Series: LAW UPDATE

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.

Lessons from Litigation (and LAW UPDATE): How to Prove a Deceased Person’s Claim

by Jonathan A. Nelson

The Virginia Supreme Court this month issued an opinion in Bon Secours-DePaul Medical Center, Inc. v. Rogakos-Russell, addressing Virginia’s rules on testimony with a deceased party, commonly called the “Dead Man Statute.”

 The Dead Man Statute has two basic components:

(1)      where there is a claim “by or against” a deceased person or his estate (and also for certain other unavailable persons), there must be disinterested corroboration of the basic elements of the claim; so, for instance, a child could not claim an oral contract with a deceased parent to be paid at $200 an hour from the Estate for lifetime personal care unless there was some outside confirmation of the agreement;

(2)       however, statements by the deceased person which would otherwise be hearsay may generally be admitted as evidence.

The two components have a recognized side effect: the hearsay statement allowable under the second part of the statute must be corroborated in accordance with the first part before it can be used by the interested party.

While the statute is often used defensively by an estate to require disinterested corroboration before acknowledging a claim, in the Bon Secours-DePaul case, the estate of a Greek Orthodox priest brought a wrongful death claim against a hospital, and the only direct evidence of the cause of eventual death was the decedent’s own oral statements that he fell after leaning on a stretcher bed whose wheels should have been locked.

Testimony that the decedent made these statements was introduced by several family members, another priest, and a doctor.  The Court found that the statements were sufficiently corroborated because the priest and the doctor were disinterested in the result, and further that the statements did not make the decedent a ‘witness’ requiring additional corroboration in their own right – he is a ‘hearsay declarant’ about whom the witnesses testified, and, having passed on to the next life, he has no remaining interest in the affairs of this life.

There is one important question which the Court declined to rule on in this case: whether the Dead Man Statute’s corroboration is even required where the hearsay is offered in favor of the deceased party rather than by its opponent.  However, because the Court ruled (and this is consistent with centuries of law) that the decedent is not a party, it seems to me a fair inference that the decedent’s survivors will still need corroboration – the decedent is not strictly on their side, either.  In fact, it is not always clear which side the decedent would be on. Consider an example where someone’s will has been probated and then a second will is introduced. Testimony of the decedent’s hearsay statements about which of the two documents is consistent with his wishes would likely be introduced by  both sides; it would create a rather uneven playing field if only the party who lost the race to the probate office had to corroborate the decedent’s statements.

The Dead Man Statute can be technical to apply.  If you are looking at litigation by or against an estate, including cases not directly related to probate issues, seek advice from counsel experienced in its use.

 

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: 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.