Estate Planning in Practice: When an Attorney Asks a Family Member to Leave the Room

by Jonathan A. Nelson

At all stages in life, our family members play an important role in supporting and assisting us. This can be especially true with respect to matters incorporated into estate planning documents, including emergency care, aging considerations, and ensuring that survivors are provided for financially and otherwise.  There are times when it is necessary or appropriate to use professional or corporate fiduciaries, of course, but most often, relatives who live nearby and who know our circumstances, are already involved in caring for us, and have a long history of trustworthiness are the ones named to these important roles. 

When I prepare estate planning documents, the person who will be signing the documents is my client.  In my experience, it is not unusual for a key member of the family to accompany a client to the attorney’s office for the meetings needed to set up and sign estate planning documents.  Sometimes their presence is helpful; at other times, the best way for me to serve my client is to have their family member step out of the room for a time.

Some of the reasons I might ask a relative to leave the room are below. These reasons often benefit the person being asked to leave, and may help them avoid civil or criminal liability down the road.

1. Clout (undue influence) – When a client wants to benefit a specific family member, I have to discuss this separately from that person.

2. Credentialing – Before taking information from a family member on behalf of the client, I need to find out independently the nature of that relationship.

3. Confidentiality – Attorney-client privilege is usually voided by having a family member in the room. Especially if there is a likelihood of conflict, I err on the side of caution. The last thing one wants is a family member put on the witness stand and compelled to repeat a conversation that could have been kept confidential.

4. Comfort – I may pick up an undercurrent during the meeting (e.g., a relationship has changed, previously unanticipated questions need to be asked, or unresolved disagreements exist) that are preventing my client from feeling completely secure discussing their documents or goals.

5. Competence – Similar to the undue influence reasoning, clients are best served by documents that will hold up in court. Sometimes that means confirming that the client has sufficient capacity on his or her own to execute the documents.

Most family members recognize that being asked to step out of the room for some or all of an estate planning meeting is necessary and helpful, and that ultimately they and I are both there to support the client.

Virginia attorney Jonathan A. Nelson uses his extensive legal knowledge and trial experience to resolve conflicts, negotiate settlements, navigate compliance matters, and vigorously advocate in the courtroom in order to achieve the best possible outcomes for his clients. He practices in estate planning, probate, trust and estate administration, corporate law, and civil litigation related to these fields.

The attorneys of Smith Pugh & Nelson, PLC, offer the experienced counsel, personal attention, and customized legal services needed to address the many complex issues surrounding estate planning, probate, and trust administration. Contact us at (703) 777-6084 to schedule a consultation.

Stages of Life & Estate Planning: Divorce

An estate plan can be as simple or as complicated as the assets involved and the people involved, and most divorces create additional complications.  Depending on the circumstances, there may even be differing phases the estate planning documents need to go through.

For example, if someone created estate plan documents with their spouse then entered a separation, they may particularly want to change their power of attorney and medical directive to protect against use by an angry spouse. A revised will can also be a good idea.  Virginia is traditionally unwilling to presume that a separation will end in divorce rather than reconciliation, so while there are certain provisions of a will that are automatically terminated by entry of a divorce decree (such as the spouse serving as Executor), during the separation period those are still operational and could even be dangerous (for instance, the Executor becomes the custodian of the decedent's attorney-client privilege and would have a right to access the divorce attorney’s files).

Upon divorce, the former spouse is removed by law from many aspects of estate planning documents even if they aren't changed, but new documents are helpful in documenting the changes, protecting against misuse of the old documents, updating to new trusted people, and filling contingencies that didn't have to be considered before.  In addition, there are times when re-including the former spouse makes sense, such as making the former spouse a successor owner of a shared child's 529 account; some changes may even be required to comply with a property settlement agreement or divorce decree, such as when a life insurance trust is mandated or a party negotiates for estate planning provisions in lieu of requiring liquidation of an income-producing asset.    

Remarriage creates a raft of new issues usually advisable to address in a premarital agreement.  Especially with a remarriage later in life, a trust may end up being necessary to allow a continuing balance after death between providing for a new spouse and for children from the prior marriage and trying to manage the inherent grounds for conflict between them.

Your estate planning attorney will probably need to see your divorce decree and property settlement agreement to ensure your new plan doesn't run afoul of your continuing legal obligations. If your attorney assisted with a joint estate plan before your separation, he or she may not be able to assist either party with planning during the separation or post-divorce, as confidential information shared in the joint plan creates a potential conflict of interest for the attorney.  

Next in this series: Retirement

Virginia attorney Jonathan A. Nelson uses his extensive legal knowledge and trial experience to resolve conflicts, negotiate settlements, navigate compliance matters, and vigorously advocate in the courtroom in order to achieve the best possible outcomes for his clients. He practices in estate planning, probate, trust and estate administration, corporate law, and civil litigation related to these fields.

The attorneys of Smith Pugh & Nelson, PLC, offer the experienced counsel, personal attention, and customized legal services needed to address the many complex issues surrounding estate planning, probate, and trust administration. Contact us at (703) 777-6084 to schedule a consultation.

Stages of Life & Estate Planning: Emptying the Nest

by Jonathan A. Nelson

With young families, the focus in estate planning is often for their children’s guardianship and daily care.  As the children grow, the focus may shift from primarily handling worst-case scenarios to making sure assets are available for their education and then one's own wealth transition.  

Wills and Powers of Attorney likely require updates during such transitions.  Rather than using outside fiduciaries, adult children themselves may begin to fill emergency roles, become ready to handle asset administration, and help each other with continuing management.  Sometimes, having a child with special needs or one needing additional maturing means setting up special provisions, and good or bad relationships with children, children's spouses, and grandchildren can mean more dimensions.

If disposable income rises or starts to descend from an older generation, wealth accumulation may warrant strategies to minimize taxes and administration expenses.  These elements often point to creating one or more trusts to reduce the difficulty and cost of estate administration and allow for more specific or longer-term provisions.  With small businesses or income-generating real property, care may be required to ensure continued business operation; sometimes, adding business interests to trusts or writing equity purchase agreements is also advisable in order to set up seamless leadership transitions, particularly as having all the family members suddenly become managers isn't always the best plan.

Next in this series: Estate Planning and Divorce

Virginia attorney Jonathan A. Nelson uses his extensive legal knowledge and trial experience to resolve conflicts, negotiate settlements, navigate compliance matters, and vigorously advocate in the courtroom in order to achieve the best possible outcomes for his clients. He practices in estate planning, probate, trust and estate administration, corporate law, and civil litigation related to these fields.

The attorneys of Smith Pugh & Nelson, PLC, offer the experienced counsel, personal attention, and customized legal services needed to address the many complex issues surrounding estate planning, probate, and trust administration. Contact us at (703) 777-6084 to schedule a consultation.

Stages of Life & Estate Planning: 529s and Estates

by Jonathan A. Nelson

Education savings plans authorized by Section 529 of the Internal Revenue Code are a popular investment tool designed to make education more affordable by providing a series of tax benefits, when everything goes right.

Everything does not always go right.

By way of background, a 529 account is established by one or more Contributors (who upon providing the assets has made a completed gift which can thereafter grow tax free) and is held and administered by an Owner who does not have to be the Contributor.  The account has a Designated Beneficiary, and withdrawals from the account by the Owner are tax-free if then expended for qualifying education expenses of the Designated Beneficiary.  If the Designated Beneficiary ages out or does not need the funds, the Owner can change the Designated Beneficiary (usually to another family member to avoid tax consequences); thanks to a recent change in law, the Owner can now instead roll the account over to a Roth IRA for the Designated Beneficiary.  However, the Owner has full control of the account and can intentionally disregard the beneficiary designation if willing to pay the tax penalties for doing so.

One particular contingency is not well covered by law: if the Owner passes away and has not designated a successor Owner of the account, it becomes part of the deceased Owner's probate estate.  The Owner's Executor then has control of the 529 account, and not only can disregard the beneficiary designation, but may be required by state law to do so where creditors have not been paid or residuary beneficiaries have not consented to distribution of the account in a form continuing to benefit the Designated Beneficiary.

I suggest a few actions to help avoid this result:

1. Designate one or more successor Owners for any 529s you control.  This makes the change a non-probate transfer.

2. If you have a trust, consider making the Trustee the Owner or successor Owner.  Besides solving the succession problem, this allows greater continued control over the benefit the accounts provide, and it may be advantageous to have assets which can grow without the trust incurring income tax liability.

3. Include language in your will or trust specifically affirming 529 accounts continuing to be for the benefit of the Designated Beneficiary and giving the Executor or Trustee authority for Owner actions, including designating a new Owner.  (These provisions will be state specific and need to be tailored to how probate in your state needs to be concluded.)

Next in this series: Emptying the Nest

Virginia attorney Jonathan A. Nelson uses his extensive legal knowledge and trial experience to resolve conflicts, negotiate settlements, navigate compliance matters, and vigorously advocate in the courtroom in order to achieve the best possible outcomes for his clients. He practices in estate planning, probate, trust and estate administration, corporate law, and civil litigation related to these fields.

The attorneys of Smith Pugh & Nelson, PLC, offer the experienced counsel, personal attention, and customized legal services needed to address the many complex issues surrounding estate planning, probate, and trust administration. Contact us at (703) 777-6084 to schedule a consultation.

LAW UPDATE: Virginia Court of Appeals Underscores the Importance of Estate Planning ‘Boilerplate’

Fiduciary litigation can get very tangled.  In Kosmann v. Brown, decided July 23, 2024, the Virginia Court of Appeals addressed a case where a principal (“Brown”) signed on the same day a power of attorney and a revocable trust which gave certain authority over the trust to the holder agent under the power of attorney (“Monroe”).  After Brown became incapacitated, Monroe signed an amendment to the trust under the putative authority of the power of attorney cutting out the other beneficiaries in favor of herself, changing the successor trustees, and making the trust irrevocable so the changes would be permanent.

The Loudoun County Circuit Court resolved the matter before trial on purely legal grounds, determining that the action taken was outside the authority granted by the trust to an attorney-in-fact, and the Virginia Court of Appeals has now affirmed this finding.  To reach this conclusion, the Court looked in detail at the exact language of the trust and of the power of attorney and took a deep dive into the definitions built into Virginia’s versions of the Uniform Trust Code, the Uniform Powers of Appointment Act, and the Uniform Power of Attorney Act.  

The Court pointed to a few general things: (1) the trust instrument controls over a power of attorney as to whether the power of attorney can be used to change the trust, (2) an attorney-in-fact is limited to the grant of authority in the power of attorney even if the trust would otherwise allow an action, and (3) a court will look to who the ‘powerholder’ is in determining whether a power of appointment has been exercised.  

The Court also included a veiled warning to the parties - if this matter were to go back for trial, the validity of the trust amendment would still hinge on the factual question of whether the attorney-in-fact acted within the expectations of the principal, in the best interests of the principal, and in good faith.

All of those are important points for fiduciary administration and litigation.  For estate planning, this decision underscores the importance of the administrative ‘boilerplate’ language in your documents.  The Court’s result hinged on the trust’s prohibition on an attorney-in-fact exercising a power of appointment, but the finding could have been very different if the language was broader or more narrow. 

Your estate planning attorney can assess what is important or helpful for your circumstances and draft or make changes to your documents as appropriate. In my practice, I frequently customize documents for a client’s specific situation. It might be to avoid a foreseeable conflict; add extra instructions particular to a complicated asset; or give a fiduciary flexibility for changes in circumstances which may arise far in the future.  You should regularly review the terms of your documents, and whether they make sense with the people in your life, because you know them better than your attorney does. Talking through your questions with an experienced estate planning attorney will help make sure the documents you have in place work out the way you intend.

Virginia attorney Jonathan A. Nelson uses his extensive legal knowledge and trial experience to resolve conflicts, negotiate settlements, navigate compliance matters, and vigorously advocate in the courtroom in order to achieve the best possible outcomes for his clients. He practices in estate planning, probate, trust and estate administration, corporate law, and civil litigation related to these fields.

The attorneys of Smith Pugh & Nelson, PLC, offer the experienced counsel, personal attention, and customized legal services needed to address the many complex issues surrounding estate planning, probate, and trust administration. Contact us at (703) 777-6084 to schedule a consultation.

Stages of Life & Estate Planning: Young Families

by Jonathan A. Nelson

As mentioned in my post on nonmarital relationships, marriage is something for which Virginia law has default rules. These rules are mostly balanced and usually not bad rules, but they may be different from what you want or expect, and can be a bit cautious and therefore inefficient, particularly where potential conflict is involved. Estate planning documents can deal better with most circumstances. 

If you die married with no children and no planning documents, your spouse would get everything and be administrator of the estate (as long as he or she didn't delay qualifying). Even a bare-bones will, however, can reduce the time and expense of administration, avoid third parties’ ability to step in, and provide order in a difficult time.  In addition, the will can provide contingency planning, provide for other people or causes important to you, and avoid losses with assets requiring active management (such as a rental property or business entity) or which are complex or sentimental.

If you have a prenup or a prior marriage, you may need a will (or even a trust) to fulfill your obligations. Powers of attorney and medical directives are useful for spouses to assist one another with ordinary tasks and ensure that your rights apply easily in other states if you travel or move.

A will is necessary to appoint guardians for your minor children, and a will or a trust is useful for setting custodians and conditions for the resources they will need should something happen to you. It can even be helpful to name temporary guardians so the children can be placed with an in-state family you choose during the time between your passing and the court's confirmation of an out-of-state guardianship.  These terms in particular need periodic updates.

Started a college savings account for your kids?  That is great, but there are also a few things you need to make sure are taken care of — which I will address in the next article.

Next in this series: 529s and Estates

Virginia attorney Jonathan A. Nelson uses his extensive legal knowledge and trial experience to resolve conflicts, negotiate settlements, navigate compliance matters, and vigorously advocate in the courtroom in order to achieve the best possible outcomes for his clients. He practices in estate planning, probate, trust and estate administration, corporate law, and civil litigation related to these fields.

The attorneys of Smith Pugh & Nelson, PLC, offer the experienced counsel, personal attention, and customized legal services needed to address the many complex issues surrounding estate planning, probate, and trust administration. Contact us at (703) 777-6084 to schedule a consultation.

Stages of Life & Estate Planning: Non-Marital Relationships

by Jonathan A. Nelson

We last looked at Professional Singles and the changing assets and relationships driving decisions.  What happens, though, when someone special comes along, but the relationship isn't headed to marriage or hasn't yet reached that point?  The partners may have assumptions and wishes, but without the formality of marriage, they have to take affirmative steps to define the relationship if they want legal recognition.

Provision for a partner if something should happen can be done with beneficiary designations and a will, but unlike marriage, if the relationship ends but the will isn't changed, Virginia would not automatically cut out the ex. Similarly, a power of attorney or joint account can allow the partners to share responsibilities and assets, but there are few protections if the relationship ends.  Even the question of who keeps the dog or who is responsible for rent may not have a straightforward means of resolution if not documented beforehand.

One particularly important document is a medical directive.  In the event a person cannot make their own medical decisions and does not have a medical directive, there is a statutory list of people authorized to make decisions (Va. Code § 54.1-2986), which includes spouse, adult children, parents, and so on down the line, but if the Significant Other is recognized at all, their priority is after "any other relative of the patient in descending order of blood relationship."  This document is critical for giving a partner power to make medical decisions, and is important for consistency, since not every state has the same order in the default list. 

 In marriage, the law puts in place a number of default rules and protections; in a less formal relationship, some of these can still be acquired through a non-martial partnership agreement, which is enforceable under the rules for contracts.  Topics for the agreement can include expenses, assets and liabilities acquired together, and even pets. There are limits, and the agreement cannot deal with scope of cohabitation, disability, death, or children.

Next in this series: Young Families

Virginia attorney Jonathan A. Nelson uses his extensive legal knowledge and trial experience to resolve conflicts, negotiate settlements, navigate compliance matters, and vigorously advocate in the courtroom in order to achieve the best possible outcomes for his clients. He practices in estate planning, probate, trust and estate administration, corporate law, and civil litigation related to these fields.

The attorneys of Smith Pugh & Nelson, PLC, offer the experienced counsel, personal attention, and customized legal services needed to address the many complex issues surrounding estate planning, probate, and trust administration. Contact us at (703) 777-6084 to schedule a consultation.

Stages of Life & Estate Planning: Professional Singles

by Jonathan A. Nelson

The last Stages of Life post talked about college students and estate plans. Moving forward in life, professional singles (in varying degrees individually) can have significant debt, growing assets, and changing relationships.

As mom and dad tend to become less a part of daily decision-making (though hopefully no less loved), changing the power of attorney and medical directive to someone trusted who has more knowledge of and proximity to the person may make sense. Depending on the assets and debts, a will can control estate costs, facilitate handling increasing assets, and, by naming an executor, prevent creditors from taking control of the estate.

There may also be personal or tax reasons to direct the estate to different beneficiaries than the legal default: without a will, the estate of a person with no spouse and no descendants goes to his or her parents, but leaving the assets to siblings or a family college fund for nieces or nephews may be more tax efficient than sending the money back to the parents’ generation, only to have it come forward again later.

Estate planning outside these documents is also important at this stage: financial accounts need appropriate beneficiary designations; life insurance is inexpensive at this age but can protect cosigners (parents on education loans!) or co-tenants who may be left holding a lease. Although they are not legal documents, a list of major assets and points of contact, bills set on autopay, and means of electronic access to accounts are extremely helpful in the event there is an emergency and someone is stepping in and figuring out what to do.

Next in this series: Non-Marital Relationships

Virginia attorney Jonathan A. Nelson uses his extensive legal knowledge and trial experience to resolve conflicts, negotiate settlements, navigate compliance matters, and vigorously advocate in the courtroom in order to achieve the best possible outcomes for his clients. He practices in estate planning, probate, trust and estate administration, corporate law, and civil litigation related to these fields.

The attorneys of Smith Pugh & Nelson, PLC, offer the experienced counsel, personal attention, and customized legal services needed to address the many complex issues surrounding estate planning, probate, and trust administration. Contact us at (703) 777-6084 to schedule a consultation.

LAW UPDATE: U.S. Supreme Court Decision Will Impact Estate Planning With Family Businesses

by Jonathan A. Nelson

The U.S. Supreme Court this week, in Connelly v. U.S. (opinion here), added a wrinkle to estate and succession plans for businesses with only a few owners.  

Estate plans often depend on life insurance proceeds to give one's family (or other beneficiaries) a financial benefit from the decedent's having built a business, but without jeopardizing the future of the company by giving full rights of ownership and management to people unable or unwilling to run the company or perhaps a group who can't efficiently get along.  Some such plans pay the insurance proceeds directly to the company and have the company purchase the decedent's ownership interests back in a forced sale, usually for a price equal to the amount of insurance, thereby increasing proportionally all other ownership interests.  That buyback is a contract matter, and there is usually a mechanism for calculating the price.  

Brothers Michael and Thomas Connelly had such an arrangement for the building supply company they owned together - as it happened, Michael died first, so Thomas would keep the company and the company would pay the life insurance proceeds to buy back the stock from Michael's survivors for $3,000,000.  The executor filed a federal estate tax return (Form 706, the tax on a gross estate in excess of $13.61M in 2024, but less when Michael died) reporting a valuation of Michael's share of the company as $3,000,000.  The valuation had excluded the insurance proceeds as offset by the obligation to repurchase the shares, and the IRS disagreed with the offset.  The difference in tax was nearly $900,000.  

There may also be personal or tax reasons to direct the estate to different beneficiaries than the legal default: without a will, the estate of a person with no spouse and no descendants goes to his or her parents, but leaving the assets to siblings or a family college fund for nieces or nephews may be more tax efficient than sending the money back to the parents’ generation, only to have it come forward again later.

The Supreme Court has now ruled that the insurance proceeds must be included in the valuation, reasoning that even if the total value of the company goes down after the funds are used for a repurchase at fair market value, the value per share does not change, and in any event the valuation looks at date of death value (with received or receivable insurance proceeds) not post-redemption value.  Before the present decision, the federal circuit courts of appeal were split on this question.

Stock redemption plans are complex and must be tailored to the outcome needed for that specific company and the overall financial pictures of the owners.  If you have a stock redemption plan, buy-sell agreement, or provisions in a shareholder agreement, operating agreement, or similar document which restrict transfers and direct the disposition of the ownership interests, please check with your counsel on whether a change should be made in light of Connelly.

Virginia attorney Jonathan A. Nelson uses his extensive legal knowledge and trial experience to resolve conflicts, negotiate settlements, navigate compliance matters, and vigorously advocate in the courtroom in order to achieve the best possible outcomes for his clients. He practices in estate planning, probate, trust and estate administration, corporate law, and civil litigation related to these fields.

The attorneys of Smith Pugh & Nelson, PLC, offer the experienced counsel, personal attention, and customized legal services needed to address the many complex issues surrounding estate planning, probate, and trust administration. Contact us at (703) 777-6084 to schedule a consultation.

Stages of Life & Estate Planning: Do College Students Need Estate Planning?

by Jonathan A. Nelson

Dinnertime conversation in a lawyer's house can get interesting. I have had to deal with whether it is accurate to call it "mom’s and dad's house" when it's in a trust, and whether an 8-year-old having a will would protect baseball cards and Legos (it can't - you have to be 18 or emancipated to sign a will; I may address estates of minors in a later post, but legal involvement is unusual). Taking the spirit of those discussions, though, we will look briefly at a few stages in life and the documents that are often helpful as life changes. Every situation is unique, and if we talk we will assess how your particular needs can best be met.

For college students with few assets and usually a lot of debt, often the most useful estate planning documents are a Durable General Power of Attorney and an Advance Medical Directive. For a college student, these are frequently made out to mom or dad. The Power of Attorney is really useful if the student gets into something over their head ("I have a big final tomorrow and my car was just impounded"), needs help moving money around (including for tuition), needs information for financial aid, or wants assistance handling transactions back home. The Medical Directive makes sure that the right person is designated to make emergency medical decisions regardless of what state the school is in, and provides access to medical history information that may be important to making those decisions intelligently.

Some instances where a will is helpful at this age are: adverse relationships with a parent or other family situations, assets requiring special or timely administration, inherited or contingent assets, or debts where the creditor needs to be prevented from controlling the estate. But generally, with few assets and parents being the heirs-at-law (and likely co-signers on debts), a will won’t usually change a lot compared to the default laws during this stage of life.

Next in this series: Professional Singles

Virginia attorney Jonathan A. Nelson uses his extensive legal knowledge and trial experience to resolve conflicts, negotiate settlements, navigate compliance matters, and vigorously advocate in the courtroom in order to achieve the best possible outcomes for his clients. He practices in estate planning, probate, trust and estate administration, corporate law, and civil litigation related to these fields.

The attorneys of Smith Pugh & Nelson, PLC, offer the experienced counsel, personal attention, and customized legal services needed to address the many complex issues surrounding estate planning, probate, and trust administration. Contact us at (703) 777-6084 to schedule a consultation.