceased spouse’s assets are transferred into a bypass trust. The goal of this trust is to preserve the assets until they can be gifted to children (or other beneficiaries) when the surviving spouse dies.
The surviving spouse may be able to withdraw some amount of the principal used to fund the trust for certain expenses. They may also receive income from the trust, which would make it a qualified terminable interest property (QTIP) trust.
When the spouse retains the right to receive income or use some of the trust’s principal, the assets used to fund it can count toward the couple’s unlimited spousal gift exemption, potentially avoiding estate taxes.
A special needs trust provides income and other monetary support for an individual who receives disability benefits.
Because benefits like Social Security Disability Insurance (SSDI) are based on need, gifting large amounts of money or assets to these individuals in a will could easily put them over their income limit.
Forming a special needs trust keeps any new assets separate from their household resources calculation. The trust then pays for qualifying expenses while providing just enough income to prevent benefits ineligibility.
A charitable trust usually generates income for a certain amount of time before the remainder balance of the trust is gifted to beneficiaries.
A charitable lead trust pays a charitable organization for a set number of years, and the remainder goes to the grantor’s chosen beneficiaries.
Charitable remainder trusts follow the opposite arrangement: personal beneficiaries receive income from the trust and possible transfers of principal for a set number of years, and then the charitable organization receives the remainder as a final beneficiary.
Asset protection trusts include extra protections so that creditors of the beneficiaries can’t directly access the contents of the trust itself.
Usually, the trustee is also given broader discretionary powers so that they can’t be forced to give money to the beneficiary. With this arrangement, the beneficiary is not guaranteed distributions, so the creditor is unable to claim any of the principal or income reserved for the beneficiary until it actually distributes to them.
These trusts are created to provide direct gifts to grandchildren or any other beneficiaries who are more than 37.5 years younger than the decedent at the time of their death.
A spendthrift trust includes clauses that prevent beneficiaries from transferring their future interest in the trust to another party. Instead, the beneficiary only has ownership of the property or income when it is distributed to them.
Spendthrift trusts can act as asset protection trusts, and they may also prevent misuse of the trust’s funds by limiting the amount of money a beneficiary has access to at any given time.
As you can see, there are many ways to customize your pour over will and trust arrangements.
Get in touch with our New Mexico pour over will law firm to receive more guidance on the best way to combine these two powerful estate planning mechanisms. With personalized recommendations that consider your unique financial situation and goals for the future, you’ll be equipped to create the best plan possible to provide for those you cherish.
Schedule a no-obligation appointment and a review of any estate plans you currently have when you call New Mexico Financial & Family Law at 505-503-1637 or contact us online.
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