LAW UPDATE: Estate Planning Impacts of the One Big Beautiful Bill Act

by Jonathan A. Nelson

With the passage of H.R. 1, the reconciliation bill also known as the One Big Beautiful Bill Act, a few things look like they will impact estate planning and estate administration.  The bill is 870 pages long, including a 12-page table of contents, so this list makes no claim to being comprehensive.   Here is what I see immediately:

 1.       The piece with the biggest direct impact on estate planning is the bill raising the federal estate and gift tax exclusion to $15,000,000.00 per person in 2026 and adjusted to inflation thereafter.  This tax is about 40% of everything over that number, so, at least with the clients I tend to deal with, this change should make planning much more predictable for making sure family businesses and farms survive a death.  (Section 70106 of the bill.)

2.       ABLE accounts, for keeping assets from disqualifying individuals with disabilities from certain means-tested benefits, get a small increase in the amount of contributions which may be made each year, and the bill makes permanent that the amount will be inflation-adjusted.  The ability to roll 529 accounts into ABLE accounts is also made permanent.  (Sections 70115-17 of the bill.)

3.       529 plans can be used for more elementary and secondary school expenses, and the cap on peripheral expenses (such as computers) is doubled.  (Section 70413 of the bill.)

4.       Student loan liability which is discharged because of death or disability is now not taxable income.  There were some other exclusions for student loan forgiveness already in place which were made permanent, but this new provision can impact how estates are administered.  (Section 70119 of the bill.)

5.       Although not a new consideration, if there is a family-owned business which might end up in the hands of a foreign owner (such as a surviving spouse who has not become naturalized), special care will continue to be required, with some tax consequences now heightened.  (See generally Sections 70311, 70351, 70353).

6. There are a number of other changes to personal and business income taxes which may affect the tax returns filed by a personal representative for a deceased person, a business entity owned by a deceased person, or an estate.

7. Medicaid receives a number of changes to avoid unauthorized expenses; although this is unlikely to impact actual recipients, state Medicaid programs are now required to quarterly de-enroll people who have appeared on the Social Security Death Master File.  States will also not be reimbursed for payments they choose to make to persons not lawfully residents, which does stop short of an outright prohibition.  Medicaid recipients have already been allowed a certain amount of home equity before it makes them ineligible (so as to not create an additional housing need on top of a medical need), and the bill doubles that amount, consistent with home values generally rising faster than inflation.  (Sections 71104, 71108, and 71109 of the bill.)

8. Additional funding is allocated in furtherance of manned missions to Mars.  What does this have to do with estate planning?  Eventually, missions and tourism on Mars will give way to residency, which will grant a whole new opportunity to reuse or reinvent everything from property rights to inheritance.  As anyone who has read Andy Weir’s The Martian may remember, the treaty on space applies maritime law where there is no other governing law, which (unless addressed in future colonization law) could send probate back to the last place of residence on earth -- even if it means administering assets on another planet.  If negligence leads to the death, this could lead to the first (so far as I can tell) Death on the High Seas Act suit where the death occurred on land.  (Section 40005 of the bill.)

Besides these provisions, there are a number of regulations which will have to be changed over the next few years to reflect and adapt to these changes, but the passage of this bill highlights again the need to ensure estate plan documents and estate administration advice is based on up-to-date legal understanding.  If you have any concerns about how the bill may impact your estate planning or business interests, talk with an experienced estate planning attorney.

Virginia attorney Jonathan A. Nelson practices in estate planning, probate, trust administration, business formation, and estate and trust litigation, and brings nearly 20 years of experience resolving conflicts, negotiating settlements, vigorously advocating in the courtroom, and navigating compliance matters. He uses a personal touch and extensive legal knowledge to ensure that the particular needs and interests of each client are reflected in the legal services they receive.

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.

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.

Fiduciary Boot Camp: Should You Record the Will?

by Jonathan A. Nelson

A significant goal in many estate plans is avoiding the time and expense of formal probate.  A decedent’s estate may avoid probate of assets by using a trust, beneficiary designations, and certain titling or contract documents. In Virginia, smaller estates may be eligible to use a Small Estate Act affidavit.  

If you are a fiduciary dealing with a Virginia estate which has successfully avoided having probate assets requiring you to be sworn in as the executor), should you still record the will at the courthouse?  I suggest that the answer is yes in most circumstances, for the following reasons.

1.       Preservation of the original document: The original will is very important in Virginia until it is recorded.  It may be years down the road before you know that you need to record it, particularly if it comes up because of a real estate title problem.  Getting it out of your hands and into the court’s records avoids accidental destruction or becoming lost amid the decedent’s other papers being stored or given away.

2.       Updates records: Any time a Virginia Small Estate Act affidavit is used, and sometimes when government benefits or real estate title issues come up, having the will already recorded saves time and steps later.

3.       Proof of testacy: Until the will is recorded, there is a presumption on paper that the decedent was intestate.  The will lays out who the beneficiaries are, and those people rather than the heirs at law have standing to litigate matters related to the estate administration; recording the will also starts the time limit to challenge that will’s validity.  Both of those are helpful in reducing future litigation and allowing finality to the estate.

4.       Placeholder for executor: Although this category is fortunately not a frequent issue, when it does arise, the avoidable problems are significant.  The will names the decedent’s choice of the person to be in charge of the estate; in an intestate estate, any heir and even creditors can qualify to administer the estate.  Some of the most difficult litigation matters for my clients have dealt with removal of someone who swore there wasn’t a will and took over the estate at a time when there was no will on record.  This has included a child intentionally cut out of the will and an ex who wanted access to recent medical records.  Conversely, I have had a matter where we recorded the will and I found out later a family member who had been excluded as a beneficiary had unsuccessfully tried to qualify as administrator, but was stopped because the will had already been filed at the courthouse.

Very occasionally there may be a reason to intentionally not record a will (or not record it right away); this has come up at our firm only once in the last five years.  The reasoning for that decision is very fact specific, and is best discussed with a competent estate administration attorney.

Next time in Fiduciary Boot Camp: What are the Fiduciary Duties?

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 consulta

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.