Proper estate planning is one of the most important things a person can do to provide financial security for their family and loved ones. When thinking of estate planning, there are several vital aspects that must be considered and planned for in order for a seamless transition of property and assets to occur. Without the proper instrument to achieve a smooth transfer of the estate, there is a possibility that property and assets may wind up being dispersed in a manner that was not intended by the original estate holder. With this in mind, it is easy to understand how important it is to plan ahead and have legal documentation in place prior to actually needing it.

Last Will and Testament, Living Revocable Trust and Pour Over Will

The question of how to best go about achieving a proper plan to divide one’s estate can only be answered by the individual according to their unique situation and what they wish to achieve with their estate. There are basically two different instruments that can be utilized to plan for the division of an estate:

• A last will and testament
• A Revocable Living Trust and corresponding Pourover Will.

There are substantial differences between the two documents, and each has unique benefits and drawbacks that must be understood in order to make an informed decision as to which will fit best according to a particular situation.

Wills and trusts are both estate planning tools that can help ensure your assets are protected and bequeathed to your heirs, besides your spouse, which is generally not an issue. This is because the unlimited marital deduction provision within the United States and Estate and Gift Tax Law allows the passing of wealth to a surviving spouse without incurring gift or estate tax liabilities.

Last Will

A last will and testament is a legal document that basically spells out the final wishes of an individual as to who will inherit their property and assets upon their death. It also can appoint power of attorney to a legal guardian to act as custodian for any minor children who will be left parentless by the death of the individual.

The last will names a person to act as an executor of the estate responsible for carrying out the individual’s wishes and disbursing the individual’s property and assets accordingly. A last will can be used to name multiple beneficiaries to an individual’s estate as well as specifically leave certain individuals out of that inheritance. Last wills become effective only upon the death of the individual but they do not always prevent probate hearings.

Revocable Trust

At the most basic level, a revocable living trust, also known simply as a revocable trust, is a written document that determines how your assets will be handled while you are (i) alive and healthy; (Ii) incapacitated; and (iii) after you die. Assets can include real estate, valuable possessions, bank accounts and investments.  

As with all living trusts, you create it during your lifetime which will take effect once executed. (There are also testamentary trusts, which don’t take effect until after you die.) Assets must be transferred to the trust called the “Funding the Trust” which will then be transferred to your designated beneficiaries upon your death. What sets a revocable living trust apart is that you can change or cancel the provisions at any time. Hence, the term “revocable” in its name.  A trust is often associated with a Pourover will which acts as a conduit when assets not titled in the Trust at the time of death pours all the assets into the trust

Objectives of a Revocable Trust

While avoiding probate is the primary objective of creating a revocable trust, some other benefits include continuity of asset management, privacy protection and reducing estate expenses.

When to use a Trust

Revocable trust is a private document and is anonymous.  Therefore, a revocable trust is appropriate when there is acrimony amongst family members and a possibility of a contested wills.  In addition, it paves the way to immediate asset distribution after the decedent passes away.  When the decedent leaves real estate in several jurisdictions, filing of ancillary probate becomes necessary. But if you have a revocable trust, you can avoid this.

A Pourover will drafted simultaneously with a revocable trust must be contrasted with the traditional last will and testament in that a pourover will only acts as a conduit pouring the assets into the trust, whereas the last will and testament bequeaths properties to various beneficiaries.  

It is important to understand that the exact laws governing trusts vary by state. The rules in Arizona or Florida won’t be same as those in Oregon or Michigan.