Fiduciary Boot Camp: What are the Fiduciary Duties?

by Jonathan A. Nelson

Estate planning has serious and weighty implications – the entire field has developed in recognition that everyone dies (and everyone does so with some unfinished business) and that even during life, people need others to step in during emergencies.  Because of these realities, it is expedient, and often necessary, to entrust to someone else - a ‘fiduciary’ - with the care of these matters.  That person is also a fallible human, however, and so regardless of whether they perform this role well or poorly, it is the principal or his beneficiary (and not the fiduciary) who is most affected.

 In recognition of this shift of risk, the law has developed the idea of ‘fiduciary duties’.  These represent the standards to which a fiduciary is held when managing and applying the assets of another, and accordingly also the degree to which that fiduciary will have to make the principal’s beneficiary whole in the event that duty is not followed.  What are these ‘fiduciary duties,’ and what do they look like?

 1.       The Duty of Loyalty. Loyalty in this context looks at whether the fiduciary is serving the interests of the principal (or beneficiary).  The Virginia power of attorney statutes codify one test as, “Does the action follow the principal’s reasonable expectations, if known, and his or her best interests if not?”  There are times that the fiduciary may also benefit, but a reviewing court will look dimly on self-serving actions which are not meaningfully and proportionally benefitting the person to whom this duty is owed.

2.       The Duty to Take a Reasonable Fee.  While in many ways a subset of the duty of loyalty, this is a frequent flier on the abuse list.  “Reasonableness” is based on the actual service provided, not the rate of the fiduciary when doing other tasks.  One local law firm found themselves in some hot water a few years ago for excessive fees in serving an incapacitated adult, including hourly billing of about $6,000 to sell a car for $4,000.

3.       The Duty of Impartiality. A fiduciary cannot play favorites between beneficiaries, especially when the fiduciary is one of the beneficiaries.  This can include distributing stocks which are performing at different rates, distributing assets with different capital gains tax basis, or giving the memorable but not particularly valuable tangibles to one beneficiary and the junk to the others.  This can become difficult where the beneficiaries are in different classes, such as weighing investment options where a lifetime beneficiary receives income and remainder beneficiaries may receive the value of unrealized growth.

4.       The Duty of Prudence. A fiduciary owes a duty to exercise care over the entrusted assets, and the standard is generally formulated “as great a care as an ordinary person shows for own assets.”  In practice, that translates to a bit more cautious an investment approach than some ordinary people would take, and the standard can vary based on the choice of fiduciary – a family member may not be held responsible for a low return on investment while an investment company serving as fiduciary may be examined much more closely for whether their investments are performing at the market level; similarly, an attorney may be held responsible for legal mistakes that a family member might not.

5.       The Duty to Inform. A fiduciary has to provide to beneficiaries sufficient information to understand and defend their interests.  Some specific information is required by statutes, but generally speaking, while the fiduciary doesn’t need further permission of the beneficiaries to administer the assets, he does need to let them know what he has done.

Some elements of these duties can be waived in the estate planning documents, but sometimes it is better to require a little extra in order to reduce friction or safeguard against foreseeable problems.  For an attorney drafting estate planning documents, it can be tricky to build a plan that balances the burden placed on a fiduciary with the anticipated benefit.  In the administration and litigation sides, more than in most areas of law, the presence of these duties allows the serious big-picture question of “Are you doing what is right?”

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.

Trusts 101: When Not to Use a Trust

by Jonathan A. Nelson and Christopher S. Woodruff

Trusts are rightly the centerpiece of many estate plans because they provide great tools for setting complex strategies, avoiding uncertainty for some matters where timing is important, and building in flexibility by deferring some decisions until they need to be made (even if after death).

But trusts aren’t right for everyone – sometimes they are more trouble than they are worth, sometimes the benefit doesn’t justify the expense of creating and setting them up, and sometimes they are the wrong tool for the job.  What are some indicators that a trust may not be advisable?  We have run into a few:

 1.       Straightforward assets: Whether the dollar amount is modest or the type of assets are as efficiently dealt with outside a trust, in some cases a trust simply does not add a lot of value.

2.       No need for significant contingency planning:  If a couple has one responsible 35-year-old child with no descendants and wants charities as the backup beneficiaries, the trust may not do a whole lot that can’t be done in other easier ways.

3.       High likelihood of major estate planning changes in future: To young parents, the most important aspect of estate planning is often selecting the guardian for their minor children, and this is done through a will. It is perfectly reasonable to have basic estate planning documents (wills, powers of attorney, and medical directives) put in place first, and, if not needed now, reconsider a trust down the road when more particulars of the assets and family needs are known.

4.       Cost: Trusts are labor intensive to create and maintain, and cost significantly more up front than wills. While trusts usually save money in the long run, some clients prefer for that money to be spent later in life or after they pass.

5.       Records won’t be kept or the trust won’t be maintained: Trusts generally require more lifetime work than other plans.  If a client’s personal strengths or lifestyle indicate leaving the paperwork to someone else would be more likely to meet the client’s goals, a trust may not be the best solution.

6.       Public oversight is preferable:  One of the usual upsides of a trust is its privacy and that any disputes are just between the parties to the trust, unless one of them asks a court to resolve something.  In some instances (such as where there are dominant personalities with a potential for abuse, beneficiaries without the means or ability to defend their interests in the trust, or conflicts already anticipated to boil over into litigation), that privacy may end up being counterproductive.  There are some creative solutions possible within a trust, but sometimes the court’s active oversight of probate meets the client’s goals better than avoiding probate.

7.       Significant creditor issues: An executor has powers to deal efficiently with creditors which a trustee does not.  Whether it is bad business debt, an unresolved dispute with the IRS, or difficulty paying student loans, sometimes the fact that the estate will require significant probate involvement to deal with creditors anyway means a trust will not add efficiency – or will add efficiency that benefits creditors rather than your family.

These are complex issues, and an attorney experienced in administering trusts and estates is invaluable in advising where you are – and aren’t – benefiting from sophisticated estate plans.

Next time in Trusts 101: A Brief Introduction to Different Types of Trusts

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.

Christopher S. Woodruff is a member of the Virginia State Bar and has been licensed to practice law since 2016. Mr. Woodruff’s practice focuses on estate planning and the administration of trusts and probate estates. A passionate advocate for children and families, Chris brings extensive experience walking with people who are experiencing grief, trauma, and complex family situations. He provides patient, insightful, and tailored solutions to his clients.

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.

Leesburg, VA, Attorney Frank Pugh in the Wall Street Journal

by Jonathan A. Nelson

Sharp readers of the Wall Street Journal on Saturday, May 10, 2025, may have noticed our own W. Franklin Pugh quoted in an article on hidden pitfalls of transfer-on-death deeds.  Although such deeds are a useful and powerful estate planning tool, they have limits and there are times when they will not do what you hope or expect.  Whether they are right for you and how to go about implementing their use is a discussion you should have with your estate planning attorney.

The article (“When Leaving the House to Your Heirs Backfires” by Ashlea Ebeling) is available to WSJ subscribers or for purchase here.

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.

Leesburg Flower and Garden Week: Preserving a Hobby Garden

by Jonathan A. Nelson

As Leesburg, Virginia, prepares for Flower and Garden Week, and its 35th annual Flower & Garden Festival this weekend, it got me thinking about those projects we love and would enjoy handing down, such as putting in a special garden. 

What can you do to preserve a hobby or ideal beyond your lifetime?  A few ideas and options are below, with examples in the garden theme.

1.       Specific gifts: If someone shares your enthusiasm for a hobby, a simple way of seeing it continue is just to put it in that person’s hands.  This is easier to do with tangible items than real property, but a specific gift in a will might include, “To my nephew Sylvester, I leave my garden tools and seeds.”

2.       Manage over time with a trust: Placing conditions in a trust providing for the activity to be maintained (“The Trustee is directed to maintain my Heirloom Apple Orchard and authorized to spend $10,000 per year…”) can be effective, but it is also tricky to build the right motivations and enforcement mechanisms.

3.       Donor Advised Fund: If the passion is one that benefits from monetary gifts, a donor advised fund (“DAF”) can be an effective way to help your loved ones stay involved while also reaping tax advantages, with enacting language such as, “I set aside $500,000 to the Lee Family Public Garden DAF, for the purpose of making grants to charities installing or maintaining ornamental gardens on lands open to the public.” 

4.       Incorporate or establish a charity: While often the most involved option, setting up a for-profit operation as a continuing business with its own succession plan or establishing a charitable organization to maintain a particular operation or purpose can provide the most robust preservation.  These are often better equipped to ensure the continued success of a decorative pond installation business or preserve a historic farm than just leaving it in equal shares to your survivors.

5.       Nothing: Sometimes the steps for preservation are sufficiently difficult or would so detract from your present enjoyment that your lifetime happiness and memories from the activity are enough – for both you and your loved ones.

Planning, even for recreational interests, can be complex.  If you have a hobby you are interested in preserving, having a discussion about it with your estate planning attorney is the first step toward bringing it to fruition.

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.

Estate Planning in Practice: What About Online Wills?

by Jonathan A. Nelson

I have written previously about electronic estate plan documents.  Another question I sometimes get is whether wills drawn up through online sites or consumer software are legal.

 There are several layers to this answer, largely working backwards from what needs to be done with the document (and bearing in mind that these answers are specific to Virginia, although many states have analogous laws).

With regard to the legality of the will, there is not a lot of mandatory language for a document to be a will (I speak specifically as to Virginia, but this is generally true across the United States), other than there being a definite gift intended to take effect on death.  I have seen even this messed up in print-your-own wills, but it is the exception.

For the will to be admitted to probate and an executor sworn in, there are certain formalities for the signing of the document which go beyond mere notarization.  My observation is that notaries, while used to handling other kinds of documents, frequently make errors through inexperience with trying to administer a will signing.  Virginia has a “savings statute” (Va. Code § 64.2-404) that allows many flaws in the signing to be forgiven by a judge, but this requires filing a suit, and anyone who thinks they have an interest in the estate can object.  A recent example I was involved with required about $6,000 in litigation costs for a nearly unopposed matter because of the hoops that needed to be jumped through;  for contested matters, the bill goes up steeply. 

Even if the will is executed properly and admitted to probate efficiently, the software doesn't usually stop the user from making a mistake in the terms and language.  Problems with online wills I have seen include:

1.       Unfamiliarity with practicalities of the probate procedures that will apply, which may result in impractical administration, impossible gifts or failed gifts, or fiduciaries without the authority to act in a necessary or expected way;

2.       Passing assets in inefficient ways, whether this involves unnecessary probate, multi-step transactions that have tax consequences at each step, or depriving a fiduciary of the resources to maintain an asset;

3.       Failing to provide handling specific to these beneficiaries, including passing assets to minors or for the benefit of people with physical or mental limitations; and

4.       Unintentional omissions, because  the software won’t have a good way of asking you whether you thought of everything.  As one example, I was involved with an estate where the decedent used an online will program, incorrectly assuming that his widow would automatically be the first executor and he was just entering a list of alternates into the form.  Because he didn't list his wife at all as an executor, we ended up having to track down and get waivers from his sister, his mother, his college roommate, and a friend in New York he hadn't talked to in 20 years before she could qualify on the grounds of being a beneficiary.  

In the short term, writing a will with an online program may be convenient, quick, and sometimes less expensive; however, they frequently have speedbumps or full roadblocks between what they actually do and what you wanted, and fixing those problems can quickly cause significant expenses, delays, and inconvenience for your loved ones. 

Do attorneys sometimes make mistakes?  Yes.  But a personal relationship with an attorney experienced in probate and estate planning in your state and who knows your family’s needs reduces the probability, helps avoid the many pitfalls of estate administration, and provides results that are effective and sound.  Attorneys also have professional oversight that a website lacks. 

Many things in life can be fixed later, but a will is out of your hands after you are gone.

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.

Estate Planning in Practice: Moving to a New State

by Jonathan A. Nelson

We live in a mobile society, and people change their state of residence for many reasons, including work, cost of living, family, and retirement.  When moving to a new state, do you need to do anything with your estate plan?

First, the good news: between the Full Faith and Credit clause of the U.S. Constitution and state statutes on the topic, as long as they were valid in your old state, the old will and most other documents will be recognized by the new state and given effect.

With that said, there are still aspects of the documents that are state-specific.  Some are purely procedural – a Texas will might include a direction that probate be an Independent Administration, but Virginia doesn’t have that process, so the instruction simply won’t have any effect.  Others are just questions of efficiency – for instance, a Maryland will may include a testamentary special needs trust with no ill effect in Maryland; if that will is probated in Virginia, the special needs trust will still work but could cost ten thousand dollars per year in administrative expenses which could have been avoided by having the special needs trust in its own standalone document. 

Some things can be more substantive.  As one example, Virginia permits gifts of tangible personal property in a list that isn’t executed with the same formalities as a will; however, that list isn’t itself a will, so a state other than Virginia may not recognize that list as binding.  Puerto Rico allows a successor guardian for an incapacitated adult to be nominated in a will, but in Virginia you would instead need a pre-death court order naming a standby guardian.  A gift under the Uniform Transfer to Minors Act may transfer to the child at a different age in the new state (although thanks to South Carolina’s passage of this Act three years ago, all U.S. states have at least some version of it).  Creditor claims can also be handled differently in the new state, and different provisions may be needed to keep sentimental assets from falling into creditors’ hands.

Another area that could cause difficulty are rights that supersede the estate plan documents.  A surviving spouse, for example, may have the right to make claims in the new state that disrupt what was previously a carefully balanced estate plan.  Or the new state might not extend the same rights to a nonmarital partner.  (As a practical matter, regardless of home state law I would tend to be overdescriptive in provisions involving a nonmarital partner: even traveling through a state that does not recognize the relationship may cause problems if, for example, a medical decision needed to be made after a car crash.)

Trusts can have significant value after interstate moves.  They retain much (but not all, particularly as to spousal rights) of the law of the old state, providing continuity and predictability.

When moving between states, I recommend consulting a lawyer in the new state.  He or she may advise that you do not need any changes to your documents, or may want to talk to your old estate planning attorney about differences, but either way can help fix potentially disruptive surprises before it is too late. 

It is also helpful to speak with your estate planning attorney about your documents and how you hold title if you own real estate in a different state from your residence: many of the same issues arise since that real estate would pass in an ancillary probate under that second state’s laws.

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.

Trusts 101: Benefits of a Trust Before Death

by Jonathan A. Nelson

My previous post in the Trusts 101 series looked at benefits an estate planning trust provides in setting plans for after death, but there can be benefits before death and in certain circumstances it can be very helpful.  These include:

 1.       Incapacity Planning: To the extent assets have been transferred into the trust, a successor trustee is often able to manage finances more systematically and smoothly than someone using a power of attorney, as the trust covers contingencies the POA may not.  In the event of an unexpected incapacity, the authority and flexibility of a trust can be very helpful in both moving quickly and weathering the storm.

2.       Orderly Transitions:  With a gradually increasing incapacity, the trust can allow a cooperative and progressive transition using a co-trustee to make up for what the grantor can’t do at this moment, or anymore.  The trust and its separate recordkeeping also offer better protections against financial abuse, particularly in the event the incapacity interferes with the ability to see how the other person is assisting, versus a power of attorney.

3.       Complex Family Dynamics: Every family is different, and sometimes peace is best kept by addressing natural points of discord.  These may include children from separate relationships, spouses with different life expectancies, and interaction with extended family; or, before the grantor’s death, accounting for a loved one who is disabled, struggles with addictions, has litigious tendencies, or is manipulative (or vulnerable) where money is concerned.  For all of these, building provisions into the trust now can give the grantor peace of mind and free those relationships from being dominated by money concerns.

4.       Management of Business or Investment Property: There is significant overlap with post-death benefits of having a transition plan in place for a business or investment, but you can find improved ability to retain talent or attract investors when you have such a plan.

5.       Early Involvement of Professional Management: For some people, the amount of work or the needs of their survivors will push them toward having professional or corporate trustees after death. Where those trustees are already involved before death (such as if a grantor steps down as trustee or passes along the management of assets), it can make the transition smoother.

6.       Segregated Assets for Particular Purposes:  Not all estate plans call for a single trust to do everything.  Whether there are guarantees in a premarital agreement or legal or moral obligations from a prior marriage, a standalone trust or a subtrust with distinct assets can be a convenient way to earmark assets and provide specific instructions to a future trustee.

7.       Balanced Interests of Beneficiaries: Similarly, not all needs of future beneficiaries are known at the time a trust is set up, and sometimes the level of control provided by a trust can be useful in establishing a balance in access between current family members and a subsequent spouse, or account for significant lifetime transfers to be accounted for as between children.

8.       Some Protections against Creditors (Including Future Creditors of Beneficiaries): While true creditor protection trusts are set up very differently from most estate planning trusts, there is still an element of protection the trust can provide, including against predatory “inheritance advance” lenders.

Next time in Trusts 101: When Not to Use a Trust

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 Legislature Kills Electronic Estate Plan Documents (Again)

by Jonathan A. Nelson

With the Virginia legislature past the halfway point for its 2025 legislative session, I see that this year’s iteration of electronic estate plan documents has died in committee.  While variations on this theme are introduced every year (and while I don’t usually wade publicly into politics), there are a few good reasons to avoid electronic estate plan documents, even if you do live somewhere that has authorized them.

Since the 1677 Statute of Frauds in England, there has been a high level of formality required for fiduciary documents.  The documents set forth a person’s instructions in circumstances where they cannot personally attend to them (whether a will, which only takes effect after the death of the testator, or a power of attorney, which is utilized while the principal is physically absent).  By the end of the 1800s, formality reached a high-water mark where documents were thrown out for small failures, such as a witness leaving the room then coming back or a testator signing a sealed envelope containing a will but not the will itself.  Over time since then, the pendulum has swung in the opposite direction, with courts approving for probate notes by the attorney that the testator had never seen, a digital page from an electronic notetaking program, and (in one Australian case) an unsent text message.

In Virginia, there is a statute setting out the required formalities (Va. Code § 64.2-403), but also a “savings statute” (Va. Code § 64.2-404) allowing a judge to find that a document was intended as a will notwithstanding failing certain formalities.  The statute nonetheless makes clear that the one unwaivable formality is the testator’s signature; the case law requires that the document itself be intended as a will, and merely expressing intent to make a gift in a future will is insufficient.

The debate on level of formality is often cast as finding the balance between allowing a person to freely express their wishes and making sure they are in fact firm intentions and not just passing thoughts.  There is a third part to the equation often left out, however: the people implementing the documents.  An executor must swear that the document presented is, to the best of his knowledge, the last will of the deceased; he is then charged with administering the estate in accordance with those instructions.  On either count, he is at some risk if he has sworn that oath and begun paying creditors or making distributions and then someone shows up later with a text message.  This risk is present for physical documents with signatures, too, but at a much lower threshold since a testator would tend to keep important documents where they can be found.  There are implementation problems even for a document like a power of attorney – an agent presenting an original physical copy (say, at a bank) is helpful authentication that the power has not been revoked, but an electronic copy cannot be pulled back in the same way.

As much as electronic indications of agreement or consent are useful for internet commerce and everything from youth sports leagues to land transactions, some documents are so important that the formalities of using paper are still very helpful, and at the top of my list are wills and powers of attorney.

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.

Trusts 101: Why Use a Trust?

by Jonathan A. Nelson

Revocable living trusts are the most used trusts in our practice.  They are powerful and useful estate planning tools, but they aren’t right for everyone, and I don’t try to oversell them.  Trusts often require considerable customization by the attorney to meet the individual’s needs and circumstances, time and perseverance on the client’s part to fund the trust properly (if I prepare your trust, I provide you with some instructions for this), and a higher commitment for the Trustees to maintaining the assets and documents versus other types of estate planning.  Further, the documents are considerably longer (one local firm’s stock trust is 1.5 times as long as The Lion, the Witch, and the Wardrobe; mine are significantly shorter, but are still a lot of reading) and they require more work just to understand what is required by the document.

 Given the effort and cost involved, clients sometimes wonder what advantages a trust has over just having a will.  Bear in mind that with a will, a probate estate is opened with the court, and the executor’s three jobs, roughly speaking, are to gather the assets, pay the creditors, and distribute to beneficiaries.  For what happens to your estate plan after you pass away, a trust allows key differences, including:

1.       Probate Avoidance: Assets pass outside of probate, saving time and costs, including state and local probate taxes.  The Trustee still has an obligation to account for the assets, but instead of reporting to a court-appointed Commissioner of Accounts, the Trustee only needs to satisfy the beneficiaries that the accounting is sufficient.

2.       Unified Planning: A trust can unify and distribute all assets, versus the more splintered usage of beneficiary designations on death, reducing the chance of accidental inequity, unintended consequences (such as what happens if the only named beneficiary on the form has passed), and potential for abuse.  There are also better options to prioritize gifts in a different order than the law sets for estates, in the event there are unsatisfied creditor claims.

3.       Investment Goals: Trusts allow continuity and direction for labor intensive or time sensitive holdings, such as rental properties or small businesses, and allow the appropriate person to become (or remain) the manager, rather than throwing in all of the beneficiaries as partners.  In many instances, this is very helpful in avoiding liquidation of investments at a suboptimal time.

4.       Tailored Distributions: In most cases, distributions from a trust can be designed with more detail, more structured timeframes, and more flexibility for future contingencies than wills allow.  A distribution under a will is almost always the asset or cash being given to a beneficiary as soon as probate is complete, with no strings or oversight; a trust can change any aspect of that distribution, in many variations, including: 

a. A trustee can manage assets and expenses in the short or long term for a beneficiary who still needs to mature or has limitations.  This includes minors, special needs beneficiaries, or beneficiaries with substance abuse issues, but is sometimes used just to stretch out distributions over some years. That might be done to minimize tax liability, protect heirs from creditors, or even allow a  beneficiary to gain experience in financial management progressively before receiving the bulk of their inheritance.

b. The assets can be held for a specific amount of time and the income paid annually to a beneficiary, while the principle is held for or distributed to another person (for instance, a second spouse who is a lifetime income beneficiary before the principle passes to the prior children).  Alternatively, income and principle could be used for particular contingencies (such as care and veterinary costs during the life of a pet).

c. Gifts can be made contingent on future events (such as a child’s successful graduation from college) or future needs (like down payment for a beneficiary’s first home or a reserve fund for a parent’s elder care).

5.       Creditor Protection: The anticipated benefit under a will can be attached by a beneficiary’s creditor, included in the beneficiary’s divorce proceeding, or even contracted away inadvisedly by the beneficiary himself; a trust can provide protection against any of these.

6.       Charitable Giving: Some giving strategies, particularly ones that seek tax advantages by blending giving with gifts to beneficiaries, require using a trust to lock the plan into place.

7.       Reduced Taxes: Using a trust can provide exemptions or strategic timing of transfers or values used, thus reducing Federal and state tax obligations while ensuring the assets still serve their intended purposes.

Whether you are planning, administering, or benefiting from a trust, an experienced estate planning attorney can ensure you understand the outcomes, obligations, and processes involved.

Next time in Trusts 101: Benefits of a Trust Before Death

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.

Lessons from Litigation: No-Contest Confusion Helps a Church

by Jonathan A. Nelson

Virginia has a long and storied relationship with no-contest (or ‘in terrorem’) clauses, where a beneficiary can be cut out of an estate or trust if they bring a legal challenge to the testamentary document or certain incidents of administration.  Many people writing estate plans see such clauses as an antidote to family dissention, protection against a particular black sheep, or just a way to provide a final “don’t tread on my estate plan” from the grave.

As with any sharp tool, these clauses must be used with care; not appreciating their dangers can have unintended consequences. A Virginia Supreme Court case from 1956,  Womble v. Gunter, provides a stark warning of this possibility.  The Court begins with a near-Dickensian opening paragraph presaging the conflict to come:

George F. Parramore, Sr., died testate on June 4, 1945. His somewhat complicated will, including five codicils, was duly probated and Benj. T. Gunter, Jr., and Quinton G. Nottingham qualified as executors. The testator devised and bequeathed all of his property in various amounts and proportions to his ten living children and numerous grandchildren.

In all, there were thirty named family beneficiaries among the six documents.  The Will had a no-contest clause, which ended with, “Should all my legatees and devisees contest my will, then my entire estate shall pass to Christ Episcopal Church in Eastville.”  Although not discussed in the opinion, once admitted to probate, the will and all five codicils became treated as one document, with the result that a challenge to even one portion became a challenge to the whole unless fully successful. 

The hitherto amicable family descended into dissention, centered on a suit to invalidate the will.  When the dust had settled, the trial court concluded that all thirty beneficiaries had challenged the will and lost any benefit from the estate. 

Although not in the Supreme Court record, I think it a good assumption that at least some of the codicils reflected changes between the interests of the different beneficiaries and changes of who the executors would be; further, because the changes were by codicil, the beneficiaries could see the changes over time.  This seems supported by the court’s finding that the family had fractured, “charging each other with misrepresentation, fraud and deceit,” and the suit brought “to satiate their dissatisfaction and impatience.”

The Virginia Supreme Court dealt with a number of questions raised by different groups of beneficiaries:

• Does it matter if the contest was brought in good faith or with probable cause?  Not here.

• Does it matter if a contestant withdrew before the final order?  No, they still brought the contest.

• Does it matter if a beneficiary was a minor and the contest was brought by a representative?  No.

Of importance for estate planning, the Court interpreted the clause strictly by the terms used in the will:

The court is not concerned with whether an heir or a devisee receives the property of a decedent. The normal freedom of the owner to dispose of his property as he sees fit should not be curtailed unless the disposition violates some rule of law or is against public policy.

Used indiscriminately, a no-contest clause can create difficulties resolving genuine disputes (such as working through this series of documents or ensuring a fiduciary is handling matters correctly), can disincentivize compromise (once the suit was filed, all benefit was lost unless successful), and may result in a more severe penalty than desired.

In Virginia, no-contest clauses are still upheld on the exact language actually used, as described in Hunter v. Hunter (Va. 2020):

We have reconciled these competing values by stating that no-contest provisions are simultaneously “strictly enforced” and “strictly construed.”  By strictly enforced, we mean that we will enforce the provision without any wincing on our part concerning its alleged harshness or unfairness — so long as the testator or settlor clearly intended the forfeiture.  By strictly construed, we mean that the intent to forfeit must be very clear. .    

So, for instance, a grantor of an irrevocable trust with a no-contest clause who is also its sole beneficiary forfeits his rights as beneficiary if he challenges the trust trying to get his money back.  McMurtrie v. McMurtrie (Va. 2021, unpublished).

Much of the animosity between George Parramore’s family members seems to have come not from the litigation itself, but in recriminating each other over the application of the no-contest clause.  Ultimately, the only winner was Christ Episcopal Church in Eastville, which was probably not the result Mr. Parramore was hoping for.    If you are thinking of using a clause like this, discuss the details with an attorney who has seen how they have been applied in administration and litigation so you get the result you are looking for when the terms are “strictly enforced” and “strictly construed.”

Next in the Lessons From Litigation series: How to Prove a Deceased Person’s Claim

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.