Virginia does not require that all wills be probated. Virginia also has several methods of shortened probate administration that may be used depending on the nature, value and title of a person’s assets. Under Virginia law, however, it is a crime to fraudulently conceal a will.
Use of trusts does not specifically reduce or minimize potential federal estate tax liability. However, by creating and transferring assets to properly drafted trusts, a husband and wife can utilize both of their Personal Exemptions to protect assets valued at up to $27,220,000.
A typical probate administration generally takes approximately eighteen (18) months to complete in Virginia. That being said, it is important to realize that there are no typical probate administrations! Each situation is different. If Virginia short form probate administration can be used, the administration may take a year or less. If the will is poorly drafted or the probate estate holds unusual assets or there are estate tax issues, probate administration could take several years. An important consideration is that creditors of a deceased person have one year from the date of an Executor or Administrator’s qualification to make their claims known. If the Executor or Administrator distributes all of the probate assets to the beneficiaries of the will or the heirs-at-law if there is no will before that time, he or she may be personally liable to pay those creditors.
Probate applies to all of your probate assets whether you die with a valid will or not. After your death, the question is not just whether you had a valid will, but what are the nature, value and title of your assets. Creating a will simply allows you to choose who receives your probate assets and who will be the Executor of your probate estate, rather than relying on the Virginia laws of descent and distribution regarding who will receive those assets and hoping that the right person decides to qualify as Administrator. If you own assets titled solely in your own name at your death, then whether you have a valid will or not, some sort of probate administration will generally be necessary.
Probate assets are those assets that are titled solely in one person’s name. Assets titled jointly with rights of survivorship, or as tenants by the entireties (which is joint tenancy with survivorship for married couples), are not probate assets. Assets that have a beneficiary designation to a living person are also not probate assets. Such assets include life insurance, retirement plans and bank and brokerage accounts that have “pay on death” or “transfer on death” designations.
If you become incapacitated and do not have a durable general power of attorney, then someone generally must petition the court to be appointed as conservator of your assets. Your conservatorship assets include not only assets titled solely in your own name, but one-half (1/2) of jointly owned assets, your retirement assets and your life insurance policies, especially if they have any cash surrender value. A physician must provide a report to the court stating that you are unable to manage your financial affairs. A conservatorship estate is subject to probate administration requirements similar to that of a decedent’s estate, including the filing of an inventory and accountings of all receipts, disbursements and distributions of the conservatorship estate assets. This is called “living probate”, and can be very time-consuming and expensive.
If you become incapacitated and do not have a durable general power of attorney, then someone generally must petition the court to be appointed as the guardian of your person. The guardian must provide certain information to the court and to various government organizations on a regular basis regarding your care.
A durable general power of attorney is a document that allows you to appoint another person as your agent to handle your financial affairs in the event that you are unable to do so yourself. A power of attorney is “durable” when it contains certain language that allows the power of attorney to be valid even if you become incapacitated. A power of attorney is “general” if it provides your agent with broad powers to manage your financial affairs. Financial affairs can include paying your bills, having your personal income tax returns prepared and filed, and even making gifts to your children and grandchildren. A specific or limited power of attorney is used only to give an agent very specific powers in a very specific situation, such as the sale of real estate when you cannot be available to sign the necessary documents.
Under Virginia law, you can create a trust to provide funds for the care of one or more of your pets after your death. You can also name a person who will be responsible for your pets’ care, and for managing the funds in the pet trust. Upon the death of your pet, the pet trust document can also provide that the pet trust funds can be used for the final bills and burial of your pet. Because of this relatively recent change in Virginia law, now you can provide for the care of your pet even after your death.
A “pour-over” will is a will used in conjunction with a living trust. The living trust contains the provisions regarding who will be the Trustee responsible for managing the trust assets, and who will receive the trust assets as the beneficiary of the trust. Because all of the asset management and distribution provisions are handled inside the trust, the primary purpose of the “pour over” will is to “pour” any probate assets that were not titled in the name of the trust during your lifetime into your trust at your death. In many cases, the person named as Trustee of the trust will also be named as Executor of the will, so that one person will manage all of the assets throughout both the probate administration and the trust administration. As with a regular will, the “pour over” will also allows you to name the person whom you would like to be appointed as the guardian of the person of any children who are under eighteen (18) years of age.
An advanced medical directive is a document that allows you to appoint another person as your agent to handle health care decisions in the event that you are unable to do so yourself. An advanced medical directive may also incorporate a “living will” which states whether or not extraordinary measures are to be taken to prolong your life in the event that you are suffering from a “terminal condition” or “persistent coma.” The advanced medical directive allows the agent to work with your doctors to determine not only the course of your treatment in the event of illness or injury, but also whether life prolonging measures should be withdrawn because you are suffering from a “terminal condition” or “persistent coma.” An advanced medical directive can also allow an agent to make organ donations on your behalf in the appropriate situation, if you are so inclined.
A testamentary trust is a trust created inside of a will that does not take effect until after you die. A living trust is one created during your lifetime that is separate from your will. A living trust is also called an inter vivos trust, and can be either revocable or irrevocable, depending on the nature and purpose of the trust. The administration of a testamentary trust is subject to probate administration procedures unless certain requirements are met that allow accountings of the trust assets by the Trustee to the court to be waived. The administration of a living trust is not subject to review by the court either during your lifetime or after your death.
The federal estate tax is a tax on your right to transfer assets to persons other than your spouse at your death. All assets that transfer, including the face value of life insurance, retirement plan assets, and jointly owned assets are potentially subject to the federal estate tax. That being said, you currently have an exemption, called the “Personal Exemption,” in the amount of $13,610,000 from estate taxes. You can also use up to the entire amount of that exemption to make lifetime gifts to persons other than your spouse. Transfers between spouses during your life and at your death are not subject to the federal estate tax because between spouses, there is an Unlimited Marital Deduction. Therefore, if the value of your entire gross estate is less than $13,610,000 and you have not used any of your Personal Exemption to make lifetime gifts, your estate will generally not be subject to federal estate tax liability. Also, you have a gross estate in excess of $13,610,000 but you leave all of your assets to your surviving spouse, your estate will also generally not be subject to federal estate tax liability. However, under this last circumstance, now your surviving spouse’s gross estate is in excess of $13,610,000, and unless that surviving spouse either remarries or utilizes certain estate planning techniques to reduce this size of his or her gross estate, a federal estate tax liability may arise at his or her death.
A will allows you to name who will receive your probate assets upon your death (your “beneficiaries”) and the person who pay your final bills and costs of the administration of your probate estate (your “Executor”), and ultimately distribute the remaining probate assets to your beneficiaries. If you do not have a valid will, then your probate assets will be distributed according to the Virginia laws of descent and distribution. Also, a person who may not be of your choosing may qualify as Administrator of your probate estate. For example, if you are married, but have children from a previous marriage, if you have no will then your surviving spouse will be entitled to one-third (1/3) of your probate assets, and the remaining two-thirds (2/3) of your probate assets will be distributed equally among your children. A will also allows you to name the person whom you would like to be appointed as the guardian of the person of any children who are under eighteen (18) years of age.
