THE NEED FOR POUROVER WILLS EVEN WITH REVOCABLE TRUSTS

By:  Jerry Shiles

Last week I discussed a problem a colleague was having with some clients. The clients were an older married couple who absolutely refused to execute pourover wills because they were insistent on avoiding probate at their deaths. They seemed to feel that if they signed a will, even with revocable trusts in place, they would somehow subject all of their assets to this horrible creature called "probate."

While states vary as to the invasiveness of their probate processes, most states with which I am familiar have relatively simple and somewhat inexpensive probate procedures in place.

On the other hand, I am almost willing to bet that in most states, the intestate administration procedures for those who die without a will are far more invasive than the probate procedures for those who die with a will.

Dying Without A Will

If you die without a will, any assets not titled in the name of your trust will be treated as intestate assets. I won’t bother you with the details of what happens at the death of the first spouse, and then of the second, as this was covered in detail in an earlier column by my associate, Sarah Lane, which is available on our website.

Let’s just say that dying without a will doesn’t avoid probate–it practically guarantees one if you own any property individually. The process is then called estate administration, not probate.

Now, there may be another answer which could work in this situation. The couple could title their individual property in joint tenancy so that it automatically passes to the survivor at the death of the first spouse to die. Of course, this leaves open the question of what happens then. The survivor will still have to do something with this property to avoid probate.

And this begs the larger question of what if they didn’t know about the individually owned property. Any technique works well, but only if all of the property is held in the name of the trust or in joint tenancy. If you miss something, you are right back in the same big hole.

I always tell clients the impossible can happen. They might buy the $12 million winning lottery ticket–and collapse of a heart attack! No matter what you do, you just can’t guarantee you can avoid probate.

Another colleague tells me he is just now in the process of probating a will with a pourover clause some two years after the decedent died. Apparently, his surviving spouse thought everything was in the trust and didn’t worry about anything until a paid-up life insurance policy worth some $50,000 suddenly appeared out of the woodwork. The attorney didn’t go into any detail, but apparently the life insurance policy was payable to the estate and not to the widow. This points out how dangerous it can be to skip having a will. At least in this instance, the widow had the will to fall back upon and received the full benefit of the insurance policy. If her husband had died intestate, she might only have received part of the proceeds.
 

Back to the first case, this elderly couple has a large amount of very valuable tangible property and they will need to be sure they get every vase, piece of jewelry, painting, Persian rug, etc., into their trusts. They can do this with a blanket assignment and bill of sale, but at some point they are going to have to account for and value all this property.

The problem is that this couple is confused and thinks that if they have a will, their estate must be probated. The attorney needs to explain to them that having a will doesn’t determine whether there will be a probate or not. The size of their "probate" estate is what determines that.

If they transfer all their jewelry, rugs, etc. to their trusts with a blanket assignment, these assets are no longer part of their probate estate. If they are really concerned about it, they can do individual assignments and specifically identify the property being transferred to the trust, such as "Grantor hereby assigns and transfers all her right, title and interest in and to the following listed jewelry to Trustee: (1) 4.32 carat diamond (VS1, G) ring, set in 14K gold 6-prong Tiffany mounting, (2) 18" double strand of 8MM pearls with pave diamond clasp, etc."

They need to be sure they transfer all of their property to their trusts, especially those with titles or registration (stock, automobiles, RVs, boats) or those requiring deeds of conveyance (real estate, farms, mineral interests).

It doesn’t matter what assets are held in the trust, be they cash, realty, jewelry, automobiles, etc. So long as all the couple’s property is owned by their trusts, there isn’t any need for probate.

The best way to handle this is to include a separate Distribution of Personal Property schedule which outlines the specific gifts, although if all women’s jewelry is to go to one person and all hunting equipment to another, this is probably all that needs to be set forth in the body of the trust itself. All other assets to be distributed to named beneficiaries should be specifically identified in this separate schedule by beneficiary (and possibly even alternate beneficiary).

Although this has no bearing on the above discussion, this couple owns S corporation stock, so the attorney needs to be careful to make sure all of "permitted shareholder" rules are met and that there aren’t any traps lurking in the high grass.

What is most important is that the couple not allow the "avoiding probate" mantra to so dominate their thinking that they wind up losing sight of the bottom line, which is to have their estate managed and administered as effectively and inexpensively as possible.
 

© Jerry E. Shiles 2003

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