Yours, Mine, and Ours: How Including a Pour-Over Trust Can Simplify Your Planning

A number of married couples think about their accounts and property as “yours, mine, and ours,” especially if either or both spouses have gotten or will be getting remarried, married late in life, or have brought or will be bringing significant amounts of money and property into the marriage. Deciding what should happen to all of these accounts and property at death can be a big undertaking. To help alleviate some of the stress that may come from making such decisions, we like to suggest a unique estate planning tool called the pour-over trust.

What is a joint pour-over trust?

A joint pour-over trust holds your and your spouse’s joint property. You can create the joint trust together and name yourselves as the current trustees. When the first of you passes away, half of the joint trust’s accounts and property is distributed (pours over) to the deceased spouse’s separate trust, and the other half is distributed to the survivor’s separate trust.

Does this mean that we will need three trusts?

For the estate plan to work as intended, you may indeed need three trusts. Jointly owned property goes into your joint pour-over trust, and separately owned property goes into your own separate trust. This allows you to provide separate instructions for handling jointly and separately owned accounts and property. However, once the first of you dies and the accounts and property are distributed to the respective individual trusts, there is nothing more for the joint pour-over trust to do. Thus, it will not require a long, ongoing administration after the first death.

What are some other benefits of a joint pour-over trust?

Ease in funding the trust. A joint pour-over trust makes it easier to fund your joint accounts and property into it because both of you control it. While an account can be jointly owned by two people, some financial institutions may not allow two trusts to jointly own the same account. This technicality can sometimes derail your planning or increase the risk of probate should the two of you die simultaneously while still owning your accounts and property jointly as individuals.

Ease of administration. The joint trust allows for ease of lifetime administration because both of you retain control over your joint property.

Probate avoidance. Avoiding probate is a popular reason for considering a trust-based plan. If your joint accounts and property are in a trust and you and your spouse pass away simultaneously, your loved ones can avoid probate because the trust instructions will dictate what happens to the accounts and property. Your chosen backup trustee will carry out the instructions without court supervision.

Keeping things separate. By allocating your joint property to the joint pour-over trust and your separate accounts and property to your individual trusts, your separate accounts and property remain separate, and it is easier to administer the trusts according to each of your wishes. Such an arrangement can be helpful if you or your spouse have children from a previous relationship whom only one of you wants to provide for at death. In some cases, however, these accounts or pieces of property may have already been handled separately, so commingling them in a joint trust may muddy the waters and run contrary to your desires.

Double step-up in tax basis. In a community property state, placing your joint accounts and property in a joint pour-over trust may enable the two of you to preserve the community property nature of your accounts and property, allowing for the double step-up in tax basis (once at each of your deaths). If you were to divide ownership of these accounts or property between two separate trusts, you may risk losing the double step-up in basis.

Having joint and separate accounts or property does not mean that you cannot carry out your estate planning wishes. Working together, we can assess what you own and how you own it and discuss your wishes about what should happen to those accounts and property at your death. Call us today at 352-205-4455 so we can craft a plan that works best for you, your spouse, and the rest of your loved ones.