Here’s a conversation I have had more than a few times. I'm talking to a new client, and she has decided to go with a living trust in order to avoid probate. I'm explaining a few things about the process, and I say “Along with your living trust, we'll be drafting a few other documents, including a power of attorney, a deed to put your home into the trust, a will…”
The client interrupts. “What do you mean, a will? I said I want a trust, not a will!”
“You’re getting a trust,” I explain, “but along with that you’ll need to have what’s called a pour-over will.”
She’s still not convinced. “You told me, and I am sure I heard you correctly, that one of the reasons I should get a trust is to avoid probate. And you also told me that the purpose of a will is to direct what happens with probate. So, if I am avoiding probate with a living trust, why do I even need a will?”
“You heard me correctly. You need a will,” I tell her, “because even though we are trying to avoid probate with a living trust, there is no way to absolutely guarantee that there isn't something that ends up in probate.”
Why is that the case? You have probably heard dozens of times that a living trust avoids probate. Why do you also have a will, when you already have a trust?
First of all, I'm not talking about a normal will here. There is something called a “pour-over will.” The analogy here is that the trust is like a bucket. In order for the trust to work, you must put your assets into the trust. In other words, you “pour” your assets into the bucket. But what if some of the water spills? You have a pan underneath the bucket to catch the spillage. When you are done pouring, you lift up the bucket, pull out the pan, and pour the water from the pan into the bucket.
In real terms, a living trust does not avoid probate. Not literally anyway. The trust diverts the assets that are in the trust away from probate, so that probate becomes unnecessary. But for that to work, the assets in question need to be in the trust. Any assets that miss the boat—sorry, I shouldn't mix metaphors here—miss the bucket—are subject to probate, and that is where the will comes in.
When you have a living trust, instead of the normal type of will that spells out who gets what, your will says that everything goes to the trust.
Let me give some real-life examples. I have had cases where the person who passed away had died in an accident and there was a wrongful death claim, but they had to open a probate estate in order to collect the settlement. I have had others where the person had a claim in a class action such as the mesothelioma lawsuit or the Camp Lejeune (victims exposed to contaminated water) settlement. Or when the deceased was involved in a lawsuit that may have had nothing to do with how they died, but someone had to pick up their end of the case.
Or maybe they had an asset that they had not actually received yet to put into the trust. That is very common, especially with probate cases. Those can often drag on for years, and until you actually receive the assets, there is no way to put that into your trust. So, for example, if my rich uncle dies and leaves me $1 million, I am legally entitled to that inheritance if I survive him. If it takes several years for his estate to slog its way through probate, and I die before I actually receive those assets, my inheritance will have to go through probate. And that would be true regardless of the fact that I have a really good living trust that I could have put the money into, had I lived a bit longer.
Most of the things I just mentioned are things you cannot do a whole lot to control. Unfortunately, the most common reason a pour-over will ends up being used, is that the person did not get all of their assets into the trust. They bought a new property and did not bother to tell the title company to put it into the trust. They didn't tell the estate planner about that remote property across the inlet. They got tired of dealing with this stuff and didn't bother to take care of that other credit union account. They didn't update their assets when their spouse died.
The whole point of a pour-over will, just like the point of that pan underneath the bucket in the analogy, is that it will hopefully never have to be used. To use a different metaphor, it is like the fire extinguisher. As the young’uns might say, if you have to use it, that's not a W.
Kenneth Kirk is an Anchorage estate planning attorney. Nothing in this article should be taken as legal advice for a specific situation; for specific advice you should consult a professional who can take all the facts into account. But if you try to message me about the difference between a metaphor and an analogy, I will block you. Literally.
