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Wills, Trusts & Estate Planning: Frequently Asked Questions

John T. Midgett

Where should I keep my will?

Where you keep your will is not of great importance as long as it is in a safe place. Many people believe that a safe deposit box is sealed at death, and therefore it is not a good place to keep a will. In Virginia, an Executor named in the will can enter into a safe deposit box for the express purpose of retrieving a will. Therefore, a safe deposit box is a very good place to keep a will. Another good place to keep a will is in a fire resistant safe. You should pick a good safe that will resist temperatures of approximately 1,600 degrees for at least two hours.

How long does a will last?

There is not a set “life-span” for a will, but it is believed that a standard will (not involving any tax planning) should be reviewed at least every two to three years in order to ensure that it continues to reflect the writer’s wishes in light of possible changes in Virginia law, changes in your financial or family situation, or changes in your assets since the date of the will’s execution. If there is a significant change in a person’s assets, beneficiaries, or in Virginia laws, the will should be reviewed immediately instead of waiting for the next scheduled review.

Is it safe for me to make changes to my will?

No. You should not attempt to change your will by yourself even though the change may seem to be a simple one. When a will is not drawn correctly, the decedent’s family often suffers a high penalty (for example, delay or excess cost in the settlement of the estate or even a loss by some of the beneficiaries of all or a portion of their intended inheritance).

How can I locate a lawyer who is knowledgeable in the law of wills and estates?

The best source for an informed recommendation of a lawyer who is knowledgeable in matters of wills and estates is a local bar association or other financial advisors, such as accountants or certified financial planners, or legal directories. If you rely on a legal directory, such as Martindale Hubbell®, you should seek a lawyer or a law firm that is rated “AV,” the highest rating for competence and ethical values. The publication “Best Lawyers in America”® is also a good resource for competent and knowledgeable attorneys. In addition, if an attorney in a fellow of the American college of Trust and Estate Counsel (ACTEL) it means he or she is a highly skilled attorney as the requirement for membership are very selective.

Does Virginia law require that a will be probated?

No. Although it is a crime to fraudulently conceal a will, there is no law that requires a will to be probated. Moreover, in the case of married persons (where most of the property is held jointly with survivorship) the estate of the first person to die can often be settled, consistently with the terms of the will, faster and at a lower cost if the estate is not settled through the probate process. This also may be true, in a smaller number of cases, upon the death of a single person.

In any specific case however, the final decision about the need to utilize the probate process, or any portion of it, including simply recording a will depend upon the nature, extent and value of the assets in that particular estate or to start the period limiting the filing of claims against an estate. The only person who can be relied upon to provide the correct answer to this question will be a competent estate planning attorney who is knowledgeable and experienced in the laws of wills and estates.

Should my life insurance be made out in any special way?

Many a person has provided for life insurance to be payable to a spouse or, in the event that the spouse is predeceased, to his or her children. The designation of children (or descendants of deceased children) as contingent, or secondary, beneficiaries under an insurance policy can create the same undesirable problems that can arise when minor beneficiaries are entitled to a share of a decedent’s estate. In order to eliminate this problem, and at the same time to provide for complete flexibility in the disposition of the insurance proceeds, a person may continue to specify the spouse as the primary beneficiary and then designate, as contingent beneficiary in the event that the spouse is predeceased, for the proceeds to be payable either (1) “to my estate,” or (2) “to the trustee named in my will” (note: this designation can only be used when the will actually creates a trust), or (3) the trustee of a trust agreement created independently of your will, such as a revocable living trust or irrevocable life insurance trust. Any of these beneficiary designations will eliminate the possible need for the conservatorship for property belonging to a minor or incompetent person.

The use of the proper designation of beneficiary will also enable a person to integrate insurance proceeds into the estate plan created by will (or trust) and thereby dispose of these proceeds in the same manner as their other property. The use of the first alternative (“to my estate”) can cause the Executor’s fee to be higher because the estate will be larger and it will also result in a greater exposure of these insurance proceeds to the claims of the decedent’s creditors.

The second alternative (“to the trustee named in my will”) can cause delay in the receipt of the insurance proceeds if no trust is actually created in the will, or if a trustee has not qualified through the probate court.

However, none of these objections are as significant as the alternative problem if the children are named as the contingent beneficiaries, which could possibly result in a conservatorship for the sole purpose of the management of the insurance proceeds through an expensive, court ordered process. Only by designating a trust, created independently of your will, as the beneficiary of the insurance proceeds avoids the delay and expense of probate.

What is estate planning?

Estate planning is the creation of a written plan and/or documents for managing and protecting your wealth while you are alive and distributing it after your death. When we talk about an estate, we mean all the assets of any value that you own, including real property, business interests, investments, the face value of life insurance policies that you own, retirement accounts (such as 401K plans or IRAs), personal property, and even your personal effects like clothing and jewelry. These assets may be owned by you separately or jointly with other people.

What are the basic methods of estate planning?

  1. There are four basic methods you can use to plan your estate:
  2. Do nothing.
  3. Hold title to your assets in Joint Tenancy
  4. Create a Will
  5. Establish a Revocable Living Trust

Believe it or not, the majority of Americans choose to do nothing at all. Some experts have reported that 70% of all Americans have no written estate plan. And, of those who have planned, most have created a simple will or relied on joint tenancy ownership of their assets to distribute their estate.

Unfortunately, for the majority who have no plan in place, state law will dictate how their estate is to be distributed at their death. As you might imagine, the government’s plan of distribution has no particular concern for your goals for your family. Death without a valid will is called intestate succession.

There is little argument that doing nothing can result in probate costs, attorney’s fees and, of course, possible higher death taxes. What most people do not realize that there can be major problems as a result in creating a simple will or holding title to your assets in joint tenancy.

What is Joint Tenancy and is this a good way to plan my estate?

Joint tenancy ownership is where two or more people hold title to an asset together. But unlike other forms of joint ownership, on the death of one of the owners the entire interest passes automatically to the surviving joint tenants. Actually, the full name for joint tenancy is Joint Tenancy With The Right Of Survivorship (JTWROS). Right of survivorship means that whenever one owner dies the survivor owns the whole property. In Virginia, a special form of joint tenancy is available for persons married to each other. The name of this form of ownership is Tenancy By The Entirety With Right Of Survivorship (TEWROS).

Because a joint tenant’s interest passes to the surviving joint tenant immediately, is not controlled by the owner’s will. For example, let’s say two good friends, Bob and Sam, own a piece of property as joint tenants with right of survivorship. Bob dies and his will says that upon his death all of his estate should go to his wife, Mary. What happens to his interest the real property he owns jointly with Sam? Because the title passes automatically at death to the surviving joint tenant, Sam will own the entire property and Mary will get nothing. This is only one of the unforeseen problems that joint tenancy ownership can create.

Is creating a will a good idea?

Many people plan their estates by creating a document called a Last Will and Testament. A will is essentially a legal document that lays out how you want your assets distributed at your death. A will does not control the distribution of all of your assets. Survivorship property and the proceeds from life insurance policies pass outside your will. Proceeds of retirement plans, such as 401K plans or IRAs, that have designated a beneficiary also pass outside of your will.

Wills do not take effect until you die, so they are no help with lifetime planning. Upon your death your will becomes a public document when it is filed with the probate court and it is available to anyone who wants to read it. Once your will enters the probate process, your estate may no longer be controlled by your family. It is in the hands of the court and the Executor and his attorneys. Because a will guarantees that your estate will go through probate (the word probate literally means “to prove a will”), it is not an effective estate planning document for the many families who desire privacy or wish to minimize the expenses of probate.

Is a Living trust a better planning alternative to a will?

A Revocable Living Trust can be a complete will substitute. It can control all of your assets both during your life and after your death. When you set up a revocable living trust, you transfer title to all of your major assets (stocks, bonds, real estate, etc.) from your individual name to the name of the trust. You then name yourself as trustee and as primary beneficiary during your life. That gives you, and you alone, total and complete control over all of the assets in your trust. You can buy, sell, trade, and do whatever you want, just like you do now.

Here is the difference, and the real benefit of the revocable living trust: when you die, there will be no assets left in your name and therefore no probate for your family to endure. Whomever you name as your successor trustee will immediately gain control of your assets and will distribute them according to your exact instructions contained in the document.

Your revocable living trust is never recorded as a public document. Your wishes for the distribution of your assets are kept private, known only to you, your trustee, and your beneficiaries. The revocable living trust can also help you make effective use of the federal estate tax laws to minimize or even eliminate taxes at death.

What is probate?

The word “probate” is derived from a Latin word meaning literally “to prove a will.” What probate really entails is a bureaucratic method to transfer title to your assets at your death, to have your debts paid, and to have any loose ends in your financial affairs completed. You, obviously, cannot sign the deeds, write the checks, or handle your business affairs after your death. Through your will, you may appoint someone to take over these duties by designating an Executor. If you do not have a will, the probate court appoints someone called an administrator, to take over those duties. The probate process can be complicated and can be a headache for many families.

Here are the five basic steps to settling an estate in Virginia:

Step One: Qualification and gathering material.

A will, if there is one, and a list of your heirs must be filed with the probate court and fees paid to start the process. One of the probate court’s first jobs is to approve or appoint someone to handle the affairs of the estate. This person is called the Executor or Administrator, depending upon whether the decedent died with or without a will. To keep things simple, we will call this agent of the estate by the generic term, “Personal Representative.” Generally, one of the first things a personal representative does is to hire an experienced probate attorney. Although having an attorney is not always a legal requirement, it has become a practical necessity because probate paperwork and filing procedures can be very complex. The personal representative must collect all of the assets owned by the decedent and personal information, such as income tax returns.

Step Two: Notice to heirs and creditors.

The next major job is to give written notice of the probate of the estate and the qualification of the personal representative to all of the persons named in the will, if any, and all persons who are heirs of the decedent. Notice may also be required in some cases to creditors. This requires the time consuming task of cataloging all of the decedent’s liabilities. The creditors may need to notified by notices in the local newspaper. The creditors are given the chance to present their claim at a hearing held before a Commissioner of Accounts, a lawyer appointed by the court to take evidence following a decedent’s death, and to approve the various documents filed by the Executor, such as the inventory or accountings.

Step Three: Inventory and appraise assets.

During probate an accurate inventory of all assets of the estate must be made. This means that during this period none of the assets may be distributed or sold without the approval of the personal representative. The personal representative cannot be compelled (forced) to make a distribution for six months following qualification. While Virginia law no longer requires a formal appraisal of assets, it may be necessary to obtain a valuation of estate assets for purposes of equalizing distribution to beneficiaries, or for measuring the amount of death taxes due based on the value of the property transferred by the will.

Step Four: Payment of debts, claims and taxes.

Once all of the debts and claims have been submitted and approved, they are presented for approval to pay them from the assets of the estate. The person to whom this approval is sought is called the Commissioner of Accounts. Some estates may also have tax liability and the estate must stay open until those taxes are paid and the final amount of liability approved by the Internal Revenue Service and the Virginia Department of Taxation. During the entire estate process, disgruntled heirs, or those who disagree with the provisions in the will, can bring a lawsuit in the probate court. These suits are sometimes called “will contests.” Will contests can hold up the distribution of the estate and are sometimes used to intimidate heirs into settling cases that have no merit. In addition, in Virginia, a surviving spouse has an entitlement to a minimum distribution from all of the decedent’s assets, including those that pass through the probate process. The surviving spouse can file an Elective Share Claim, sometimes call an Augmented Estate Claim, against an estate when the spouse believes that they have not been given the minimum amount required by law. The spouse and the deceased’s minor and dependent children may also be eligible for certain monetary or property allowances or claims.

Step Five: Final distribution and closing of the estate.

Finally, after the court is satisfied that all legal requirements have been met, it will order all debts, claims, taxes, attorneys fees and the compensation for the personal representative, as well as all other miscellaneous expenses of probate to be paid. Only after all of the bills have been paid will the court order distribution to the beneficiaries named in the will, or if there is no will, to the designated heirs at law.

Is probate expensive in Virginia?

Probate can at times be very expensive. One critic of the probate system says that the cost can, at times, be over 7% of the gross value of the estate. Small estates are particularly vulnerable because even reasonable personal representative fees, and other expenses of probate, can eat up a large percentage of an estate’s assets. There just is not that much to go around. Remember, every dollar that goes to pay probate costs is a dollar that could have benefited your family.

The way probate fees are calculated can sometimes be unfair to your family. Some state laws set the probate fees that attorneys and personal representatives can charge. Many states allow attorneys to charge any fee that the court considers “reasonable.” Other states limit the fee to a fixed percentage of the estate. In Virginia, the personal representative is generally entitled to a fee of up to 5% of the value of the gross probate estate, but the court may increase this fee if it believes the circumstances warrant a larger commission. For larger estates, the fee will be on a declining percentage basis, but never lower than 2%. Remember, probate fees are often levied at each spouse’s death. Depending on how title to your property was held on the date of death, a married couple could pay some form of probate fees on the death of each spouse.

What are estate taxes?

The federal estate tax is one of the largest taxes a family will ever have to pay. It is a tax on your right to transfer property to others at your death. Technically, it is an excise tax. The federal government gives every person in the United States a personal exemption amount for estate tax purposes. In deciding whether your estate is greater than or less than the personal exemption, the government includes everything that you own, including the face value of your life insurance policies, and all of your retirement plans.

Are transfers between spouses subject to the estate tax?

No. In addition to the personal exemption that everyone gets, the federal government has exempted all transfers of wealth between a husband and wife from taxation. This is called the Unlimited Marital Deduction and it means that regardless of the size of your estate there will be no federal estate taxes levied when the first spouse dies and leaves the estate to the surviving spouse. Keep in mind, however, that this is only a deferral or postponement of tax. There will be a federal estate tax due on the estate of the second spouse when it passes to the children or other beneficiaries. Since in all probability the estate will continue to appreciate in value, federal estate taxes may be due upon the death of the surviving spouse if the total assets exceed the personal exemption amount.

Warning: The federal tax laws have eliminated the Unlimited Marital Deduction for surviving spouses who are not United States citizens. Without special planning, all non-citizen spouses are restricted to the tax-free transfer of the personal exemption amount from their deceased spouses.

Note: For a limited time a person’s unused estate tax exemption amount can be used by the spouse upon his or her death. This is sometimes referred to as “portability”. Under current law this provision is of limited use as it expires on December 31, 2012 unless extended by Congress.

Can I avoid probate in other states by using a living trust?

If, like many of our clients, you own real property outside of the Commonwealth of Virginia, you can also avoid probate proceedings in those states by transferring the title of your real estate into the name of your revocable living trust. This measure relieves your family of the burdens and delays associated with the dealing with out of state property, and will avoid the expense and delays of probate, and perhaps even estate taxes, in states outside of Virginia.

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Written By John T. Midgett


John T. Midgett is a Shareholder in the Law Firm of Midgett Preti Olansen. His practice is concentrated in the related areas of estate planning, administration and taxation, estate and trust litigation, and family business planning.

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