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The risk of using a pour-over will for a high-value estate

On Behalf of | Dec 23, 2023 | Estate Planning |

Individuals with particularly valuable property often need to establish complicated estate plans. They have to worry about collection activity and taxes while also providing resources for their loved ones. They may intend to leave assets for charitable causes or even provide financial support for grandchildren who won’t be adults for years.

A simple will is often insufficient to meet the complex legacy needs of someone with valuable property. They may also create a trust. Trusts can preserve assets from collection activity, diminish estate tax risks and give someone more control over the distribution of their property even after they die.

One of the tools that testators may use to fund a trust is a pour-over will. Pour-over wills designate specific assets or possibly the remainder of someone’s estate as property that should transfer to their trust after their death. Those with high-value estates need to understand one key drawback of pour-over wills before integrating one into their plans.

Pour-over wills involve probate oversight

Funding a trust years before someone dies can be inconvenient. They may lose certain tax benefits or direct control over valuable property. Some people would rather retain sole ownership of assets throughout their life and then transfer their belongings to a trust after their death.

The issue with this approach is that the property included in a pour-over will to fund a trust posthumously passes through probate court. These assets could be subject to creditor claims, and they could also contribute to the total value of the estate for the purpose of calculating estate tax obligations.

Therefore, testators may need to quantify the value of their residual estates or the assets they specifically include in their pour-over wills to better address tax risks and other probate complications. Many testators use a pour-over will to address the personal property not specifically included in other documents or already transferred to a trust.

A testator’s personal goals, the extent of their property and their family relationships can all influence the best strategy for passing their wealth to the next generation. Understanding the benefits and drawbacks of different estate planning tools, and seeking legal guidance accordingly, can help people create the most effective and comprehensive estate plan given their circumstances.