Updated: Aug 15, 2018
When a living trust and a "pour over will" are used, they are typically done concurrently. The living trust is created during your lifetime and assests are transfered into it once it is created. A "pour over will" is executed at the same time for the purpose of transfering any assets you own at your death that have not yet been transferred into the living trust. So a "pour over will" is a catch-all. It transfer all of your assets not yet in the living trust, into the trust at your death.
Another option is to draft a will with a testamentary trust. A testamentary trust is not created until your death. Therefore, this trust is revocable during your lifetime (by changing your will and taking it out) but becomes irrevocable at your death. Because a testamentary trust does not "spring" into use until the testator (person who created the will) dies, the testator retains full control and use of his or her assets in the testator's own name without transferring them to a trust. So unlike living trusts, with a testamentary trust, no banks, brokerage houses, etc. must be notified of the transfers to a trust and there is no need to ensure that the correct forms and/or documents are created to transfer the assets properly. A testamentary trust remains confidential until the settlor (the person who set up the trust- you), dies. At that time, the entire will that includes this trust is submitted to the Probate Court.
The advantage to a living trust is it may remain confidential to "uninterested parties." So some people like them because they are not accessible to the general public, unlike a will with a testamentary trust. Upon a testator's death, wills are subject to public inspection at Probate Court. But interested parties (for example, trust beneficiaries) have a right to know the contents of any trust instrument that affect their interest.
Not all living trusts are insultated from the claim of creditors. There are exceptions. For example, creditors of a settlor who has created a revocable, funded living trust and named himself or herself as trustee (person responsible for managing the trust) can and do reach the settlor's trust assets.
Delays in the probate process are sometimes offered as a reason for using a living trust. By operation, the assets that have been put into a living trust are "managed" by the trust which should include provisions of how the assets should be transferred upon your death without Probate Court intervention. However, delays in administering a testamentary trust in Probate Court are virtually always related to the actions of the trustee (or often times, their inaction).
One of the things you may have heard about "living trusts" is that they "avoid probate." What this often-misunderstood phrase means is that they, unlike testamentary trusts, avoid the supervision of Probate Court. However, this may not always be an advantage.
The Probate Court can offer a speedy and inexpensive mechanism (versus Superior Court) for resolving questions or disputes concerning the administration of a trust. Living trusts are not under the continuing jurisdiction (i.e., oversight) of the Probate Courts.
Also "avoiding probate" through a living trust does not avoid estate or inheritence taxes. Those taxes apply equally to assets held in a living trust or a testamentary trust and the opportunity to minimize those taxes applies equally to both kinds of trusts.
Neither living trusts nor testamentary trusts avoid the statutory fees charged by Probate Court either. These probate fees are charged based on the gross taxable estate as shown on the Connecticut Estate Tax Return, which must be filed if the decedent's property passes through a living trust or a testamentary trust.
Another limitation with living trusts is that assets like qualified retirement accounts, HSA accounts, and UTMA and UGMA accounts cannot or should not (usually for tax reasons) be transferred into them. In addition, another consideration with deciding whether a living trust is the right option, is that the fees charged by trustees of a living trust are generally not screened by anyone but the parties themselves. In contrast, in Connecticut, all fees with any matter before the Probate Court are subject to Court review for a determination of "reasonableness," including the payment of testamentary trustees.
So you can see from this basic overview, there are many things to consider when deciding between these two options. But these are not the only options available and everyone's situation is different so it is important to talk with a tax professional or an attorney about your particular situation. It is also important to have your legal documents reviewed about every five years by an attorney to make sure that they still accomplish your goals and objectives, especiallly if your financial and/or family situation has changed.
Attorney Bulkovitch would be happy to meet with you to discuss your particular situation. She asks that clients fill out her questionnaire prior to the discussion/meeting to assist her in assessing your particular situation. You can reach her at 860.295.1600 or through the contact page on this website.
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