On October 20th, we partnered with ThompsonMcMullan on a webinar to answer common probate avoidance planning questions. ThompsonMcMullan is a law firm with Estate Planning Attorneys located near our headquarters location in Virginia. Rebecca Bowen, an attorney with ThompsonMcMullan, presented alongside Peter Braden, one of Godsey & Gibb’s Wealth Management Advisors.
TOPICS COVERED:
- What is probate and why should I avoid it?
- Do I need a trust if I already have a will? How can I utilize trust agreements to avoid probate?
- What is the importance of beneficiary, payable-on-death (POD), and transfer-on-death (TOD) designations?
- What are the benefits and pitfalls of joint ownership for probate avoidance?
- What is a durable power of attorney and who should hold mine?
- Are there any considerations I should include for general aging concerns and caregiving?
WATCH THE FULL PROBATE AVOIDANCE PLANNING WEBINAR VIDEO RECORDING HERE:
PROBATE AVOIDANCE PLANNING WEBINAR TRANSCRIPT EXCERPT:
Rebecca Bowen: Today, our topic is probate avoidance planning. And you know I have a lot of clients that come into the office and say, “I want to avoid probate.” The first question is really – what is probate? What is it we are trying to avoid? Why are we so concerned about avoiding probate? Some of you may have already gone through this process and know exactly why you may want to avoid probate. For those who have not, probate is essentially the process of going down to the Clerk’s office after a decedent dies and reporting the decedent’s will with the Clerk. Keep in mind that probate is different than qualification of a personal representative. Often those two things happen at the same appointment, but they do not necessarily have to.
To clarify a little bit of terminology, when we are talking about a personal representative, that can mean either an administrator or an executor. An executor is what we call the personal representative if the decedent died with a will. An administrator is what we call the personal representative is called if the decedent died without a will. Many times, you will hear those terms used interchangeably, but most often we will talk about executor or personal representative.
This leads to the question – what actually happens at a probate appointment? Again, you are making an appointment with the Clerk’s Office, and you have to fill out a number of different forms. There is a probate information form, a list of errors, a probate tax return, and maybe some other ancillary forms depending on the estate. If the decedent had a will, you bring the will with you to the Clerk’s office and you are essentially telling the clerk that you are the named executor, this is the last will and testament of the decedent, and you would like to have it recorded. If you are qualified as executor, you basically are promising to administer the estate in accordance with the will.
I think one of the most important things to keep in mind when we are talking about probate avoidance planning, is that there are assets that pass-through probate and there are assets that pass outside of probate. If we are avoiding probate, the goal is to set up all your assets in a way that they pass outside of probate. When we are talking about probate assets, those are only assets that are in the decedent’s individual name, without a beneficiary designation, and are not jointly owned with rights of survivorship with another individual or individuals.
Beyond the hassle of having to make an appointment with the Clerk, and going down to the Clerk’s office, some other reasons to avoid probate are the fees and costs that are associated with probate. The probate tax is currently $0.10 per $100 in Virginia. If you are talking about a $500,000 estate, it is only a $500.00 probate tax. To me, that alone is not the sole reason, or even the most important reason to avoid probate. That is manageable. Also, quickly, this is a little outside our topic, but the probate tax is different than the “estate tax.” When people talk about the estate tax, they are talking about the federal estate tax. Virginia does not have a state-level estate tax. If there are any participants on the call in other states, your state might have a state-level estate tax, but Virginia currently does not. The federal estate tax is only imposed on estates that exceed $12,060,000 currently. So, it is a high number. We will say $12 million to be easy and it has nothing to do with the probate process. Regardless of whether your assets go through probate or pass outside of probate, they are most likely going to be subject to that estate tax if they exceed $12 million. Other fees, you are going to have include some Clerk’s fees, some recording fees, and other fees along those lines. Also, the decedent’s will will become a public record when you probate it, so it is kind of like recording a deed. You could have a title company that is going to go back and pull up that will at some point. Anybody who is interested can go and pull it up someone’s will. For me personally, I do not care. No one would be surprised what my will is going to say. For some people, they do not want that publicity around their will.
The last two bullet points are probably, in my mind, the more significant reasons to try to avoid probate. The first is that probate triggers the requirement to report to the Commissioner of Accounts. The Commissioner of Accounts is a semi-judicial official. There is one for every jurisdiction, city, or county in Virginia. When you probate a will and qualify an executor, that triggers a requirement for the executor to first file an inventory with the Commissioner which is due within four months of the qualification, and then to file an annual accounting with the Commissioner which is due 16 months after qualification and covers the first year. You then have to file an annual accounting each year thereafter, as long as the estate is open. The accounting is a bear. Commissioners are very particular in terms of how they want information recorded, and you essentially have to report every piece of income and every distribution that comes out of the estate. You also have to provide documentation to support that. This includes copies of all the bank statements, the estate brokerage account statements, and copies of receipts. In other words, anything that can document why you paid a bill. The expectation is that an executor is supposed to prepare the accounting. More often than not, for estates that we represent, we prepare the accounting because they’re difficult to prepare.
There is also the potential delay in administration when you are waiting for a probate appointment. It depends on the jurisdiction you’re in, but a lot of times you call up the Clerk’s office maybe a week after death and tell the Clerk you need to make a probate appointment. They are probably scheduling at least two weeks, sometimes a month, out from when you call. This means you are looking at, on average, maybe a month from death before you actually get a probate appointment. During that time period, nobody has authority over the decedent’s probate assets…
Date of webinar: October 20th, 2022
DISCLAIMER:
This event is not intended as an endorsement.
The information contained in our Probate Avoidance Planning call/webinar is for educational purposes and should not be substituted for personalized advice from ThompsonMcMullan, Godsey & Gibb Wealth Management, or used to guide investment or estate decisions. In addition, while the information on this call is provided in good faith as of the time of the call, we make no representation or warranty of any kind regarding its accuracy, validity, reliability, or completeness. Lastly, this webinar focused on probate avoidance planning in Virginia, and the information contained within may differ from probate law in other states. For our full disclaimer, click here.