For many people, a revocable living trust is the cornerstone of their estate plan. By placing titled high-value assets like homes and other real estate in a revocable living trust, you can avoid the need for them to go through probate after you’re gone. The same can be done for bank, investment and retirement accounts.
To place an asset in a revocable living trust, you simply need to change the ownership of it to the trust’s name. The trust technically owns the asset, but since you’re the trustee while you’re alive and competent, you can still use it as you normally would. You can place other valuable assets, such as jewelry, in the living trust by including an addendum with a detailed list. Your estate planning professional can help you do this in a way that is legally binding.
It’s important to understand that a revocable living trust doesn’t replace a will, which is still a required part of an estate plan. Your will is where you’ll designate your executor and your designated legal guardians for your children and/or pets. It will also likely include a “pour-over” clause. That’s because the will “pours over” any assets not listed in the trust to include them.
The pour-over clause and the residuary estate
The assets covered in the clause typically include household furnishings, clothing and other items not valuable enough to require probate and therefore not included in a living trust. It also includes any items that you may have forgotten about, like an old bank account, or not gotten around to re-titling in the trust’s name.
These assets not in the trust are referred to as your “residuary estate.” The pour-over clause allows them to be transferred into the living trust. Without this provision or any reference to them in your estate plan, they would be treated the same as if you died “intestate” (without a will). This means they’re distributed according to the law regardless of your wishes.
It’s important to specify in the pour-over clause what you intend for these assets. For example, you may simply state that you want them sold and the proceeds distributed among your beneficiaries equally.
Estate planning can seem daunting – even to people with extensive business, financial and other experience and skills. It’s a highly complex aspect of the law. The more assets you have and the more complex they are, the more you need sound estate planning guidance.