Estate planning comes with all sorts of unfamiliar terms that are worth parsing out and understanding. You may hear phrases such as “pour-over will” and “testamentary trust” and wonder, how can these documents help me?
In truth, pour-over wills and testamentary trusts may be seen as two sides of the same coin and both can be useful in estate planning.
What is a pour-over will?
A pour-over will complements a revocable or irrevocable trust as part of your estate plan.
For example, you may during your lifetime establish a revocable trust for the benefit of your children, with the intention of funding it with all your assets before you die. You transfer some of your assets to the trust while you are alive, but not all of them. What happens to these assets upon your death?
If you have a pour-over will, all your remaining assets will be transferred to your trust per the terms of the pour-over will. While these assets are still probated, a pour-over will ensures they will eventually go to your intended beneficiaries.
In the absence of a pour-over will or a last will and testament, left-over estate assets would be subject to intestate succession, meaning the state decides who will inherit them. A pour-over will helps ensure this will not happen.
What is a testamentary trust?
A testamentary trust is sort of the opposite of a pour-over will. A testamentary trust is established in your existing will and becomes effective only upon your death. Your assets will be distributed to the testamentary trust beneficiaries named in your will.
It is important to note that, like assets in a pour-over will, assets in a testamentary trust still go through probate. However, they avoid the problem of intestate succession and will go directly to trust beneficiaries.
Two sides of the same coin
So, while a pour-over will works in combination with an existing trust, a testamentary trust is included in an existing will and does not exist until your death.
But both of these documents are worth considering when you are developing your estate plan, because both allow you to fund a trust after your death.