Yates Campbell LLPDecember 2015 - Yates Campbell LLP

Ancillary Probate in Virginia

December 29, 2015 | By Alvi Aggarwal, Estates

What happens when a resident of another state dies owning Virginia real estate?

When a person dies owning real estate in more than one state, ancillary probate may be necessary to transfer some of the real estate.

Let’s say Henry passes away. At the time of his death, Henry was a resident of a state other than Virginia. Let’s call that other state “Home State.” Henry’s wife, Wendy, probated Henry’s will and qualified as the executor of Henry’s estate in Home State. At the time of his death, Henry owned a piece of real estate in Virginia. That real estate was Henry’s only Virginia asset. Wendy wants to be able to sell the Virginia real estate. What does she need to do?

Wendy needs to probate Henry’s will in Virginia. She needs to obtain an authenticated copy of the will probated in Home State and a certificate of probate from the relevant court in Home State. She may also need her certificate of qualification from the same court and possibly other documentation or information. Let’s say Wendy obtains the necessary documents from the appropriate court in Home State. She (or her lawyer) makes an appointment with the clerk of the appropriate Virginia circuit court to probate the will in that court. If the will meets Virginia’s execution requirements or is self-proving under the laws of Home State, the will is effective as to Henry’s Virginia real estate. Note: The probate of the will in Virginia (or any state other than Home State) is called “ancillary probate.” The probate in Home State is sometimes called “domiciliary probate.”

The effect of the probate of the will in Virginia is generally (but not always) to vest title to the real estate in the beneficiaries under the will. The Virginia case Broaddus v. Broaddus, 144 Va. 727 (1925) is the basis for that rule. Once title is vested in them, the beneficiaries can sell the real estate, if they wish to do so. Let’s assume that under Henry’s will, all of Henry’s property passes to Wendy. Assuming Henry’s will is effective to vest title to his Virginia real estate in the beneficiaries of his will, Wendy, in her capacity as the sole beneficiary under the will, would be able to sell the real estate upon the admission of the will to probate in Virginia.

Alternatively, a foreign executor can, under certain circumstances, convey the Virginia real estate without qualifying in Virginia. Once the will is probated in the Virginia circuit court for the property’s jurisdiction, the foreign executor will be able to sell the real estate if the following requirements are met: (i) the executor qualified under the laws of the state where the will was probated, (ii) the will is valid and executed according to Virginia law, (iii) the will gives the executor the power to convey the real estate. So, assuming Henry’s will and Wendy met the foregoing requirements, Wendy could sell the Virginia real estate in her capacity as the executor of Henry’s estate. This rule, which is perhaps unusual, is in Section 64.2-524 of the Virginia Code. In many other states, Wendy would be required to qualify as an ancillary administrator before she would be able to sell the real estate. (Note: While qualification as an ancillary administrator may not be required, it is possible and may be advisable under certain circumstances. A qualified lawyer can advise.)

Although Wendy does not have to qualify as a personal representative in Virginia, she does have to comply with certain Virginia probate requirements. At the time of probating Henry’s will, Wendy will need to pay certain fees to the clerk and the applicable probate tax. Once Wendy probates Henry’s will in Virginia, she needs to send Notices of Probate to the appropriate people and file an Affidavit of Notice. Whether Wendy sells the Virginia real estate as the beneficiary or the foreign executor, she does not have to file inventories or accounts in Virginia.

Pooled Income Funds

December 22, 2015 | By Alvi Aggarwal, Charities

Charitable trusts are often appealing to donors who wish to give significant sums to charity. These kinds of trusts afford tax benefits for donors and allow donors to retain certain benefits for themselves or their family members. For small donations, however, charitable trusts are not typically feasible: they involve setup and administration costs in the thousands of dollars. Charities can set up pooled income funds (among other arrangements) to provide similar tax and retained benefits for donors making smaller contributions.

A pooled income fund is a sort of shared charitable trust. It is set up and maintained by a public charity. It does not involve setup costs for the donor. Once established, pooled income funds operate basically as follows:

A donor contributes a sum of money or property other than tax-exempt securities, subject to any minimum contributions or other limitations imposed by the charity, to the fund.
The donor chooses a beneficiary or beneficiaries to receive income distributions from the fund for the beneficiary’s lifetime. The donor can be the beneficiary.
The donor gets a tax deduction for the present value of the portion of the contribution that is going to the charity (i.e., the remainder interest). A donor who gives appreciated property can avoid paying capital gains tax, which is one of the most appealing aspects of pooled income funds for donors.
The trustees of the fund add the donor’s contribution to the contributions of the other donors. The trustees invest all of the funds together. Often, a charity will sell and reinvest the non-cash assets the donor contributed.
The trustees make the required income distributions to the beneficiaries, which is the beneficiary’s proportion of the income of the entire fund (i.e., the “pooled income”).
The donor can make additional contributions to the fund, subject to any additional limitations imposed by the charity.
At the death(s) of the beneficiary or beneficiaries, the trustees pay the remaining funds to the charity.

For the charity, the appeal of establishing a pooled income fund is in making smaller donations appealing to and feasible for donors. The donor who has appreciated assets but wants to retain income, as well as the donor who wants the benefits of a charitable remainder trust without the up-front costs, may find pooled income funds particularly appealing. Also, donors may find that a pooled income fund that is less than 3 years old can provide them with a larger charitable deduction than can an older fund, because of the way the tax code and regulations require the remainder value to be calculated.

Like any legal arrangement, pooled income funds are not appropriate for all public charities. Pooled income funds require maintenance, may compete with other giving vehicles that charity offers, and may not draw donors at the rate the charity hopes. For the right public charity, a pooled income fund can be a valuable source of funds and donors.

If you would like to discuss whether a pooled income fund might be right for your organization, please feel free to contact our office.

Unitrust Conversions in Virginia

December 14, 2015 | By Alvi Aggarwal, Trusts

Unitrusts and the Big Problem They Address

Some trusts have different income beneficiaries and remainder beneficiaries. Such a trust might provide, for example, that the surviving spouse receives all of the income while he/she is alive, and the children receive what’s left upon the surviving spouse’s death. The interests of the income beneficiaries (the spouse in the example) and the remainder beneficiaries (the children) in these kinds of trusts conflict as to investments: the income beneficiaries want the trust to produce as much income as possible (even at the expense of growth), while the remainder beneficiaries want the trust to grow as much as possible (even at the expense of income). The trustee of such a trust—who, like any trustee, has a duty to act impartially as to the beneficiaries—is in the difficult position of having to decide how to invest the trust property. The trustee and beneficiaries in this situation have a few options. One option is to convert the trust to a unitrust.

A unitrust is a trust that instead of paying all of its income to the income beneficiary annually, pays a percentage of its net asset value annually. In a unitrust, the interests of the income beneficiaries and the remainder beneficiaries are aligned: everyone wants the value of the trust to increase.

The Conversion Process

Virginia law provides a mechanism for converting a trust that pays its income (let’s call this kind of trust an income trust) to a unitrust.

In Virginia, the percentage that the trustee pays to the income beneficiaries has to be a “reasonable current return” and between 3% and 5% of the net assets. In determining the percentage, the trustee is directed to take into account the grantor’s intentions, the beneficiaries’ needs, economic conditions, projected current earnings and appreciation, and projected inflation.

Virginia law requires the trustee to follow a specific procedure to convert an income trust to a unitrust. The procedure depends on who the trustee is: there is one set of steps for “interested trustees” and another set of steps for other trustees. The process is similar for both types of trustees, but the interested trustee has to appoint an independent person to make certain decisions. The adoption of a written policy and notice to the beneficiaries are required in either case. The trustee, for a variety of reasons, may prefer to accomplish the conversion through an agreement with the beneficiaries rather than by notifying them and allowing them time to object.

Unitrust conversions are one way to align the interests of a trust’s income and remainder beneficiaries. However, not all income trusts and portfolios are good candidates for unitrust conversions. The trust’s portfolio and terms will significantly affect whether a unitrust conversion makes sense. Your financial, tax, or legal adviser can help you begin to assess whether a unitrust conversion might make sense for your trust.

Our Estate Planning Process

December 7, 2015 | By Alvi Aggarwal, Lawyers and Practice of Law

Our estate planning process is a collaboration between us and our clients. The process itself is something we work with each client to define, so it varies from client to client. The time it takes to get from contacting us to a complete estate plan also varies from client-to client. Some clients wish to have their estate plans signed within a few weeks of contacting us, and we work to accommodate those clients. Many clients prefer to go through the process at a more leisurely pace.

All of that said, our estate planning process typically consists of the following phases: (1) information sharing, (2) designing the plan, (3) reviewing and revising the documents, and (4) signing and follow-up.

(1) Information Sharing

Let’s say you call or email one of our attorneys and say something like, “Hi, I think I need an estate plan. Can you help me?” The attorney would typically ask you if you have a few minutes to talk by phone about estate planning and whether we’re the right law firm to help you with your estate plan. If, at the end of that phone call, it seems like we would work well together, we’d schedule a meeting to talk about the details of your estate plan. If we’re planning the estates of you and your spouse, we would need both of you to participate in this meeting. We would also send a questionnaire for you to fill out and send back or bring to the meeting. The questionnaire asks you to fill in information about yourself, your family, and your assets. The questionnaire is extensive, but we ask that you just fill in just the information you have readily available. For someone who is unfamiliar with estate planning, we might also send some optional reading material.

(2) Designing the Plan

During our meeting, we would discuss how, exactly, your estate plan will work. We’d talk about things like who should manage your finances if you’re unable to do so yourself, whether you’d ever want anyone to “pull the plug” if you’re ill, who should receive your property when you pass away, how those people receive the property, and more. This meeting typically lasts between 45 minutes and 2 hours. Additional meetings, phone calls, and emails may be necessary, depending on your goals.

(3) Reviewing and Revising the Drafts

Once we’re all on the same page about how your estate plan should work, we would draft your estate planning documents. We’d send the draft documents to you (and your spouse, if we’re working with both of you) by mail and/or email to review at your convenience. We’d be available to discuss questions and changes as you go through the documents.

(4) Signing and Follow-Up

Once the documents are acceptable to you, we would arrange for you to sign them. We prefer to have our clients sign estate planning documents in our office, as we like to ensure the documents are executed correctly and to serve as the witnesses. Proper execution and credible, locatable witnesses can be helpful if any questions or challenges arise over your estate plan. We typically keep electronic copies of our clients’ estate planning documents and send the originals to the client.

Depending on the type of estate plan you signed and the nature of your assets, we may recommend some follow-up work. For example, if your estate plan included a revocable trust, the trust would need to be funded. We assist clients with as much or as little of the process of funding their trusts as they wish.

As time passes, laws, wishes, and circumstances change. These changes sometimes necessitate changes in estate plans. We suggest our clients assess their estate plans after significant life changes (births, deaths, marriages, divorces, significant changes in wealth, etc.) and at least every few years. We can assist with the assessment and any necessary updates.

If you would like to speak to us about estate planning, please feel free to contact one of our attorneys.

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