{Read in 6 Minutes} As a Trusts and Estates attorney, I frequently work with people to create estate planning documents. This may include Wills, Powers of Attorney, Health Care Proxies, Living Wills, and/or Funeral Directives.
Sometimes people choose to sign a Revocable Trust. I personally am not a fan of Revocable Trusts, feeling that they are overcomplicated and hard to understand compared to drafting a simple Will, which the Surrogate’s Court can admit to probate relatively quickly and efficiently.
There are some attorneys and some New Yorkers who are big fans of Revocable Trusts. People see them as a way to avoid probate. The general idea is that one can create an estate plan where they structure all of their assets as non-probate assets, which means that they would pass outside of probate directly to the named beneficiary. This might happen with jointly owned real property, jointly owned bank accounts, life insurance policies, and retirement accounts (with the latter being controlled by a beneficiary designation form).
In order for this type of planning to work, it is essential that the person creating the Trust, called the Grantor, transfers title to all of their assets into the Trusts. If the Grantor fails to do this, the overall plan fails in that the nominated Executor of the Grantor’s Estate will need to offer the Will for probate in the Surrogate’s Court, obtain Letters Testamentary, and proceed in that fashion.
Enter the essential part of this plan, the pour-over Will. A pour-over Will is a Will that simply says that the deceased leaves all their assets to the Trustees of the Revocable Trust. The name says it all — they are pouring any assets that they forgot to transfer into the Revocable Trust into the trust. That way, the Trustee can distribute it to all the beneficiaries in one shot, as opposed to the beneficiaries receiving distributions from both the Estate and the Trusts.
What are some of the assets that the Grantor may forget or decide not to transfer into that Revocable trust?
- Assets that are difficult to transfer.
In general, bank accounts may be easy. This is as simple as going to the bank and completing some paperwork there to re-title ownership of the accounts in the name of the Trust. But what about things that do not have ownership documents such as tangible personal property, like one’s belongings, digital assets, or intellectual property?
While it is possible to re-title all these assets in the name of a Revocable Trust, it is sometimes confusing to people as to how to accomplish this. For that reason, sometimes they simply fail to do it.
- Real Estate
It might be easy or difficult to transfer real estate into a Revocable Trust. If someone owns real estate like a parcel of land, a home, or a condominium apartment, this may be as simple as signing a deed where the Grantor transfers ownership of the real estate from themselves to the Revocable Trust. However, if they own a cooperative apartment, any such transfer is subject to the approval of the management company and the Board of the co-op.
This can be very difficult. Not every co-op allows transfers into Revocable Trusts (although as compared to years ago, most of them tend to allow this in New York City these days). But even when they do allow it, they will often hit the Grantor with outrageous fees for their attorneys to review the Trust agreement, supplement the Trust agreement with various other documents, conduct the closing, and sometimes will require exorbitant funds to be placed in escrow to ensure future payments of monthly maintenance charges.
With either of these assets, it’s important to note that if the owner or the Grantor has a mortgage or other financing on their home or the property, they will need the permission of the mortgage bank to make this transfer. If they don’t first obtain the permission, the bank could immediately call the entire balance due on the mortgage, so tread carefully.
- Joint assets that no longer have a living named beneficiary.
Now and then, someone will write a Will and a beneficiary will die before them. However, what happens if a married couple decides to have all their bank accounts joined? Normally, that would avoid probate, as the joint owner would inherit the property. However, if one of them dies, the Grantor must remember to transfer that account into the name of the Trust. There’s no longer a living joint owner, so unless they do so, it will be payable to their Estate. The same is true for life insurance policies or retirement accounts that name beneficiaries who have died before the Grantor.
This is why the pour-over Will is so essential to New Yorkers who decide to execute Revocable Trusts as opposed to simple Wills. Think of the pour-over Will as the safety net. It can catch any assets that have fallen through the cracks because the Grantor forgot or neglected to transfer ownership to the Trust. The Surrogate’s Court can offer it for probate to ensure that all of the assets wind up in the hands of the desired beneficiaries.
For more information on this topic, please contact me.