Estate Planning in Virginia
What is estate planning? Estate planning is the organization of your affairs to prepare for death or disability. Basic estate planning involves three components: (1) health care decisions in the event of disability; (2) financial decisions in the event of disability and (3) transfer of property at death.
1. Health Care Decisions. Health care decisions are considered in an "advance medical directive." An advance medical directive has two parts. The first part is a "living will". In a living will, you state whether you want life sustaining procedures continued or withdrawn in the event you are in a terminal condition. The second part is a "health care power of attorney". In a health care power of attorney, you nominate another person to make health care decisions for you in case you are unable to communicate those decisions yourself. The person you appoint is called your agent.
2. Financial Decisions. Financial decisions can be delegated to another person in a document called a "power of attorney". A power of attorney gives another person, called your agent, authority to act in your place with respect to your financial matters. A power of attorney can be limited or broad in its scope. A power of attorney is effective during your lifetime only. It can be effective when you sign it, it can become effective by its terms at some later time, such as when you become incompetent, or it can be held in escrow and delivered to your agent upon the happening of a contingency, such as when you become incompetent. It is called a "durable" power of attorney if the agent can exercise his or her authority even if you are not competent.
3. Transfer of Property At Death. There are many ways property is transferred at death. For example, property can be transferred by will. Most property can be held jointly with survivorship or as tenants by the entireties, so that title passes automatically to the survivor on death. Financial accounts and securities can be transferred to a beneficiary of a pay on death (POD) or transfer on death (TOD) account. Some property, such as life insurance or a retirement account, is transferred to a beneficiary you designate. Property can be transferred to a trust for the benefit of individuals or charities.
In Virginia, what happens to my property when I die if I do not have a will?
Generally speaking, if you are married, your property passes to your spouse. However, if you had a child with someone other than your spouse, then 2/3 of your property passes to your children or their descendants and 1/3 passes to your spouse.
If you are not married, all of your property passes to your children or their descendants. If you have no descendants, then your property passes to your mother and your father. If your mother and father are not living, then your property passes to your brothers and sisters or their descendants. If you have none, then it passes to your grandmothers and grandfathers, or their descendants, and so forth. Your property does not pass to the Commonwealth of Virginia unless there are no distant relatives found.
If you have real estate located in another state, the laws of that state will determine who inherits the real estate. It may not be the same persons that would inherit the property if the property were located in Virginia.
Some property, such as retirement plans and life insurance, will pass to the persons you designated as the beneficiary, regardless of what the law otherwise provides. Property held jointly with rights of survivorship or as tenants by the entireties will pass to the survivor.
Do I Need a Will?
There are four primary reasons why you may want a will.
1. Control the Disposition of Your Property at Your Death. State law determines who will receive your property at your death. If you have a will, your wishes override state law. However, be aware that a surviving spouse in Virginia cannot be disinherited; the surviving spouse will be entitled to 1/3 of your "augmented estate" if you have surviving descendants and ½ of your "augmented estate" if you do not have surviving descendants.
2. Appoint the person or persons who will administer your property after your death. When you die, someone must gather your assets and pay off your creditors. This person is called an "administrator" if you died without a will or an "executor" if you died with a will. An administrator or an executor may also be called a "personal representative". After creditors are paid, the personal representative distributes the remaining assets as provided by law to your heirs or to the beneficiaries you name in your will.
If you die without a will, the clerk of the court can appoint someone to serve as the administrator. This person may be any heir. After 60 days from your death, the clerk can appoint anyone, including one of your creditors, as an administrator.
3. Name a guardian for your children. You can appoint by will a guardian for your minor children. However, so long as a surviving parent is living and is fit to have custody, the surviving parent will be entitled to custody of the minor.
If you do not appoint a guardian, the court or the clerk of the court can appoint a guardian. If your child is at least 14 years of age, he or she can nominate his or her own guardian. Otherwise, the court or clerk can appoint someone, with preference going to your next of kin.
4. Waive surety. Surety is an insurance policy. It insures the estate against loss caused by the malfeasance of the personal representative. The premium is paid from your estate. The requirement of surety can be waived, and usually is waived, in a will.
Should I Create a Trust?
A trust is an agreement between two people. The person creating the trust is called the settlor. The settlor gives the other person, called the trustee, property. The trustee agrees to invest the property for someone else's benefit. The person who benefits from the trust is called the beneficiary.
The property invested by the trustee is called the "principal". Interest, rents and dividends earned are the "income". The trustee pays the income and the principal to the beneficiary according to the terms established by the settlor. For example, a trust agreement may provide that all income is to be paid to the beneficiary quarterly and principal is to be paid to the beneficiary only if it is needed for the beneficiary's health.
A trust may continue for a period of years or until a contingency is met. A trust can have multiple or successive beneficiaries. When the trust terminates, the property is distributed outright to the "remaindermen". Remaindermen can be individuals or charities that you name.
Beneficiaries entitled to income often encourage the trustee to invest in assets that produce income. The remaindermen often encourage the trustee to invest in assets that grow principal. Because most investments do not generate sufficient income and principal growth to satisfy income beneficiaries and remaindermen, a trustee may convert a trust to a "unitrust". In a unitrust, income is redefined to mean a percentage of the trust assets. Typically the percentage is between 3 and 5%. Instead of receiving income, the income beneficiary receives a percentage of the trust assets. For example, if the trust assets are worth $100 and the unitrust percentage is 4%, the income beneficiary receives $4 instead of the interest, rents or dividends. When the overall value of the trust assets increases, both the income beneficiary and the remaindermen benefit.
Trusts can be helpful, but they are not right for everyone. Trusts are helpful if you want to avoid subjecting your estate to court supervision at your death, preserve or create certain tax benefits, help persons with special needs, prevent minors, persons with addictions and spendthrifts from improperly using assets, or protect trust assets against creditor claims or family dissolution. On the other hand, trusts have costs. The trustee can use trust assets to prepare and file income tax returns, to pay the trustee's fee and to pay the trustee's legal fees to ensure compliance with the law and fulfillment of trustee obligations to the beneficiaries.
What is a descendant?
A descendant is a person's offspring. A person's children, grandchildren, great-grandchildren, etc., are descendants.
How does property pass to descendants if I die without a will? In Virginia, you look at the oldest generation with a living person. The property is divided into equal shares, one share for each living person in that generation and one share for each deceased person in that generation who has a then living descendant. The living descendants of those who are deceased take the shares the deceased would have received if the deceased had survived.
For example, "Intestate" dies without a will. Intestate is survived by the following persons:
Result: Children generation is the oldest generation with a living person, Child Y. The estate is divided into three shares, one for Child X, one for Child Y and one for Child Z. Child Y receives 1/3 of the estate. Because Child X is deceased, Child X's share is divided equally between Grandchild A and Grandchild B (each receiving 1/6 of the entire estate). Because Child Z is deceased, Child Z's share is divided into thirds, one for each of Grandchild D, Grandchild E and Grandchild F (each receiving 1/9 of the entire estate). Grandchild C receives nothing.
Variation: Suppose Child Y also predeceased Intestate. The oldest generation with a living person would be the grandchild generation. There are six living grandchildren. The estate would be divided into six equal shares, one share for each grandchild.
Variation: Suppose Child Y survives Intestate but Grandchild A and Grandchild B died before Intestate. The children generation is the oldest generation with a living person, but the estate is only divided into two shares, one for Child Y and one for Child Z. No share is created for Child X because no descendant of Child X outlived Intestate. Child Y receives ½ of the estate. Grandchild D, Grandchild E and Grandchild F each receive 1/3 of Child Z's share (being 1/6 of the entire estate to each).
How does adoption affect inheritance?
An adopted person is the child of the adopting parent and not of the biological parents. There is an exception, if the child is adopted by the spouse of a biological parent, that does not change the relationship between the child and either biological parent.
What are the rights of a child and a father when the child is born out of wedlock and the father and mother never marry?
The father can inherit from or through the child only if the father openly treated the child as his and did not refuse to support the child. The father would need to prove by clear and convincing evidence, including genetic testing, that the child was his.
The child can inherit from or through the father only if the child (or someone on the child's behalf) files a claim within one year of the father's death. A claim includes filing an affidavit alleging parenthood. It is to be filed in the clerk's office of the circuit court where the property is located. A claim also requires the filing of an action in circuit court to determine the parentage of the child. If the claim is not filed within one year, the child will only be able to make a claim after a year if the father provided information for a birth record, admitted being the father in court or in a writing under oath, or was otherwise previously legally determined to be the child's father.
How is inheritance affected if the deceased child has a different mother or father than his or her siblings, who are called "collaterals of the half-blood"?
In cases where some siblings have only one common parent (i.e. only the same mother or only the same father), the siblings who do not both parents in common receive half of what the siblings with the common parent receive. For example, suppose Father was married and had three children with his first wife. The first wife died and Father remarried and had two children, X and Y, with his second wife. Father dies. Second wife dies and then X dies without a will.
The children of the first marriage are "collaterals of the half blood" to X because they only have one common parent, Father. Y is a collateral of the "whole blood" to X because X and Y have the same mother and father. Because Y is of the "whole blood" and the other three children are of the "half blood", Y takes a double portion. X's estate is divided into five parts. The three children of the first marriage each receive 1/5 of X's estate and Y receives 2/5 of X's estate.[1]
If a spouse dies without a will, what rights does the surviving spouse have in the family residence if the family residence was titled only in the name of the spouse who died?
The surviving spouse has the right to continue to reside in the principal family residence without having to pay rent, repairs, taxes or insurance until the surviving spouse's rights in the inheritance are determined by an agreement or by a court order.[2] This applies in cases where the deceased spouse has descendants that are not also descendants of the surviving spouse. It also applies in cases where the deceased spouse claims an elective share in the deceased spouse's augmented estate.
Disclaimer: The foregoing shall not be construed as legal or tax advice and does not create an attorney-client relationship. The application of law to any particular situation requires competent legal advice. The law is subject to change and to interpretation. This communication is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that the Internal Revenue Service may impose on the taxpayer or for promoting, marketing or recommending to another party any transaction or other matter addressed herein.
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[1] See Moore v. Conner, 2 Va. Dec. 56, 20 S.E. 936 (1890); Garland v. Harrison, 35 Va. 368 (1837).
[2] Va. Code Ann. §64.1-16.4.
