A living trust (aka grantor trust, inter vivos trust) is the primary will substitute used to avoid probate, but a trust only contains the property that the settlor transferred to it. Hence, a trust will not include all the decedent's property. Property that is frequently replaced or transferred will probably not be included in the trust, since there is some additional effort required to add, replace, or eliminate assets in a trust. Hence, most settlors only include valuable property that they intend to keep in a trust.
Because only the settlor can transfer property to a trust, any property that the settlor receives after his death will be part of his probate property, such as working income from his last days of employment or an inheritance. Hence, the probate estate will always include some property.
However, since one of the main benefits of a trust is a greater degree of control over the disposition of its assets, many settlors want to include most or all their probate property in their trust. This is accomplished with a pour-over will, which is a will that has an express clause — the pour-over clause — directing that some or all the property be transferred to the trust, to be distributed according to the terms of the trust.
Usually, the pour-over clause is the residuary clause, but it can also be a specific gift or a general gift of money.
Real World Examples: The Pour-Over Clauses of Some Famous, Rich People
"I leave the sum of Twelve Million Dollars ($12,000,000) to the Trustees of the LEONA HELMSLEY JULY 2005 TRUST, established under an instrument dated on or about the date of this Will, to be disposed of in accordance with the provisions of that Trust agreement." — Last Will and Testament of Leona M. Helmsley
"After payment of all debts, expenses and taxes as directed under Item I hereof, I give, devise, and bequeath all the rest, residue, and remainder of my estate, including all lapsed legacies and devices, and any property over which I have a power of appointment, to my Trustee, hereinafter named, in trust for the following purposes: ... " — Last Will and Testament of Elvis A. Presley
Validation of the Pour-Over Clause
Courts are wont to extending their jurisdiction wherever possible, and the pour-over clause gives some probate courts a reason to extend their supervision over the living trust. It is argued that since the Wills Act formalities are required to validate a will, which disposes of the testator's probate assets, but the creation of the living trust is not subject to the Wills Act, then any assets transferred from the probate estate to the living trust permits the probate court to extend its supervision to the trust (and, of course, to charge additional fees). The trustee will be required to give an accounting of the estate to the court annually for the life of the trust and whenever the court requests an accounting.
There are 2 common law doctrines used to validate a pour-over clause: acts of independent significance and incorporation by reference.
Acts of Independent Significance
An act of independent significance is an event that controls the disposition of the probate property, but which has significance apart from the will. If the trust was funded before the testator's death, then it will generally be deemed to have an independent significance that can be validated as incorporated into the will. The trust document can be amended at any time without affecting its status as the recipient of the pour-over clause.
However, some probate courts treat the transferred assets as a testamentary trust even though the assets have been transferred to a living trust, and, hence, these probate courts extend their jurisdiction to the transferred assets until they are disposed by the trust.
Incorporation by Reference
The probate court can also validate a document as part of the will if it is incorporated by reference and the following requirements are met:
- the will must obviously refer to the document as being part of the will;
- the document must be identified with reasonable certainty;
- the document must have existed at the time of the will execution.
Some jurisdictions require that the trust document — regardless of whether the trust is actually funded or not — must exist when the will is executed and if the trust document is amended, then the will must be republished, either by re-execution or by codicil. However, UPC §2-513 dispenses with this nonsense and allows a referenced document to be created or amended at any time without having to re-execute or republish the will. Nonetheless, state law should be consulted as to the exact requirements.
The purpose of having a separate document is so that the testator can change it without going through the time-consuming and expensive Wills Act formalities. The only requirements are that the property and the devisees be identified with certainty and that the testator sign the document. It probably would be a good idea to date the document as well, especially if the testator made many revisions, since it would be easier to resolve discrepancies.
Uniform Testamentary Additions to Trusts Act (UTATA)
The Uniform Testamentary Additions to Trusts Act (UTATA), as updated in UPC §2-511, specifically allows a trust to be incorporated by reference, regardless of when the trust was created or amended. UTATA specifically states that any probate assets transferred to an living trust be treated the same as the other assets in the trust, and not as a testamentary trust, thus eliminating the attended supervision and costs of the probate court. However, if the trust is revoked by the testator and the pour-over clause is not amended or deleted, then the pour-over gift lapses.
If the Pour-Over Clause Fails
If the pour-over clause cannot be validated, and the pour-over clause was the residuary clause or there was no residuary clause, then the pour-over gift is distributed under intestacy. If the will had a residuary clause but was not the pour-over clause, then the pour-over gift will generally go to the residuary beneficiaries.