More and more people are bringing significant assets with them into marriage. As a result, both parties have separate property that needs to be considered alongside their marital property. As the average age of marrying couples rises, this issue will become more common. One estate planning tool that could help many such couples is the pour-over trust.
The Joint Pour-Over Trust Tool
This tool exists to hold a couple’s joint property for later distribution. It’s also very useful when a couple has both community property and separate property. Both spouses create the pour-over trust and serve as current trustees.
Upon the death of the first spouse, 50% of what is in the trust goes to a separate trust belonging to the deceased spouse. The other 50% goes to another separate trust belonging to the surviving spouse.
Since the joint pour-over trust feeds two additional trusts, the tool does require the creation of three separate trusts. This can be useful anyhow, as the other two trusts are created to hold separate property. This creates flexibility when it comes to how each account is handled. It can also reduce conflict and administration difficulties that often come when a spouse passes away, especially in blended families.
Why Create a Pour-Over Trust?
Separation of Property
There are several benefits to the pour-over trust approach. Perhaps the most basic is that it helps couples keep clear lines of separation between jointly owned property and separately owned property. Having separate trusts for the different kinds of property gives you the power to administer your property in the way you want.
Probate Avoidance
Another key feature of the pour-over trust is avoiding probate. Trusts are often used to circumvent the tedious process of having the courts oversee how your property is handled when you pass away. Trusts give you greater control through trust instructions and the appointment of a trustee to follow those instructions.
Simple Funding & Administration
In a similar vein, pour-over trusts are relatively easy to fund and administer. You and your spouse are equally in control of the joint pour-over trust, as current trustees. You can easily control which property is included in the trust.
Joint accounts can easily be owned by two individuals, but in some instances, they can’t be owned by two trusts. To get the benefit of avoiding probate, the pour-over trust is necessary to hold onto the joint property.
Double Step-Up in Tax Basis
One final benefit is the potential for tax benefits. Placing your joint accounts into a joint pour-over trust may result in the preservation of your community property, resulting in a double step-up in tax basis. This would occur once at your death and again at your spouse’s death. If the property was placed in separate trusts for each spouse, the double step-up in basis could be lost.
Plan Ahead With Experienced Guidance
Pour-over trusts, like many estate planning tools, are most effective when used properly. Talking to a skilled estate planning attorney can put you on the right path. Contact the Law Office of Janet L. Brewer by calling 650-325-8276 to schedule a consultation today.
