Virginia State Bar

An agency of the Supreme Court of Virginia

Adjust Text Size:   A   A

Trusts and Estates

A Section of the Virginia State Bar.

Summer 2001 Newsletter

Newsletter - Trusts and Estates

Volume 18, No. 1

Where there is a will--does a trust get in the way?
A Defense of Virginia's Probate System

By Suzanne W. Doggett

You can hardly pick up the paper or open your mail without seeing an advertisement for a living trust seminar. Writing a will "is one of the biggest mistakes" you can make. After all, a will is a "one-way ticket to probate."A living trust,1 on the other hand, ensures that your estate will transfer quickly and without the expense of probate. Neither the court nor disgruntled relatives can alter your plan. Your family, and not the probate court, will be in charge. With the magical living trust, all expensive court proceedings and delays are eliminated, your privacy is preserved and the emotional stress on your family is minimized.

Given these promises, it is almost embarrassing to let a client leave your office without one. Some may even consider it malpractice not to recommend a living trust.2

Lost in all the hype is the fact that the probate process in Virginia is relatively straightforward and has a number of protections for family members, creditors and fiduciaries that are not available with a living trust. The delays, cost and litigation attributed to the probate system are more often caused by the composition of the estate, the claims made against it and the nature of the beneficiaries, than by the "out-dated" probate system. Advertisements and seminars notwithstanding, not everyone needs, or will benefit from, a living trust.

This article will examine some of the claims made in recent advertisements read and brochures received by the author promoting living trusts, and discuss some of the benefits of the probate process that neither the advertisements nor the brochures acknowledge.

A Living Trust Reduces Taxes. Promoters of living trusts used to assert that a living trust saved estate taxes. Now, that claim is implied rather than made directly: "If you are named and your estate is worth less than $1.35 million, there will be no federal estate taxes to pay with a living trust." Without a living trust, even if you have a will, "f you are married and your estate is over $675,000 net, without proper planning your family may owe federal estate taxes of 37% - 55%."

Proper planning is needed to coordinate the unified gift and estate tax credit with. the unlimited marital deduction. This planning, not the mere existence of a living trust, results in the estate tax savings. The living trust does not remove the assets from an individual's estate.3 A married couple with an estate of $1.35 million or less, with proper planning, will pay no estate taxes whether a will or a living trust is used to dispose of their assets.

Before the Taxpayer Relief Act of 1997 income tax treatment of a decedent's estate was generally more favorable than income tax treatment for a trust after the grantor's death. The 1997 Act largely eliminated these differences. A personal representative may now elect to treat certain qualified revocable trusts as part of the decedent's estate for federal income tax purposes. However, certain differences remain that could be important in individual cases. For example, a personal representative may continue to hold the decedent's stock in an S corporation for a "reasonable period of administration."4 A trustee may hold the S Corporation stock for only two years before post-death restrictions are imposed.5

The only tax avoided, or minimized, in Virginia, by the use of a living trust is the probate tax. The probate tax in Virginia is one tenth of one percent (.001) and is assessed against any assets held in the decedent's name alone. The probate tax does not apply to assets that pass automatically upon death including assets held jointly with right of survivorship or assets, such as life insurance and retirement plans, for which there is a designated beneficiary. The potential probate tax savings, as a general rule, do not make the case to use a living trust rather than a will.

A Living Trust Avoids the Claims of Creditors. Living trusts are sometimes promoted as a way to avoid creditors. The claim may be made explicitly ("you can avoid the claims of creditors") or implicitly ("in probate the court orders your debts paid and possessions distributed according to state law, which may not be what you would have wanted").

During the lifetime of the grantor, assets in a revocable trust are treated as owned by the grantor and are subject to his creditors.6 Upon death, the right of creditors, other than a surviving spouse or the Internal Revenue Service, to reach trust assets is not clear under Virginia law.7

Virginia has several early cases in which wives, unsuccessfully, tried to claim their statutory share against the assets of a revocable trust.8 Virginia's augmented estate statute has now eliminated the use of living trusts as a mechanism to avoid claims of the surviving spouse.9 Under federal tax law, the trustee can clearly be held liable for estate taxes. The personal representative has primary responsibility for the payment of taxes; however, any person in actual or constructive possession of the decedent's property is treated as executor if none is .appointed.10

Some jurisdictions, by· case law, allow unsecured creditors to reach assets In a revocable living trust after the grantor's death if the probate estate is insufficient to satisfy the creditors' claims.11 Other states have enacted legislation making the assets of revocable trusts subject to creditors' claims after death.12

In what may be a sign of things to come, the Uniform Trust Code ("UTE") promulgated in 2000 by the National Conference of Commissioners on Uniform State Laws, and currently under consideration in the District of Columbia, makes the property of a revocable trust subject to the grantor's creditors upon the grantor's death. The assets of the trust may also be used for estate settlement costs, funeral expenses and statutory allowances to the extent that the grantor's probate estate is inadequate.13

1. Probate protects statutory allowances for the family. Under Virginia law, a trustee has no obligation (or right) to pay the family allowance,14 exempt property15 or homestead allowance16 from the trust assets. In a probate estate, these claims are given priority over claims of the decedent's creditors. To claim the homestead allowance, the spouse or children must forego other benefits under the will or by intestate succession. Benefits from a funded trust apparently may be accepted in addition to the homestead allowance. These allowances currently total $32,000. Whether this is a "good" or "bad" difference between a will and a living trust depends upon your perspective.

2. In some states, probate cuts off the claims of creditors. The majority of states bar claims not filed or presented within a set period following some prescribed event, usually the publication of notice to creditors in the local newspaper. For example, in Maryland, except as otherwise provided by statute with respect to claims of Maryland or the United States government, all claims against an estate, on whatever legal basis, are forever barred against the estate, the personal representative and the heirs and legatees, unless presented within six months after the date of the decedent's death; or two months after the personal representative gives the creditor notice that his claim will be barred unless he presents the claim within 2 months from the mailing or other delivery of notice.17 In contrast, the statute of limitations for making a claim against a trust is three years.

The ability to cut off claims of creditors within a relatively short period of time presents a strong argument to use a will rather than a trust in such states.

3. Probate can protect the personal representative from future claims of creditors. Virginia does not require notice to creditors by publication except as part of the debts and demands procedure. The statute of limitations applicable to a particular claim applies even after death.18 However, the personal representative can protect himself from future claims of creditors by undertaking the debts and demands procedure followed by a Show Cause Hearing and Order of Distribution.19 If there are no objections at the Show Cause hearing, the court will enter an Order of Distribution directing payment, in whole or in part, with or without a refunding bond, as the Court determines, to ''whomsoever the court has adjudged entitled thereto."20

A personal representative who makes distributions in reliance upon the Order of Distribution is fully protected against creditors and all other persons.21 The personal representative is protected "even if" the distribution is made prior to the expiration of one year from his qualification "against the demands of spouses, persons seeking to impeach the will or establish another will or purchasers of real estate from the personal representative."

A trustee of a living trust does not have a similar procedure by which he can protect himself from future claims.

4. Probate protects the personal representative of an insolvent estate. As noted above, the allegation is that a probate court will order "your debts paid and possessions distributed according to state law, which may not be what you would have wanted;" whereas, with a living trust "[d]ebts are paid and possessions distributed to beneficiaries according to your written instructions."

Most wills direct the personal representative to pay the debts and taxes of the estate. However, this "formal direction merely recites the duty which every executor has under the law."22 Under Virginia law, if assets of a decedent "in the hands of his personal representative" are not enough to pay the demands against his estate, he is protected so long as he follows the order of priority and procedures set forth in the code.23 This statutory scheme does not apply to trusts. Arguably, in Virginia, the trustee has no duty to pay debts, but if he does, and the trust is insufficient to pay all of the grantor's obligations, the trustee might well wish for the direction, and protection, afforded the personal representative by state law.

5. The living trust may actually create needless disputes over the source of payment for debts and bequests. Many living trusts contain language allowing the payment of taxes, bequests and expenses from the trust, for example: "At my death my Trustee may pay to or upon the order of my Personal Representative funds needed to pay my debts, funeral and burial expenses, costs of administration and specific bequests under my will."

This language mayor may not be helpful to the trustee and/or the grantor's beneficiaries. What does the trustee do when the beneficiaries under the will and the beneficiaries under the trust are different? Does the trustee exercise the discretion to pay expenses? To pay bequests? What about the trustee's duty to the beneficiaries of the trust? Distributions from the trust to pay expenses would reduce the amount that would otherwise pass to the trust beneficiaries. Yet, if the trust mandates these payments ("my Trustee shall pay"), any possible creditor protection would be lost.

Where discretion is conferred upon the trustee with respect to the exercise of a power, the trustee's exercise is not subject to control by the court, except to prevent the abuse by the trustee of his discretion.24 Yet, if the trustee pays creditors' claims from trust assets without adequate legal authority, the trustee could be held responsible to the injured party, whether a beneficiary or a creditor.25

Rather than avoiding the claims of-creditors, the living trust might actually increase the confusion, and thus the cost and delay, of making final distribution until competing claims can be resolved, in all likelihood, through a court proceeding.

A Living Trust Avoids the Cost and Delay of Probate. The costs and delays associated with probate are often greatly exaggerated. The basic administration requirements are the same whether a personal representative or a trustee is administering an estate or trust. The decedent's assets must be marshaled and inventoried, his debts ascertained and paid, taxes calculated and returns prepared, and the remaining assets, if any, distributed. A personal representative will not want to make distribution until the taxes and debts are paid. Presumably, a trustee would be equally cautious.

Assets "subject to probate" do not include jointly held accounts, accounts for which a beneficiary, other than the estate, is named, and real estate outside Virginia. Quite often, the bulk of an individual's assets is held in this form and is already "avoiding" probate.

1. The cost of probate. Brochures promoting living trusts usually estimate the cost of probate at 3-10 percent of the estate's gross value, before debts are paid. This estimate is said to cover court costs, and legal and executor fees, which, by implication, are avoided by using a trust.

Court costs. In Virginia, the court costs would include the clerk's fees, probate taxes, and the fees paid to the Commissioner of Accounts. The clerk's fee for recording a will is $13.00 for the first four pages, and $1 for each additional page.26 The clerk's fee to qualify the personal representative is $25 - $30. The probate tax is one-tenth of one percent of value of probate estate.27

The Commissioner of Accounts fees include the cost to file and Inventory ($63 to $163); and the cost to file annual accounts (First Account $ 113 to $10,013; subsequent accounts limited to maximum of one-half of fee paid to file the First Account, but not less than $100). Annual accounts for testamentary trusts can be waived, but if they are not, the fees are similar to the fees for estate accountings. In addition, a simple statement in lieu of an account (filing fee $88) may be filed if all of the residuary beneficiaries are also serving as the personal representatives.28

These costs, while generally not excessive in relation to the size of the estate, can be avoided, in whole or in part, to the extent that assets are titled in the name of a living trust at the time of the grantor's death. To the extent that a living trust is not funded during lifetime, these costs are not avoided.

Legal and accounting fees. Much is made of the fees charged by lawyers in the probate process. One brochure states that there will be no legal fees with a trust. In reality, if legal or accounting advice is necessary for administration of the probate estate, legal or accounting assistance will be needed for the administration of the trust. Legal or accounting assistance is most often needed in large estates, especially where an estate tax and fiduciary income tax returns must be prepared and filed. The filing requirements, and the resulting fees, are the same whether a will or a living trust is used.

Commission for the personal representative. While commissions are not mandatory in Virginia, a personal representative is entitled to payment for his service. A fiduciary whose accounts are settled before the Commissioner of Accounts is entitled to "reasonable" compensation.29 While there is no statutory provision applicable to living trusts, a family member or friend who serves as trustee is as likely to take, or decline to take, a commission, as he would if serving as personal representative. A professional fiduciary is going to charge for its services, whether the service is rendered as a personal representative or a trustee. In certain situations it makes sense .for a beneficiary who is also a fiduciary to take the greatest commission possible because the estate can deduct the commission at the federal estate tax rate (37%-55%), while the personal representative pays taxes on the commission at his or her personal income tax rate (15% 39.6%).

2. The delay caused by probate. In perhaps one of their most outrageous claims, some living trust promoters assert that it will take months or "even years" for the beneficiaries of a will to receive their inheritance, while the beneficiaries of a trust of similar size would receive their inheritance within four to eight weeks. An exception is sometimes made for larger estates where distribution would depend "primarily upon estate tax filing requirements."

In Virginia, the personal representative can qualify as soon as a death certificate is available and could begin to distribute assets immediately thereafter, however imprudent that might be. Assets are not "frozen." In Virginia, real estate "drops like a rock" to the beneficiary upon probate of the will. A deed is not needed to convey ownership. If the living trust is to own the land, a deed is necessary to convey the property to the trust, and a second deed is necessary to convey the property to the beneficiary after death.

As noted above, a personal representative can obtain the protection of an Order of Distribution within six months and make complete distribution by that time. A trustee cannot secure that protection and might deem it prudent to wait longer than six months to make final distribution.

In reality, the time and cost to complete administration of a will or a trust will depend upon the size of the estate and the nature of the assets. In many estates, the most important variable to determine the time and cost expended before complete distribution will be the nature of the beneficiaries. Not surprisingly, family members bring the largest number of will contests against each other.30 The use of a living trust is not likely to change that dynamic.

3. A living trust can avoid probate in more than one jurisdiction. If a grantor owns real estate in more than one state, depending upon the probate rules of each jurisdiction, transferring the property to the trust before· death may simplify the administration process. However, before the foreign real estate is transferred to a living trust, that state's laws covering transfer taxes and recordation fees; inheritance taxes; homestead limitations (does transfer of the property to the living trust cause the property to lose its homestead exemption?); and zoning rules (will transfer of the property to a living trust result in the loss of "grand fathering" where very restrictive zoning laws have been enacted?) should be carefully examined.

A Living Trust Ensures Privacy for Your Family. Wills are recorded in the land records.31 The inventory and accounting are generally also matters of public record. An inter vivos trust is typically not recorded. For individuals concerned about keeping their dispositive plans or assets private, this can be an important distinction.

A living trust does not guarantee privacy. To open an account for the trust many banks and brokerage firms require a copy of the agreement. In Maryland, a schedule of trust assets must be filed with the Register of Wills and becomes a public record. In D.C., the Register of Wills might require the filing of a copy of the trust agreement.

Under Virginia law, a trustee has a duty to disclose information to the trust beneficiary that is reasonably necessary to enable the trust beneficiary to enforce his rights under the trust or to prevent or redress a breach of trust.32 A trust beneficiary is entitled to review the entire trust agreement even if he is the beneficiary of only one of two separate trusts created under the trust agreement and he has received all the pages relevant to his trust.33

While a copy of a trust may be harder to obtain than a copy of the will, an interested party, in all likelihood, will be able to obtain a copy of the trust and an accounting of its assets. When a client emphasizes his desire for privacy, it might be wise to determine why. Is he worried about the nosy next door neighbor? Business competitors? Or is he concerned about family members who are already fighting over his money before he is dead? Proponents of living trusts claim that because the will is a public document it may invite unhappy heirs to contest the will. Yet, if the family has a history of fighting, or has long been suspicious of each other, efforts to ensure privacy and avoid probate may lead to increased disputes among the heirs and between the heirs and fiduciaries. Court supervision might be advantageous in such a family.

A Living Trust is Harder to Contest Successfully Than a Will, So Your Wishes are More Apt to be Followed.34 The preliminary question for a client who is concerned about a contest of his will, is the source of this concern and the basis upon which he feels a contest may be asserted. As with the client who is concerned about privacy, the use of a trust to avoid a contest, may invite suspicion and a contest. Living trusts are not immune from attack.

The Virginia Code sets forth the procedures by which an interested party may seek to impeach or establish a will, including the right to a jury trial.35 An action to impeach a will must be brought within six to twelve months of probate. While these sections do not apply to trusts, a disgruntled family member could file a declaratory judgment seeking to have the trust declared invalid or set aside.36

Because a living trust is not considered testamentary and does not require the formalities of a will to be effective, one ground on which a living trust is immune from attack is failure to follow testamentary formalities.37 Oral trusts are permitted with respect to both personal property and real property in Virginia.

Many lawsuits over wills do not directly involve competing beneficiaries. A suit may be brought by a personal representative or a trustee because of an ambiguity in the provision of the will or trust agreement or uncertainty in the administration of the trust.38 A beneficiary may file suit against a drafting attorney on the basis of breach of contract if the disappointed beneficiary believes he was an intended beneficiary of the will or trust agreement and because of the drafting attorney's error, he did not receive the benefit intended for him.39 A living trust does not minimize the likelihood of either type of action.

1. A living trust can be attacked on the basis of the grantor's lack of capacity. Any person who has legal capacity may make a valid will. Generally the standard of capacity is: does the person know the natural objects of his bounty, the nature of his property, and does he know how he wishes to dispose of his property.40

The "vast majority" of courts who have ruled have found that it takes less "mental capacity" to make a will than it does to make a simple contract.41 Maryland is one of only four states that have found that the capacity to make a will and to make a contract involve identical legal principles.42

Virginia does not appear to have a case discussing the capacity required to make a will as compared to the capacity to create a living trust. Virginia's standard to create a will is relatively simple. Indeed, the Virginia Supreme Court has held that a pending competency hearing or subsequent determination of incompetency does not establish whether testamentary capacity exists at the time the will was executed.43 The appointment of a guardian is not prima facie evidence of mental incapacity.44

Clients, even with limited capacity, generally understand what a will is and what it does. A trust is a much harder concept to explain. Depending upon the client, it might actually be easier to contest a trust than a will on the grounds of lack of capacity.

2. A living trust can be attacked on the basis of undue influence. Virginia has extensive case law on setting aside a will based on undue influence. A presumption of undue influence may arise where the contestant proves by clear and convincing evidence that: the testator was enfeebled in mind when the will was executed; the requisite confidential or fiduciary relationship was accompanied by activity in procuring or preparing the favorable will; and, the testator previously had expressed a contrary intention to dispose of his property.45 There must be a confidential or fiduciary relationship and the relationship must be accompanied by activity on the part of the dominant person in procuring or preparing the will in his favor.46

Undue influence is a "species of fraud."47 The equity principals of fraud and duress would be available to contest the provisions of a trust.

3. The Commissioner of Accounts system may help prevent litigation. Sometimes dismissed as an unnecessary expense, the accounting requirement forces the personal representative to disclose the estate's assets and their disposition on a regular basis. The Commissioner of Accounts office can then provide an informal forum for resolution of disputes that may arise between the fiduciary and the beneficiaries or creditors.

Fiduciaries have been known to help themselves to the assets under their control. The disclosure required in the annual accounts may provide an early alert to the improper disposition of assets. The trustee is ultimately accountable to the beneficiaries, but without a regular reporting requirement, a trustee may have greater opportunity to benefit himself at the expense of the beneficiaries. The breach of fiduciary duty might not be discovered until it is too late to recover the missing assets. Once discovered, the beneficiaries could not turn to the commissioner for assistance in accounting for or collecting the missing assets, but would have to retain legal counsel and pursue their claim in court.

A Living Trust Avoids Probate Upon Incapacity. Proponents of living trusts assert that without a living trust, if you become incapacitated a court will appoint a conservator to run your estate as the court sees fit. Your family would have to go through probate twice!

In Virginia, if an incapacitated individual does not have a power of attorney or a living trust, the court, upon the petition of an interested party, may appoint a conservator. The conservator is bonded and is required to report annually to the Commissioner of Accounts. These requirements may be attacked as the court having jurisdiction over the estate sees fit, but in many respects, as unpleasant a process as it is, a conservatorship provides greater protection for the incapacitated individual than a living trust or power of attorney.

A living trust provides for management of assets upon disability. A living trust can be a useful tool if a person is in poor health, or does not want to manage his affairs. Yet, a power of attorney can often work just as well.

One of the most difficult aspects of drafting a living trust is the language used to "trigger" the authority of the successor trustee to act once the grantor becomes incapacitated. Few grantors are willing to cede title and control to their property to a third party until absolutely necessary. To the extent that an individual is willing to create a power of attorney that is immediately effective, with the expectation that the individual named will not act until necessary, a power of attorney may be a better option than a living trust.

A power of attorney is generally less expensive and complicated to create than a trust. Many banks and brokerage firms have their own forms that can be executed without the assistance of an attorney. As with a will, clients more readily grasp the concept of a power of attorney than a living trust.

Virginia law requires an agent under a power of attorney, upon a "reasonable written request made by a person interested in the welfare of a principal who is unable to attend to his affairs" to account for his actions taken within two years prior to the date of the request or the death of the principal.48 An agent who refuses to comply can be held liable for the expenses and attorneys' fees of the requesting party.49 A "person interested in the welfare of the principal" is defined as any member of the principal's family; a person who is a co-agent, alternate agent or successor agent under the power of attorney; and if none of those persons is reasonably available, the adult protective services unit of the social services board. A member of the family is defined as an adult parent, brother or sister, niece or nephew, child or other descendant, spouse of a child of the principal, spouse or surviving spouse of the principal.50

While the common law requires a trustee to account to the beneficiaries of the trust, there is no clear statutory procedure to follow or statutory right to assess attorney's fees if the trustee is not forthcoming. In addition, the class of beneficiaries who have the right to an accounting will usually be much smaller than the class of individuals deemed to be "a person interested in the welfare of the principal." It may be easier and less expensive for a family member to protect an incapacitated person under a power of attorney than a living trust.

As a final consideration, Virginia law, protects the beneficiary whose bequest is sold by an attorney in fact. Absent a contrary provision in the will or power of attorney, a bequest or devise of specific property shall be deemed to be a legacy of a pecuniary amount if the specific property is sold during the lifetime of the testator while he is incapacitated.51 This protection is not, provided if a trustee should sell or otherwise dispose of an asset held in trust.

Caveat - Differences ill: the rules of construction. Many "common-law" rules" that have evolved in the construction of wills do not apply to living trusts, sometimes with unexpected results.52 Many of these problems can be avoided by careful drafting of the trust but practitioners need to be aware of the differences. For example, divorce or annulment of the marriage revokes any dispositions in favor of the spouse under the will, as well as any fiduciary nomination of the spouse.53 Divorce revokes any revocable, beneficiary designation for a former spouse.54 These provisions specifically do not apply "to any trust or any death benefit payable to or under any trust."

A bequest of securities includes additional securities owned by the testator at death resulting from stock splits, mergers or reorganizations. A bequest or devise of property applies to unpaid condemnation awards or unpaid proceeds' from fire or casualty Insurance.55 This statute does not apply to distributions from revocable trusts.

Absent a contrary intention expressed in the will, bequests or devises to persons related to the testator who fail to survive the testator pass instead to surviving descendants of the deceased person.56 The anti-lapse statute does not apply to trusts.

The "Slayer" Statutes provide that a convicted murderer (or fugitive) of the testator who receives a bequest or devise under the will is deemed to have predeceased the testator. The murderer does not take a survivorship interest in joint or tenants by the entirety property. Insurance proceeds are not to be paid to the murderer.57 Property passing pursuant to a revocable trust is not explicitly addressed. Presumably this is not a major issue in most estates but would be an awkward subject to address in drafting.

***

The differences between a will and a living trust are more complex, and less one-sided, than the tireless promoters of living trusts acknowledge. A living trust is advantageous for a person who is ready to turn over management of his assets to a third party. A living trust may minimize the costs of probate in circumstances where the person owns real estate in several states. A living trust may help ensure privacy in cases where the grantor wishes to shield his planning from the public at. large, not necessarily his family in particular.

To obtain the perceived benefits of a living trust, an individual must transfer title to his assets to the living trust during his lifetime. How many clients, especially younger ones, will be willing to do that? "And how many will continue to maintain that titling as the nature and composition of their· assets change over time?

Neither the probate system nor, as a general rule, lawyers, cause families to contest the wishes of an individual as expressed in his will. A living trust will not change human nature or make a dysfunctional family behave. Some of our clients who are worried about privacy and family fighting might be better served by the "public" nature of probate, with its required accountings and the oversight of the Commissioner of Accounts.

The probate system, for all its perceived faults, includes many benefits and protections that perhaps we take for granted. Only time will tell if living trusts eliminate the need for those protections that now stand accused of causing needless cost and delay.

Suzanne Doggett, of counsel, in the Tysons Corner office, practices in the areas of estate planning, guardianship, chancery litigation, and estate administration. Ms. Doggett received a B.A. degree from the College of William and Mary in 1980 and a J.D. degree in 1987 from the University of Virginia. She is admitted to practice in Virginia, the District of Columbia and Maryland.

ENDNOTES
1 The term "living trust" as used here means a trust established during the lifetime of a grantor, in which he retains the right to income and principal and the right to amend or revoke the trust at any time prior to death.
2 The author was consulted by an individual who wanted to sue her husband's attorney for malpractice for preparing a will rather than a revocable trust.
3 The living trust is revocable. The individual has generally retained the right to the income and principal of the trust. Accordingly, the trust income is taxable to the grantor and the assets are included in his estate at death. I.R.C. §§ 2036, 2038.
4 I.R.C. § 1361(b)(I)(b).
5 I.R.C. § 1361(c)(2)(A).
6 Va. Code § 55-19.
7 See generally, S. Doggett, "Creditor's Rights in Decedent's Estates," 18th Annual Advanced Estate Planning and Administration Seminar, (Va. CLE 1997).
8 Hall v. Hall, 109 Va. 117, 63 S.E. 420 (1909); Gentry v. Bailey, 47 Va. (6 Gratt) 594 (1850); Lightfoot Ex'rs v. Colgin, 19 Va. (5 Munf.) 42 (1816).
9 The augmented estate includes any assets under which the decedent retained for his life the possession or enjoyment of or right of the principal for his own benefit, or over which he retained a power of revocation. Va. Code. § 64.1-16.1
10 I.R.C. §§ 2002,2203.
11 See, e.g., State Street Bank & Trust Co. v. Reiser, 7 Mass. App. Ct. 633, 389 N.E. 2d 768 (1979); Johnson v. Commercial Bank, 284 Or. 675, 588 P.2d 1096 (1978); In Re Kovalyshn's Estate, 136 N.J. Super, 40, 343 A.2d 852 (1975)
12 See generally, Scott on Trusts, § 330.12, n.8.
13 Id. at § 505(a)(3).
14 Va. Code § 64.1-151.1.
15 Va. Code § 64.1-151.2.
16 Va. Code § 64.1-151.3.
17 Md. Code Ann. § 8-103.
18 Va. Code § 8.01 -229.
19 Va. Code § 64.1-179.
20 Id.
21 Id.
22 Owen v. Lee, 185 Va. 160, 37 S.E. 2d 848 (1946).
23 Va. Code §§ 64.1-57 - 64.1-159.
24 RESTATEMENT (SECOND) OF TRUSTS § 187 (1959) [hereinafter RESTATEMENT]; NationsBank v. Grandy, 248 Va. 557,415 S.E.2d 140 (1994) ("a trustee's exercise of discretion shall not be overruleds by a court unless the trustee has clearly abused his discretion or acted arbitrarily").
25 A trustee must exercise due care, diligence and skill in the administration of the trust or face personal liability for the resulting losses. RESTATEMENT at §§ 170-174.
26 Va. Code § 17.1-275A(2).
27 Va. Code § 58.1 - 1712.
28 Va. Code § 26-20.1.
29 Va. Code § 26 - 30.
30 Ross and Reid, WILL CONTESTS at § 7 (2d ed. 1999).
31 Va. Code § 64.1-94.
32 Fletcher v. Fletcher, 253 Va. 30, 480 S.E.2d 488 (1997).
33 Id.
34 For an excellent outline on the differences, and similarities, of will and trust contests, see T. Armstrong and L. Pomeroy, "Will and Trust Contests," Avoiding and Handling Fiduciary Litigation, Va. CLE (2000).
35 Va. Code§§ 64.1 - 88, -89, -90, -91.
36 See Va Code § 8.01-184, et seq.
37 See Va. Code §§ 64.1-46, -47 and -49 (setting forth the statutory formalities for the execution of a will or the probate of a holographic will); Bickers v. Shenandoah National Bank, 197 Va. 145,88 S.E.2d 889 (1955); reh'q denied, 197 Va. 732, 90 S.E.2d 865 (1956) (a revocable inter vivos trust is not considered testamentary and does not require the formalities of a will to be effective).
38 B. Lamb, VIRGINIA PROBATE PRACTICE, 238 (1957) ("A fiduciary is not required to act at his peril; he need not eat the doubtful vegetable to ascertain if it is a wholesome mushroom or a poisonous toadstool as poor Alice was advised to do.").
39 Copenhaver v. Rogers, 238 Va. 361, 384 S.E.2d 593 (1989); see generally Armstrong & Pomeroy, supra note 34.
40 Fields v. Fields, 255 Va. 54,499 S.E.2d 826 (1998); Gibbs v. Gibbs, 239 Va. 197,387 S.E.2d 499 (1990); Thomason v. Carlton, 221 Va. 845,276 S.E.2d 171 ( 1981); Tate v. Chinbley, 190 Va. 480, 57 S.E.2d 151 (1950).
41 Ross and Reed, supra note 30, § 6:5.
42 Id. note 53, (citing Doyle v. Rody, 180 Md. 471, 25 A.2d 457 (1942).
43 Gibbs v. Gibbs 239 Va 197, 387 S.E. 2d 499 (1990).
44 Gibbs, (citing Gilmer v. Brown, 186 Va 630, 641, 44 S.E. 2d 16,21 (1947)).
45 Jarvis v. Tonkin, 238 Va. 115, 380 S.E.2d 900 (1989); Martin v. Phillips, 235 Va. 523, 369 S.E.2d 397 (1988).
46 Martin v. Phillips, 369 S.E.2d 397.
47 Jarvis v. Tonkin 380 S.E.2d 900.
48 Va. Code § 11-9.6.
49 Va. Code § 37.1-134.22.B.
50 Va. Code § 37.1-134.22.C.
51 Va. Code § 64.1-62.3.
52 For an excellent, comprehensive discussion of the statutory differences between wills and trusts and suggested legislative and drafting responses, see D. Smith, "Statutory Differences Between Wills and Trust Agreements in Virginia." Thirteenth Annual Advanced Estate Planning and Administration Seminar, Va. CLE (1992).
53 Va. Code § 64.1-59.
54 Va. Code § 20-111.1.
55 Va. Code § 64.1-62.3.
56 Va. Code § 64.1-64.1.
57 Va. Code §§ 55-401 - 55-415.