LAW UPDATE: Mandatory Training Coming for Guardians of Incapacitated Adults

In the 2024 legislative session, the Virginia General Assembly has a training requirement for guardians of incapacitated adults.  It will be a course relating to the duties of guardians, what information the annual reports should contain, and facilitating the incapacitated adult’s participation in decisionmaking.  This requirement will apply immediately for guardians appointed on or after July 1, 2025.  For existing guardianships, this course will have to be completed by January 1, 2027.

The course has not yet been developed by the Virginia Department of Aging and Rehabilitative Services and I do not have information on when they will finish writing it or how guardians will be able to take the course.  The course only needs to be taken once, but a certification regarding whether the guardian has taken the course will be required on every annual report.  If someone is a guardian of more than one person (which could be familial or professional), they will not need to take the course again if the previous course was completed within the prior 36 months.  The legislation anticipates that for attorneys the course will be eligible for Continuing Legal Education credit. 

If you are looking for more information, you can read the full text in Senate Bill 291 (2024 Session), in its final form in Chapter 587 of the Acts of Assembly - 2024 Session.

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.

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.