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Essentials of Estate Planning

Every individual should have a basic estate plan in place.  The average American is concerned about more than just who gets what when they die.  Most of us want to provide for the wellbeing of our families, to decide who raises our children, and to ensure that they are taken care of in a manner which we would approve of after we’re gone.  Many of us have specific moral or religious beliefs which play a role in most of our wishes and preferences from medical and end-of-life decisions to preferred burial arrangements.  There are a myriad of other concerns which any given individual may have that can be addressed by a properly drafted and executed estate plan.

As a result of the variety of concerns, a basic estate plan should include more than just a Last Will and Testament.  The basic estate plan for most Virginians should include:

A Last Will and Testament;

A Durable Power of Attorney;

An Advance Medical Directive;

A Health Care Power of Attorney.

There are other documents and estate planning tools which may be recommended for an individual’s specific situation, but these are the documents which every Virginia should generally have in place to effectuate their desires, and protect themselves, their families and their estates upon incapacity or death.

The Basics of Estate Property

Probate & Nonprobate Property:

When an individual dies his or her affairs may be in one of several states: Testate, meaning that the individual left a Last Will and Testament which disposes of his or her entire estate; Intestate, meaning that he or she passed away without a valid Last Will and Testament; or Partial Intestacy, which is when a Last Will and Testament is drafted in such a way as to leave some portion of the individual’s probate estate undisposed of.

Each individual’s estate can be divided into two basic types of assets: Probate Property, which passes under the individual’s Last Will and Testament or under his domicile state’s intestacy statutes; or Nonprobate Property, which passes under some other instrument or by some other means.  Nonprobate property includes joint tenancy property, life insurance, property held under a contract with a transfer-on-death or pay-on-death clause, and interests held in trust.  Generally speaking, all property which is not included in the above list of nonprobate property is part of an individual’s probate estate.  Jesse Dukeminier et.al., Wills, Trusts, and Estates 30-31 (7th ed. 2005).

When preparing an estate plan it is important to consider each type of property in order to ensure that an individual is fully testate when they die.

Intestacy in Virginia:

If an individual fails to dispose of their property through properly executed estate planning documents or by nonprobate transfers, their property will transfer in accordance with the laws of the Commonwealth of Virginia which control decent and distribution.  These laws are commonly referred to as the laws of intestate succession or intestacy.

Under Virginia Law the basic course of intestate succession is as follows:

When an intestate decedent is survived by a spouse and descendants, all of whom are also descendants of the surviving spouse, the surviving spouse takes the entire estate.  When an intestate decedent is survived by a spouse and descendants, some of whom are not descendants of surviving spouse, the surviving spouse takes one-third (1/3) and the descendants split the remaining two-thirds (2/3) of the decedent’s estate.

When an intestate decedent is survived by a spouse but not by descendants, the surviving spouse inherits the entire estate.  The decedent’s parents and collateral kin (i.e. siblings) will never inherit anything from an intestate decedent who is survived by a spouse.

Inheritance by descendants in Virginia is controlled by a system referred to as “Per Capita with Representation”.  This means that descendants inherit per capita at the first generational level at which there is at least one (1) surviving taker, and then one share is created for each family line, or one share is created for each line of descendants, if necessary.

When an intestate decedent is not survived by a spouse or descendants the entire estate passes to the decedent’s parents or surviving parent.  If the decedent is not survived by parents, then the estate passes to the descendants of parents.

If an intestate decedent is not survived by parents or descendants of parents, then half (½) of the decedent’s estate passes to the maternal grandparents (or surviving grandparent, or if neither maternal grandparent is living, their descendants), and half (½) to the decedent’s paternal grandparents (or surviving grandparent, or if neither paternal grandparent is living, their descendants).

If a decedent leaves no living relations, then the estate passes to kin of the decedent’s last deceased spouse.  And finally, if there is no one to inherit the estate at this point, the decedent’s estate escheats to the Commonwealth of Virginia.

Virginia Code § 64.1-1.

Of course, there are exceptions, qualifications, and nuances to the course of decent under the Virginia intestacy statutes.   As a result, the above described basic structure becomes even more convoluted and difficult to administer in some family situations.

This scheme of intestate succession is intended to reflect how the legislature believes the average person would like their property to pass upon their death.  However, there are an infinite combination of family situations and dynamics which alter how one desires to leave their property and affairs upon their death.  The “average person’s” wishes don’t really describe how most people want their estates to be administered and they certainly do not provide for any contingencies or unusual situations, whether they are need based or desire related.

Having a properly drafted and executed estate plan is the only way to prevent the legislature from imposing their presumptions of your intent upon your estate and property.  Without an estate plan the legislatively imposed laws of intestate succession are applied as the “default rules” for estate administration and distribution.

Considerations before Death:

Throughout most of a person’s life they handle their own financial and property matters.  Unfortunately, there are situations in which an individual can no longer care for their own affairs.  The reasons for such incapacity can include everything from extended trips out of the country, temporary medical conditions, and temporary incapacity due to substances, to Court declared mental incapacity, permanent medical conditions, and more.

Regardless of the cause, incapacity requires the assistance of another to handle financial and property matters in order to protect the individual’s assets and interests.  In some cases a Guardianship and Conservatorship can be sought through Court action.  These legal relationships provide for a fiduciary that is responsible for a legally incapacitated individual’s personal and financial matters.  Guardianships and Conservatorships are however, Court ordered and public record.  They can cost substantial amounts in legal fees and Court costs, not to mention the continued fees and costs for administration.

Fortunately, these time consuming and costly legal procedures and relationships can often be avoided by proper planning.

Non Property Basics:

Although most people think of property rights and inheritance when they hear the term “Estate Plan”, there are other factors and issues to be considered and addressed when planning an individual’s estate matters.  Properly executed and drafted legal documents can help ensure that an individual’s wishes regarding everything from medical care and end-of-life decisions to burial arrangements are carried out properly.

Minor Children:

Every parent is naturally concerned with the care of their children.  When the unthinkable happens to a parent it is not only their property that must be attended to, but their children must be provided for in some way as well.  In Virginia, parents can nominate Guardians for their minor children in the event they are unable to provide for them.  Generally, an additional provision (aptly, and with a level of creativity only attributable to lawyers, commonly referred to as a “Guardianship Provision”) is included in a parent’s Last Will and Testament to nominate their choice of Guardian for their minor children.  The nominations made in these provisions are subject to Court approval; however, if an appropriate choice is made the parent’s wishes are generally respected.  Although Guardianship Provisions do not guarantee that the chosen Guardian will be appointed by the Court, they do provide the parent with the ability to have their choice taken into consideration.  This power should be exercised by every parent of a minor child or children.  Who cares for one’s children is obviously one aspect of such an individual’s estate plan that should not be taken lightly, and is often a primary reason for parents to implement estate plans.

Medical Considerations:

Each individual generally makes their own medical decisions from the time they reach adulthood.  However, there may come a time when an individual can no longer make those decisions, whether due to mental incapacity, unconsciousness, or some other reason.  In those circumstances a person’s next of kin is generally left with the stress-filled duty to make important medical decisions in their stead.  In Virginia, an individual may execute a legal document setting forth his or her directions regarding termination of medical treatment and life prolonging procedures.  An individual may also execute a legal document which appoints an agent to make medical decisions for them in case of incapacity.  If no such documents have been prepared for and executed by an individual the state’s interest in preservation of life may directly contradict and override the individual’s desires, whether founded in moral or religious beliefs or some other source.  The Virginia Lawyer: A Deskbook for Practitioners, Estate Planning and Administration ¶ 13.1608 (Virginia CLE 3rd ed. 2008).

Burial Rights:

Generally, an individual’s Executor or Administrator and family are left to determine the appropriate manner and location of burial.  This can lead to conflicting opinions and fights over how and where an individual’s remains should be disposed of.  In Virginia, an individual may appoint an agent responsible for his or her funeral and making the related arrangements.  To be effective, such an appointment must be executed in accordance with the laws of the Commonwealth of Virginia.   Virginia Code § 54.1-2825.  These designations can serve to help ensure conformity with religious rights, to prevent fighting among family members, and generally to help ensure one’s desires regarding their burial are carried out.

The Documents

Last Will and Testament:

The Last Will and Testament is usually the first thing that comes to mind when an individual hears the term “Estate Plan”.  There is good reason for this, it is one of the most basic and common forms of estate planning in the United States.  A properly drafted and executed Last Will and Testament can ensure distribution of one’s property to the intended beneficiaries, potentially reduce state and federal estate tax obligations and administration expenses, appoint fiduciaries to administer the estate and any trust created under the will, and designate guardian(s) to care for the testator’s minor children.

Durable Power of Attorney:

A Durable Power of Attorney grants a named agent authority to act on the principal’s behalf in some way.  Often these documents are used for general appointments granting the agent authority to “do all things which the principal could do acting for himself”.  3 Am. Jur. 2d, Agency §23 (1986).  A Durable Power of Attorney can be used to grant an agent the authority to handle personal and financial affairs, often thereby eliminating the need for the appointment of a Guardian and/or Conservator in case of incapacity.

Advance Medical Directive:

An Advance Medical Directive can be used to set forth a person’s wishes regarding the provision, withholding, and termination of life-prolonging medical care and procedures when the individual’s condition is determined to be terminal.  The Virginia Lawyer: A Deskbook for Practitioners, Estate Planning and Administration ¶13.1608 (Virginia CLE 3rd ed. 2008)

Health Care Power of Attorney:

A Health Care Power of Attorney is used to appoint an agent to make medical decisions for the declarant if he or she becomes incapable of making informed medical decisions or under the circumstances set forth within the Health Care Power of Attorney.  An agent appointed under such a Power of Attorney can be authorized to make all manner of medical decisions on the declarant’s behalf, including those which can be addressed under an Advance Medical Directive.  Id.

Other Documents:

The estate planning documents described above are the basic documents generally recommended for the average individual.  There are numerous other estate planning documents and techniques which may be recommended for your particular situation.  Some of those other instruments and techniques include:

Limited Powers of Attorney;

Designation of Agent for Burial Arrangement Purposes;

Revocable Trusts;

Irrevocable Trusts; and

Various Will and Trust Alternatives.

Determining the proper documents, techniques and structure of any specific estate plan is a process which should be undertaken with competent legal counsel.  If you do not have a basic estate plan in place The Law Office of Richard W. Hartman III, Attorney & Counselor at Law, PLLC may be able to assist you.

 

Richard W. Hartman III, Esquire

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