Estate planning is one of the most important things an individual can do to protect his or her family’s financial security as well as their overall well-being and future. Every estate plan is different and should be customized to the needs and interests of the individual and their family. Having a properly drafted and executed Will and/or Trust is essential to a well-conceived estate plan. For example, in some situations, it may be best to have the principal instrument in your estate plan be a Will and in others a Revocable Living Trust.
Costs and taxes associated with having no estate plan or a poorly formed estate plan can become extraordinary. Taking into account these financial considerations, an estate plan is the most secure and fiscally responsible way to allocate assets and property to an individual’s beneficiaries or heirs.
Whether a will and/or trust is established as the centerpiece of your estate plan, these instruments will allow for the proper allocation of your property and assets at your death to the heirs and beneficiaries that you wish to receive them. Additionally, a well-conceived estate plan will take measures to ensure that your family is taken care of in the event of your incapacity. This is critical in the case of young children as an estate plan can be drafted to determine the course of action for the responsibility and security of these children.
When someone passes away, there are several costs associated with the distribution of their estate, taxes being one of the most important. Aside from the cost of probate, which includes court costs and costs for subpoenaing witnesses, individuals need to be aware of state and federal taxes. The basic types of taxes are:
A trust is a legal agreement used to transfer and distribute property and income to beneficiaries. A trust agreement requires three parties: the settlor, the person who creates and transfers property into the trust; the trustee, who manages and distributes the principal and/or income of the trust; and the beneficiary, who receives the principal and/or income of the trust. Although a trust requires three parties, it is possible for a single individual to assume the role of all three parties or a combination.
A revocable living trust is the most commonly known type of trust and closest to a will counterpart. “Revocable” means that the property or rules regulating the trust can be revoked or modified at any time. “Living” means that the trust was created during the settlor’s (person who creates the Trust) lifetime. One of the advantages of using a revocable living trust is at the decedent’s death, most of the property can be passed to beneficiaries almost instantly. Another advantage is the property transfers are private instead of public records through probate. Property in a revocable living trust outside of the state does not need to be probated and can avoid ancillary probate and the costs associated. A revocable living trust may be the right choice for some estate plans, but it is not the best for everyone. When choosing a revocable living trust as the primary estate planning instrument, we would still recommend a pour-over will. This means that you would need to have both a will and a trust created, which may increase the overall cost of the estate plan. Additionally, having a financial expert act as a trustee to manage the trust can further make the use of a trust an expensive choice.
A Last Will and Testament (“will”) is a written declaration, which an individual allocates how they would like their property to be distributed and to what beneficiaries upon their death. The will may name an administrator, guardian, or conservator to manage different portions of the estate. A will is an essential document in estate planning. We recommended that a will be part of an estate plan even if you use a Trust as the estate’s principal document. If an individual has a will at their death, then they are considered to have passed away ‘testate;’ with a will. When an individual’s will is discovered upon the death of that individual, it is submitted to the court for probate. At which point, the court will appoint the estate administrator named in the will. If, however, there is no administrator named in the will, the court will appoint the estate administrator on its own. The estate administrator will then need to prove that it is a valid will and that it was intended as the decedent’s last will and testament. A skilled will lawyer can expedite this process by knowing the state probate laws and by drafting documents to assist in the probate of the will (i.e., self-proving affidavit).
Probate can be a costly and lengthy process. This is exasperated for individuals who have properties in multiple states. If that is the case, the individual may have to probate the will in each state court where they have property, to be probated under the will, through a process known as ‘ancillary probate.’ However, not all property needs to be probated. For example, the attorney may allocate for property in another state to be transferred using a trust instrument that would avoid probate, and thus, avoid Ancillary Probate. Because of the complexity of estate planning, including property allocation, it is essential to consult an experienced will and trust lawyer.
Probate is when a will is presented to the court to determine its validity and to verify it as the decedent’s Last Will and Testament. Depending on the state, one of two witnesses, who were present at the signing of a will, are required to appear before the court, and state under oath that the requirements for a valid will were conducted at the signing. To expedite this process during the creation of a will, we will arrange for a self-proving affidavit. A self-proving affidavit will remove the need to subpoena witnesses to come before the court to testify that the will was signed.
After a will has been probated, the ownership of the property allocated in the will becomes a public record. It is important to note that not all property in an estate is probate property. Any property transferred by a Trust or property that passes by survivorship will not need to be probated. Those properties will pass according to the trust agreement or rights of survivorship. Any challenges to a will must be made during probate. Probate or will is challenged by a party who is challenging its validity.
Typically, this refers to real estate or tangible personal property, excluding property placed into a Trust or under joint tenancy considerations, located in a state different from the one where the decedent was a resident. The principal place for probate is the state where the resident resided when they passed away. However, if the decedent owned real property or had tangible personal property in another state, then that state will have to probate those pieces of property separate from the primary probate. This means the estate will be forced to pay extra probate court costs, accounting fees, and attorney’s fees.
In Virginia, if a person or party wants to challenge a will in probate in a Virginia Court, they must file a Complaint (Bill) to Impeach. A Complaint (Bill) to Impeach is used when an individual without the current will would otherwise be entitled to receive a part of the estate. Generally, with some exceptions, an interested person has one year from the date that the will was offered to probate in the proper jurisdiction to challenge the will.
An executor, administrator, and/or trustee of an estate, as applicable, all owe fiduciary duties to the beneficiary or beneficiaries of an estate. Fiduciary duties included duties of loyalty and care. If one or multiple individuals breach a fiduciary duty, an interested person may be able to petition the applicable Court to remove such person or persons from their role in the estate. It is important to prevent a negligent individual from assisting with the distribution and/or maintenance of the estate.
A Power of Attorney is the legal authorization by one person for another (agent) to act on their behalf. This authorization, however, ends at the death or incapacity of the individual granting such authorization. A Durable Power of Attorney means that the legal authority to act on another’s behalf continues after the incapacity or death of the individual granting such authorization. A durable power of attorney can range from decisions relating to property or health care issues. Additionally, a well-written durable power of attorney specifies the amount of authority your agent is permitted; however, it is important to note that these rights vary from state to state.
This document is also often referred to as a ‘Living Will’ and operates to provide information on an individual’s choices regarding life-sustaining treatment in the event of terminal illness or permanent unconsciousness. This can be an extremely valuable part of an estate plan and is often paired with a Durable Power of Attorney for health care.
A Burial Directive outlines the way by which the decedent would like their remains or body to be handled after the decedent’s death. This can include information about where you would like to be buried or if you wanted to be cremated. Additionally, many religions outline specific steps and procedures for burial and these steps can be memorialized in a Burial Directive. A comprehensive estate planner will be sure to include a Burial Directive in order to ensure that the decedent receives the burial honoring their wishes and choices.