Democrats Win the House

Posted on December 11, 2018

Effect of the Midterm Elections on Your Estate Plan

Article provided by WealthCounsel;

Content edited and modified by Stephen M. Watson, Esq.

Estate planning is meant to be an ongoing process, not a one-time transaction. In the same way that you never stop budgeting, saving, and investing as you go through life, it is also sensible to see estate planning as a lifelong project. Let’s look at some of the considerations you should make now that the 2018 midterm elections are in the history books.

Planning in a Fluctuating Political Climate

Estate plans must change when you experience any major life change, such as marrying someone new or welcoming a child to the family.

But you also need to respond effectively to large-scale changes that are external to your personal life, such as legislation that impacts the way your assets are taxed. Regardless of your political leanings, it’s safe to say the United States is continuing to experience a period of dramatic political and legal change.

Elections like the 2018 midterms — and the resulting political change — often create fear and anxiety about how the impact of new laws and tax policy will affect your life. But you can offset that uncertainty by focusing on making the smartest estate planning decisions possible in light of the results. We’re watching the situation as it moves forward both from a federal and state law perspective, and will keep you informed of legal and tax changes that affect you and your loved ones.

The Midterm Split: Democrats Won the House, Republicans Kept the Senate

Before the midterm elections, it was unclear how legislation like the 2017 Tax Cuts and Jobs Act would be affected. Now that we know the House and Senate are split between Democratic and Republican control, it remains to be seen how well the parties will work together on a common agenda.

So what does a divided federal government mean for you? The budget reconciliation strategy the Republicans used to pass the Tax Act will no longer be as viable an option, which could slow additional legislation the Republican-controlled Senate proposes. According to Kiplinger, “What is likely off the table with a Democratic House and Republican Senate is tax reform 2.0, which would make certain provisions of the 2017 tax law permanent, locking in individual and small business tax cuts. Social Security and Medicare reforms, which might have helped offset the effect of the tax cuts, are also likely off the table.”

When the new Congress first convenes in January, we will continue to monitor proposed legislation so you are informed about potential risks and opportunities for your estate plan.

Some Things Are Constant, No Matter Who’s in Charge

Amid so much political uncertainty, it’s important to remember there are many foundational constants in estate planning that are important no matter who’s in charge politically or what the tax laws look like. As part of your financial wellness team, we’re staying informed and will be here to guide you in matters of estate planning.

In order for you to grow and retain your wealth, careful estate planning is always a necessity — regardless of which party controls Congress. Many things may change, but a lot will remain the same: no one can legislate away irresponsible spending, divorce, lawsuits,bankruptcy, sibling rivalry, and the many non-tax reasons to utilize estate planning. An up-to-date comprehensive estate plan remains the best option for passing along your wealth and your values to the next generation.

Will your estate plan do what want it to do?Is it customized to help you thrive in the current U.S. legislative landscape?  Are there any changes in Virginia law that may affect your plan? Let’s take a look. Give us a call today.

Posted in Estate Planning

What Happened to My Property?

Posted on November 28, 2018

Article written by Stephen M. Watson, Esq.

For clients who are married, most often they want their assets to go something like this:

First, to the surviving spouse;

Second, to the children, and further descendants (grandchildren, great-grandchildren, and so on).

After that, some want their estate to go to brothers and sisters; some want it to go straight to nieces and nephews; and some want it to go to their church or other charity of choice.

Another way of looking at this is that most clients want their property to go to the surviving spouse, but after that they want their assets to stay in the bloodline (children and other descendants, and then to other extended family members).

So, what happens to those who don’t have a plan?

Many clients that think that if they die without a Will, that if no marching orders are left behind, everything will go to the state.

Well, no.  Instead, when a Virginia resident dies leaving property behind that has nowhere to go—no Will, no beneficiary designation, no joint ownership—then we must rely on Virginia law to dictate where the property goes.

This body of Virginia law is known as the Law of Intestacy.

Think of it this way: If you die with a Will, then you are said to have died Testate.  But if you have no Will, and no other plan for the asset (beneficiary designation, for instance), then you are said to have died Intestate, and that property must go through a court process called probate.  The probate process will turn to the Law of Intestacy to determine where the property goes.

The Law of Intestacy contains a list, or a hierarchy, of who gets our property when we have left no instructions.

Right now, in 2018, when someone dies in Virginia without a Will or other directive, the list looks like this:

First: All to the Surviving Spouse, but only if all surviving children of the deceased are also the children of that spouse.  If the deceased left behind any surviving children (or grandchildren, great-grandchildren, etc.) who are not the children of the surviving spouse, then the surviving spouse gets only one-third, and the remaining two-thirds go to the deceased’s children.

Second: If there is no Surviving Spouse, then all goes to the deceased’s surviving children and their descendants.

Third: If no children or descendants, then all goes to the deceased’s parents, or surviving parent.

Fourth: If neither parent is living, then all goes to the deceased’s brothers and sisters, and their descendants (the deceased’s nieces and nephews).

The Code then stretches out even further in search of a “next of kin,” and if there simply are no takers, then it goes to the state.

An interesting point about our current Law of Intestacy is that the spouse is number one on the list.  It was not always this way.  In fact, given how long Virginia law has been in existence, the spouse has been in the number one position for only a short time.  When did the spouse take this number one position?  July 1, 1982.

Before July 1, 1982, it was generally the children who took the number one spot.  In fact, prior to 1956 the spouse was at the number four level, and in that year jumped to number two.

As discussed above, having the spouse in the number one position probably reflects what most clients would want for their own property.  But for property that has been inherited from Mom and Dad, the Law of Intestacy can have unintended consequences.

Consider married clients who draft Wills leaving everything to each other, and then all to their daughter, their only child.  Under this plan, all will end up going to the one child.  That daughter becomes the owner of the property.  It’s hers.

The daughter is married and has one son (the grandson of the clients), and that grandson is the son of the daughter and her husband (the clients’ son-in-law).

What happens to all the daughter’s property (including the property left to her by Mom and Dad) when she dies?  Who is first on the list if she dies intestate?

Her husband.

But wait a minute, cry the clients.  We want our property to go to our grandson!

Too late.  When the clients left their property to their daughter by Will, beneficiary designation, or joint ownership (think joint bank accounts), then it became her property.  It’s hers.  She owns it.  And under the Virginia Law of Intestacy, all her property (which now includes anything left to her by Mom and Dad) goes to the daughter’s husband.

But what if he remarries?

Who’s first on the list?

You mean…?

Yes, that property left to the daughter went to her husband when she died.  And while he was alive he stuck it all in a joint bank account with his new wife.  And when he died, everything went to the new wife.  She can do whatever she wants with it.  It’s up to her if she wants to leave anything to your clients’ grandson (her stepson).

Our current Law of Intestacy does not have the emphasis on the bloodline that it used to, and with the spouse being in the number one position, there is no guarantee that your property will stay in your bloodline.

How do I keep my property in my bloodline?

That, my friend, is why I do a lot of trusts.

Posted in Estate Planning

Protecting Your Beneficiaries from Remarriage, Failed Marriages, Creditors, and Themselves

Posted on November 6, 2018

Article written by Trey T. Parker, Esq

Estate planning is more than transferring wealth – it is about people.  Depending on your situation, this may include any or all of the following:  spouses, children, grandchildren, extended family members, and friends.  A well-drafted estate plan will address the circumstances of each of these potential beneficiaries, your goals and values, and coordinate them in a way that leaves a lasting legacy of which you can be proud.  For many, the revocable living trust is well-suited for this purpose because it can be tailored to provide for the people you love while also protecting them from remarriage, failed marriages, creditors, and themselves.  In other words, it will leave your wealth to whom you want, when you want, and how you want.

For married couples, the primary concern in estate planning is typically to ensure that the surviving spouse will have access to all of the wealth for his or her needs.  A secondary concern is to ensure that the other beneficiaries, such as children, will remain beneficiaries if the surviving spouse remarries.  Through the use of a revocable living trust with special marital sub-trust provisions you can achieve both.  The special marital sub-trust provisions, often referred to as a QTIP Trust, allows the surviving spouse to have access to all of the wealth for his or her lifetime needs, but the surviving spouse is unable to redirect the wealth to his or her own children, a new spouse, etc.  This type of estate planning may be useful for any married couple, but is especially relevant for young couples and blended families.

A revocable living trust can also contain provisions that protect children and other beneficiaries from failed marriages, creditors, and themselves.  If you establish sub-trusts for each of your beneficiaries, you can provide them with something akin to safety-deposit boxes in which only they or a trustee selected by you has the key.  The beneficiary of the sub-trust is not vested with legal ownership, and therefore a spouse of the beneficiary cannot claim the assets in divorce, a creditor cannot attach the assets in lawsuits or bankruptcy, and the assets are not subject to spend-down provisions for long-term care for the beneficiary.  In addition, the terms can provide incentives to a productive lifestyle by stopping distributions if the beneficiary becomes involved in destructive behavior, such as drug or alcohol abuse, gambling, or excessive spending.

While there is no “right” or “wrong” way to plan your estate, there are methods that are better suited to achieve your goals and objectives.  Therefore, it is important to work with an estate planning attorney who has experience and expertise in this delicate area so you are aware of all your options.  After discussing your unique circumstances, goals, and options, you will be able to complete an effective and efficient estate plan that is a caring and loving act for those who matter most.

Posted in Estate Planning

Asset-Protection Basics

Posted on October 22, 2018

Article provided by WealthCounsel; Reviewed & edited by James W. Garrett, Esq.

Most of us do not expect to be sued.  However, lawsuits are filed every day.  If your financial and estate planning doesn’t include adequate asset protection, you could end up losing a substantial amount of your wealth in the event of a claim – even a “frivolous” one.

It’s well worth reviewing your plan to see if it utilizes any asset-protection strategies.  Shielding your assets and property against legal claims takes sophisticated planning and teamwork. We’re here to help you and your other professional advisors develop a tailored asset-protection strategy.

Here are a few strategies you may want to consider.

  • Tenants by the Entirety (TBE): If you are married and jointly own assets with your spouse, you should consider having them retitled as “Tenants by the Entirety” (TBE).  TBE is a type of joint ownership that only married co-owners can enjoy.  Under Virginia law, an asset titled TBE is protected from a creditor, provided that only one spouse is liable.  But, to have this protection, the jointly owned asset must be titled as TBE and not simply as “joint tenants.”  To make this change, you will need to complete a new account form with your financial institution.
  • Domestic Self-Settled Asset Protection Trust (DAPT): DAPTs can protect you from a legal claim that may arise in the future, by allowing you to place your assets in a special trust that protects them from the reach of a creditor.  Although DAPTs aren’t available in every state, they are available in Virginia.  DAPTs are a sophisticated planning tool that’s not right for everyone.  But, in the right situation – someone with lots of assets or in a high-risk occupation – DAPTs can provide powerful asset protection.
  • Lifetime Trusts: Lifetime trusts can be used to protect your children’s inheritance.  Think of this tactic as asset protection for the next generation.  Although this type of planning does not provide any asset- protection benefit for you, a lifetime trust can secure the financial well-being of your children and grandchildren after you’re gone.
  • Retirement Plans: Did you know that the funds you put away in retirement plans are asset protected from your creditors and bankruptcy?  Do you know that inherited retirement plans lose those protections when you leave them to your children and grandchildren?  This is what the U. S. Supreme Court ruled in the 2014 case, Rameker v. Clark.  Our firm has helped many clients establish special stand-alone Retirement Plan Trusts designed to give inherited retirement plans income tax deferral and asset protection.  If you have sizable retirement plan assets, you ought to look into this type of planning.
  • Protecting Investment Real Estate: If you own several rental properties, you ought to consider insulating this liability from the rest of your assets by holding those rental properties in a separate business entity.  In the past, a limited liability company (LLC) was the entity-of-choice for asset-protection purposes.  Today, many of our clients instead use a different form of business entity called a Virginia Business Trust.  If you haven’t heard of a Virginia Business Trust, we’d be delighted to meet with you to tell you more about it.

Asset-protection planning should not be delayed or neglected.  Effective strategies like these only protect your assets when they’re put into place well ahead of a lawsuit, creditor claim, or bankruptcy.  This means that you must put asset-protection planning in place before you need it!  Think of it like another form of insurance.

We’re here to help you.  It’s all about peace of mind.  Give us – the attorneys at Carrell Blanton Ferris & Associates – a call today to make an appointment to discuss your asset protection and estate planning needs and concerns.  We’re confident you’ll be delighted with the education and counsel you’ll receive.

Posted in Estate Planning

Revocable Living Trusts:  A No Brainer for Young Couples

Posted on October 9, 2018

Article written by Kevin O’Donnell, Esq.


            A recent study estimated that 60-70% of Americans between the ages of 18-52 have no estate plan.  For young couples, this percentage is certainly higher.  One reason many young couples fail to plan is that they have not been educated on the value and benefits of proper estate planning.  Many believe estate planning is reserved for older, wealthier families, when in fact young couples often benefit more from proper estate planning than these older, wealthier families.

When meeting with young couples, I almost always recommend a revocable living trust.  Many believe trusts are only used by wealthy families to avoid paying taxes.  A revocable living trust, however, is a common estate planning tool used to leave an inheritance to minor children.  This article will highlight many of the reasons why a revocable living trust is the best way for a young couple to leave an inheritance for young children if both spouses unexpectedly pass away.

Trusts Avoid Probate

            All property passing through a will or through intestacy (the rules that apply when someone dies without a will) is subject to probate.  Probate is the court supervised transfer of property at one’s death.  To initiate the probate process, someone must go to the courthouse and be appointed by the court to transfer the property.  This person is referred to as either the administrator or the executor, depending on whether the decedent has a will.  At the time of his or her appointment, the executor is required to publicly record your will and pay a probate tax based upon the value of your estate.

Next, the executor will collect all of your belongings and file an inventory of your assets with a lawyer appointed by the court called the Commissioner of Accounts.  Periodically, the executor is required to file accounting with the Commissioner of Accounts detailing all the actions he or she has taken on behalf of your estate.  If the Commissioner finds any mistakes or is unhappy with the accounting he or she will return it to the executor without approving it until it is corrected to the Commissioner’s satisfaction.  The executor is then required to use your estate’s funds to pay your final expenses, taxes and verified debts.  Once the debts are all paid and the Commissioner of Accounts approves all of the accountings, the executor can finally distribute your property to your heirs or your beneficiaries and close out the estate.

It is easy to see why the probate process is unpopular.  Probate generally takes between nine months and two years and is a frustrating and inefficient way to transfer property at death.  Fortunately, a revocable living trust avoids the probate process altogether.

     Trusts Plan for Minor Children

            If both spouses unexpectedly pass away without a will, their property would still likely pass to their children under the laws of intestacy.   Without a trust in place, however, this property is transferred through the probate process.  To make matters worse, if the couple’s children are minors they are not legally able to inherit the property.  As a result, the Court must appoint someone to manage their inheritance and the probate process extended until the children turn 18.  The property is then distributed outright to the children for them to spend however they choose.  Most parents have heart palpitations when considering the thought of their 18 year old inheriting any amount of money without supervision.

Wills avoid some of these issues but are still not the ideal way to leave an inheritance to minor children.  Most wills include a provision nominating a person (referred to as a “guardian”), to manage the children’s inheritance until they turn 18, but this person is still subject to the probate process.  This means the guardian is required to account to the Commission of Accounts each year on how the money was spent on the children’s behalf until the children turn 18.  Once they turn 18, the guardian is required to distribute the money to the children despite the fact that they are presumably too young for such responsibility.   A will may include provisions requiring the guardian to manage the children’s inheritance until the children reach a later age, but this will extend the probate process even after the children reach 18 years of age.

A revocable living trust gives a young couple the best of both worlds.  The trust typically names a person (referred to as the “Successor Trustee”) to manage the children’s inheritance if both spouses unexpectedly pass away.  The property passing through the trust is not subject to the probate requirements and therefore the successor Trustee does not have to make annual accountings to the Commissioner of Accounts or pay any probate taxes to the local court.  Furthermore, everything the successor Trustee does is private and the successor Trustee avoids most of the frustrations of the probate process.

A revocable living trust also typically sets rules for the successor Trustee to follow when managing the children’s inheritance.  The trust can, for example, require the successor Trustee to retain the inheritance in trust until the children reach an age set by their parents.  If the parents have concerns about their children’s ability to manage finances they can require the property to be held in trust until their children reach 30, 40, or even 50 years of age.  During that time, the property is still used for the benefit of the children but the successor Trustee has discretion in making decisions about how the money is used.

The trust provides flexibility for meeting a young couple’s goals while avoiding the probate process.  A trust can instruct, for example, that the trustee preserve the inheritance to pay for college, to pay for the down payment on a house, or to pay for the costs of a wedding.  A trust can also be drafted so the successor trustee is either liberal or conservative in making discretionary distributions for the children’s benefit or to provide for specific distributions of property at certain ages.  Thus, the trust allows for a young couple to customize their plan to a greater degree than a will while also avoiding all of the frustrations of the probate process.

Trusts Plan for Remarriage

            Most couples refuse or fail to contemplate the possibility of remarriage after the death of one spouse.  Remarriage is usually the most difficult subject to discuss and often the couple’s response is a terse, “We are not planning on remarrying.”  Remarriage, however, is a real possibility which can have some important, unintended consequences for any couple to consider.  Without proper planning, a second marriage can result in the unintentional disinheritance of children from the first marriage even under the best of circumstances.

To illustrate, let’s use the example of Tom and Ann.  Tom and Ann are married and have one son named Jack.  Tom and Ann have no estate plan when Tom unexpectedly passes away.  Most of their assets were jointly titled and Ann inherits all of Tom’s property.  Ten years later Ann meets Mark and Mark proposes.  Ann and Mark marry and subsequently have a child named Caleb.  Ann and Mark meet with an attorney and draft an estate plan that says if Ann dies everything is transferred to Mark if he is alive or, if Mark predeceases Ann, everything is transferred to Jack and Caleb in equal shares.

Unfortunately Ann gets sick and passes away.  According to Ann’s will, Mark inherits all of her property.  Mark has a great relationship with Jack but never adopts Jack.  As much as Mark likes Jack, Mark loves Caleb more and updates his will leaving everything to Caleb.  As a result, everything that Tom presumably wanted Jack to ultimately inherit after Ann’s death will now be inherited by Caleb through Mark’s will.  All of the parties in this scenario acted with the best of intentions and yet Jack still ended up being unintentionally disinherited.

Tom and Ann likely never considered this scenario.  But, this example demonstrates why it is an important factor to consider, especially among young couples.  Ann can, through the use of a revocable living trust, ensure Mark inherits her property while also ensuring Jack is protected if Mark remarries.

Leaving Your Legacy

            Ultimately, a good estate plan accomplishes two things.  First, if done properly an estate plan provides a young couple with peace of mind knowing there is a plan in place to protect their children in the event of a tragedy.  It is hard to put a dollar value on the peace of mind a good estate plan can provide, especially for young couples with young children.  Second, a good estate plan provides a great lasting legacy for your loved ones.  If tragedy strikes, your children will have the benefit of a plan in place to ensure they can avoid the frustrations of probate.  More importantly, a good estate plan allows your children to benefit from an inheritance while also protecting them from their youthful mistakes.

If you are interested in hearing more about the revocable living trust, please attend one of our regular seminars.

Posted in Estate Planning