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Make Sure Your Estate Plan Includes A Mousetrap

Imagine everything you own — your estate — is a big collection of cheese. You’ve got your cheese-trust that keeps your wheels safe and distributes cheese to your loved ones when you’re gone. But trouble lurks for the unwary. If you don’t pay attention, mice might get away with some of your precious gruyère. You need a mouse trap to make sure the mice won’t get away with it. And if you don’t take proper precautions, a court is going to have to step in to find your cheese and order the mice to put it back.

Pour-over wills are the mouse trap of any estate plan employing revocable or irrevocable trusts. They ensure that an asset that doesn’t make it into your trust by the time you pass away is placed in the trust. A pour-over will is essential if you want your estate to pass quickly and efficiently to your loved ones and avoid probate.

Why You Want to Avoid Probate

Probate is the process where a court oversees the distribution of assets to the beneficiaries and creditors of a deceased person’s estate. Probate is a bad word in estate planning. But why? What’s so terrible about a court being involved in the administration of your estate?

Estate planners generally advise their clients to avoid probate because it is time consuming, tedious, and expensive. An estate that is administered by probate takes longer to settle than an estate that is settled outside of probate, usually adding at least a year to the process and sometimes more. There are more documents to file, more deadlines to comply with, and more supervision by the courts.

Courts charge a fee for supervising the distribution of assets (Virginia courts charge 0.1%, or $1 out of every $1,000), and there are filing fees each time a document is filed with the court. Additionally, the executor or administrator — the private person actually controlling assets and being supervised by the court — is allowed to charge more for their services when they are settling an estate by probate, as opposed to a trustee settling an estate under the terms of the trust document. And that’s cheese that didn’t need to be eaten.

Keeping Your Cheese Out of Probate

For estate administration purposes, there are two types of assets: probate and non-probate. Non-probate assets are shrouded from the court and the mice by a trust (or operation of law). Anything that is not included in the trust might still have to go through the probate system. A pour-over will guards against this outcome by directing any assets that aren’t covered by the trust to be placed in the trust and administered according to the trust’s terms.

But you have to be careful — certain types of cheese must make it into the trust or else the will must be probated for the assets to pass to the trust. Real estate that is titled in your name, and not your trust’s, is required to go through probate. And other titled forms of personal property – generally those you are required to title with a state entity, like your car or boat – may have to be probated if passing to your trust by the pour-over will.

Even if a probate asset doesn’t make it into the trust, there is still a chance the will does not have to be probated. In Virginia, there are special procedures in place that can be used to transfer assets to beneficiaries by waiver. Estates worth less than $50,000 qualify for the waiver procedure established under the Virginia Small Estates Act. As long as some assets make it into the trust to make it “funded,” and the assets that are left out do not exceed the threshold of $50,000, a pour-over will acts as the safety mechanism that ensures the estate avoids probate.

Conclusion

You want to make sure your loved ones get your cheese collection when you’re gone. There’s a quick and efficient way to do that, but you have to take the proper precautions during your lifetime to ensure all goes according to plan. So make sure your estate plan includes a pour-over will, because an ounce of prevention is worth a pound of cheese.

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Misha is an estate planning attorney at Speedwell Law, PLLC. If you would like assistance in setting up your own estate plan, he can be reached at (703) 553-2577 or mgill@speedwelllaw.com.

This post, including any of its contents or links, is not intended to provide you with legal advice. It provides personal perspectives on legal news and developments. Reading this post, leaving a comment, or communicating with its author by email or over the Internet does not create any attorney-client relationship.