Avoid Probate Problems: The ‘Pour-Over Will’ is No Substitute for Proper Estate Planning

Upon your passing, your estate could end up in probate if you don’t plan properly. All of your affairs will become public record, paperwork can be delayed, and there will, of course, be attorneys’ fees.

Probate is the legal process for verifying a Will, appointing the executor, inventorying assets, paying final bills, and distributing and closing the remaining estate.

It is possible to avoid probate. Taking simple steps right now can make this transition smoother, helping to ensure your assets get to the proper heirs – quickly and privately – while avoiding  anguish and delay for those loved ones surviving you.

Yet even with the best intentions, many people are surprised that some estate planning techniques, such as a “Pour-Over Will,” can still end up in a courtroom.

The Revocable Living Trust May be a Necessity

A Revocable Living Trust is created and run by a grantor to take ownership of assets to be transferred after death. It’s a legal tool that can be altered or revoked during the grantor’s lifetime. The Trust, however, does not replace the need for a Will.

The primary role of the Trust is to avoid probate after the grantor passes. When set up correctly, the Trust can quickly distribute assets, keep the process less public and be less expensive. The Trust, unlike a Will, is not a public document.

The ‘Pour-Over Will’ may trigger a Public Probate Process

A key is properly titling assets for Trust ownership. If an asset is not titled correctly, a Pour-Over Will may be used to move the asset into the Revocable Living Trust. It’s an effective tool, but as part of a Will, it’s almost certainly subject to probate.

Managing an estate with just a Will or using a Pour-Over Will opens the entire inventory to public scrutiny during the probate process. There can be delays getting a hearing, massive amounts of paperwork and steep legal fees.

Simple Tools for Avoiding Probate

Start with life insurance, bank, investment, and retirement accounts. Funds can be paid or transferred on death if an account has a beneficiary designation. This makes the money available to successors without going through probate.

In Arizona, it’s possible to set up a beneficiary designation for real estate even when a Trust doesn’t exist. Using an Arizona Beneficiary deed can help avoid probate, and transfer title to designated beneficiaries upon death of the owner.  The title transfers to designated beneficiaries and avoids probate.

Titling Tools for Avoiding Probate

How assets are titled in Arizona can include community property with rights of survivorship for real estate. This helps avoid recognizing or paying capital gains taxes if the property is sold after the spouse dies.

Generally, if real estate is owned, there is usually a benefit to having a Revocable Living Trust. It generally makes sense for most people who own real property.

With assets properly titled in the name of your Trust, if a grantor becomes incapacitated, it can be easier for the person holding the durable financial power of attorney to access bank, investment, and retirement accounts for the grantor’s benefit.

Common Estate Planning Mistakes That Can Become Expensive Mistakes

The biggest mistake is not planning an estate or having documents prepared by an estate planning attorney with the right specializations.

Another estate planning mistake, is failing to avoid probate, this can have serious consequences. Adult children may persuade parents to retitle the family home into  joint tenancy. This potentially may avoid probate, but if the children have a significant financial setback – a bankruptcy, business failure, or liability loss from an accident – that family home is an attackable asset. The parent could lose the house.

Titling mistakes are another common occurrence. A living trust may be formed, but the grantor neglects to retitle assets into the trust. For example, it may be necessary to form an LLC to limit liability from a rental property. To avoid probate, the LLC needs to be owned by the Trust. Proper titling can prevent an ownership transfer from turning into an accidental or unintended gift.

Not adequately designating beneficiaries for life insurance, banking, investment, and retirement accounts can haunt an estate settlement. Not only is a primary beneficiary needed, but secondary and tertiary beneficiaries are also important considerations.

Learn more about the most common estate planning mistakes.

Times When Probate is Acceptable

For small estates with few assets, a simple Will with beneficiary designations may be all that is needed. The key is to ensure all promises are in writing and that the original Will is accessible for submission to the court. Copies are not permitted as official records. Keep that Will in a fireproof safe and ensure the future executor knows where it is.

Make a digital Will with website and computer passwords so the executor can access online accounts, delete social media profiles, and retrieve essential computer files.

Get Help with Estate Planning

Experienced advisors can bring the right tools to bear to help you make the right decisions now to avoid probate later.

At Hosler Wealth Management, our estate planning professionals in Scottsdale and Prescott can help you determine the right steps for your situation.

Request a call or send us a message to explore your options.

This material is intended for informational/educational purposes only and should not be construed as specific tax, legal or investment advice. Individual circumstances may vary.

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