Settling the estate and other financial and business affairs of a deceased spouse, parent, or sibling can be a daunting experience for the family member who has taken on the task.
A person unfamilar with settling an estate might think she has stepped into a labyrinth … and she would be right. There are federal tax rules and state probate laws that must be followed. And there are also unwritten rules that third parties, such as banks, insurance companies, and stock brokerage firms, often insist upon before they will agree to transfer assets out of a decedent’s name. Tom Nolan and an experienced paralegal staff will walk with you through the labyrinth, and in the process, save you much frustration and emotional energy.
You can visualize the settlement of a decedent’s estate as a process that proceeds down three different tracks within the labyrinth.
Track One. The first track involves complying with the probate system enacted by the Virginia General Assembly. This track is concerned primarily with following the orderly process established by state law for the transfer of assets from a decedent’s estate into the hands of the beneficiaries under the decedent’s will. This is what most people generally think of as probate: (i) recording the decedent’s will in the Circuit Court in the city or county where the decedent resided prior to his or her death, (ii) having the court certify (“qualify”) the appointment of the executor named in the will, (iii) gathering together (known as “marshalling”) the decedent’s probate estate, and using those assets to pay the decedent’s debts and final taxes, (iv) filing an inventory and annual accountings with the quasi-judicial officer known as the Commissioner of Accounts until the estate is closed, and (v) at the end of the process, paying out the decedent’s assets to the beneficiaries of the estate.
Track Two. The second track involves the marshalling of assets that do not necessarily pass under the decedent’s will. In many estates, these non-probate assets are larger than the probate assets that are subject to the formal probate process. Such non-probate assets include (i) assets that pass under beneficiary designations, such as life insurance and IRA proceeds, (ii) assets held in joint names with rights of survivorship, and (iii) investment accounts that pass under P.O.D. (payable on death) or T.O.D. (transfer on death) provisions instituted by a decedent before death. Even though an executor under a will may have no legal authority over these assets, it often falls to the personal representative to shepherd the transfer of these assets from the decedent’s name to the new owner.
Track Three. The first two tracks involve the orderly transfer of assets from the name of a decedent into the hands of the ultimate beneficiaries. The third track has a very different focus – the determination and payment of federal estate taxes. The estate tax is a tax on the transfer of wealth at death. Historically, federal tax laws have allowed a specific amount of a person’s estate to pass at death free of any estate tax. This amount is referred to in the tax law as the unified credit. Those same laws allow an individual to leave his estate to his spouse completely free of federal estate tax. This is known as the unlimited marital deduction. On January 2, 2013, President Obama signed legislation with far-reaching effects on the federal estate tax laws. The per-person exemption from the federal estate tax has risen to $5.34 million in 2014. If a decedent’s estate exceeds this amount (after taking into account various deductions such as the marital deduction), that decedent’s estate will be subject to a 40% federal estate tax on the excess. (See our post Bush Tax Cuts Live On for more details.) All this information is set out in a vast and far reaching inventory of the decedent’s assets compiled on IRS Form 706, otherwise known as the federal estate tax return. In large estates, the closing of an estate is often delayed for an additional year or two as the executor waits for IRS approval that the estate tax return has been accepted and no further tax is due.
Professional Help. Not surprisingly, most executors need professional help to navigate the three tracks and properly settle a decedent’s estate. At Virginia Wills, Trusts & Estates, we are competent to assist you with the administration of any estate involving the death of a Virginia resident or any estate where the decedent had assets, such as real estate, located in Virginia. We estimate that half of our professional time is spent assisting clients in the estate administration process. We generally bill our clients on an hourly basis for these services. We are eager to help any executor or beneficiary or other loved one of a decedent who needs help in some aspect of the administration of an estate.