Your house can bypass probate in Virginia--true?

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gensuki
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Your house can bypass probate in Virginia--true?

Post by gensuki » Sat Jul 15, 2017 3:33 pm

We met with the estate lawyer to discuss our estate planning. I told him I wanted to do a transfer on death deed for the house with me as the beneficiary (house is only in my husband's name). He said that in Virginia the house bypasses probate anyway. However, when I Google this I don't see it mentioned anywhere. I will send him an email next week to clarify, but do any of the Bogleheads know whether this is true or not? Thank you. :confused

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dm200
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Re: Your house can bypass probate in Virginia--true?

Post by dm200 » Sat Jul 15, 2017 3:41 pm

gensuki wrote:We met with the estate lawyer to discuss our estate planning. I told him I wanted to do a transfer on death deed for the house with me as the beneficiary (house is only in my husband's name). He said that in Virginia the house bypasses probate anyway. However, when I Google this I don't see it mentioned anywhere. I will send him an email next week to clarify, but do any of the Bogleheads know whether this is true or not? Thank you. :confused
We live in Virginia and that is news to me. Does the estate lawyer fully understand that "your" house in only in your husband's name? If it remains in HIS name only and he dies, how could it bypass probate - I assume the will would/could designate where it is to go.

There are some specific Virginia rules if someone dies without a will about such situations.

gensuki
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Re: Your house can bypass probate in Virginia--true?

Post by gensuki » Sat Jul 15, 2017 3:54 pm

Yes, he knows the deed is only in my husband's name because I was discussing doing a transfer on death deed so that I would be the beneficiary. At that point, he mentioned that the house bypasses probate. It sounded too good to be true and I will clarify it with him next week. Thank you. :annoyed

Lastrun
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Re: Your house can bypass probate in Virginia--true?

Post by Lastrun » Sat Jul 15, 2017 3:58 pm

It is TRUE in Virginia that real estate is not part of the probate estate UNLESS the Will specifically provides that the real estate be sold or gives the executor power of sale. So your lawyer is smarter than 99% of my fellow members of the VA Bar.

In Virginia, this is referred to as the "drops like a rock" rule in that the real estate drops through the estate directly to the beneficiary. Indeed, the executor does not have power of sale unless specifically provided or they can petition for such power if the estate is insolvent. If you Google this phrase ("drops like a rock") with some other key terms like "Virginia" and "estate" you should find plenty to read.

So if a person has a Will in VA and dies, when the Will is filed for probate (with or without qualification of an executor) this is effective as a deed to convey title to the beneficiaries listed in the Will. Amazingly, the property tax folks will automatically change the tax bill records as soon as the Will is filed.

If there is no Will, an intestate situation, then a Real Estate Affidavit (form online) is filed in Land Records and this is effective as a deed to convey title to the statutory heirs. Weird, but this is how it has worked for 400 years in VA.

For this reason, I professionally think for many it is not worthwhile to transfer VA real estate to their revocable trusts since the pour over Will gets it there at death easily and cheaply. Of course, if I have an older client that is set on staying in their house, has no mortgage, no spouse, and no medicaid issues, I will transfer it to the trust.

So, if your husband's Will says "all to my wife" when he dies and you file the Will, you own the house.

VA does have TOD deeds and they will also do the job. But note that under either approach, your husband can change his mind (and the TOD or his Will) and also importantly the house will remain subject to his creditors.

What about a joint deed as tenants by the entirety with rights of survivorship? It will be free from creditor claims under VA law, and will pass free of his creditors or yours at the death of the first spouse to die.

Good luck!

gensuki
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Re: Your house can bypass probate in Virginia--true?

Post by gensuki » Sat Jul 15, 2017 4:18 pm

Gee, I feel so much better about my estate lawyer now. He did mention the phrase Drop Like a Rock. I was beginning to doubt him. You have restored my confidence in him. Aside from creditor issues, the reason I like the transfer on death approach or now the Drop Like a Rock approach is because if I sell the house the capital gains will be on the stepped-up basis. Although I think he mentioned that $250,000 of that would be excluded from capital gains.
:happy

bsteiner
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Re: Your house can bypass probate in Virginia--true?

Post by bsteiner » Sun Jul 16, 2017 12:14 pm

I would think that most trusts and estates lawyers in Virginia would know this.

There's an excellent article on this by Suzanne Doggett, who was them a lawyer at McGuireWoods (a prominent Virginia law firm). If you search for "drop like a rock virginia where there is a will suzanne doggett mcguirewoods" (without the quote marks) it should be at the top of the search results. It's a Word document so I couldn't provide a link. (She's now on her own in Alexandria.)

skepticalobserver
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Re: Your house can bypass probate in Virginia--true?

Post by skepticalobserver » Sun Jul 16, 2017 1:28 pm

"Pros and Cons of Revocable Transfer-on-Death Deeds in Virginia," https://insightlaw.net/news/bobbys-blog ... n-virginia

Everything else being equal if you want to avoid probate TOD is a no brainer.

gensuki
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Re: Your house can bypass probate in Virginia--true?

Post by gensuki » Sun Jul 16, 2017 3:14 pm

skepticalobserver wrote:"Pros and Cons of Revocable Transfer-on-Death Deeds in Virginia," https://insightlaw.net/news/bobbys-blog ... n-virginia
Everything else being equal if you want to avoid probate TOD is a no brainer.
I'm surprised the link doesn't mention the Drop Like a Rock provision. It seems like this would be a good alternative to transfer on death deed for a house.

Lastrun
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Re: Your house can bypass probate in Virginia--true?

Post by Lastrun » Sun Jul 16, 2017 4:04 pm

gensuki wrote:
skepticalobserver wrote:"Pros and Cons of Revocable Transfer-on-Death Deeds in Virginia," https://insightlaw.net/news/bobbys-blog ... n-virginia
Everything else being equal if you want to avoid probate TOD is a no brainer.
I'm surprised the link doesn't mention the Drop Like a Rock provision. It seems like this would be a good alternative to transfer on death deed for a house.
I don't think the TOD is a no brainer. As an example, suppose my will states my residuary estate passes equally to my children. Later, I determine to disinherit a child. If I have a TOD deed, I need to change my will and revoke or modify my TOD deed. This is an extra step and cost. There are other considerations here including creditors, mortgages on the property, etc. It is not one size fits all.

My law partner served on the committie that drafted the legislation. We would sit around the office and ponder the need for the legislation, almost to the point of laughter. The ultimate answer to the question is probably that the new law allows you to pass real estate without probate and, more importantly, outside of the probate estate. There are possible reasons for this. One situation where I talk with clients about the option is a second marriage with adult children from a prior marriage. Typically, for blended families it is best to have the assets pass where the need to go AS FAST as possible and without the need for any cooperation and the TOD does this.

Your lawyer is a good lawyer. He is trying to achieve your goals in the simplest, cheapest and most elegant manner--the essence of the Boglehead way. As we all understand by reading this forum, there is no perfect plan, and the simpler solution is usually the best.

bsteiner
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Re: Your house can bypass probate in Virginia--true?

Post by bsteiner » Sun Jul 16, 2017 4:39 pm

Lastrun wrote:
gensuki wrote:... I'm surprised the link doesn't mention the Drop Like a Rock provision. It seems like this would be a good alternative to transfer on death deed for a house.
I don't think the TOD is a no brainer. As an example, suppose my will states my residuary estate passes equally to my children. Later, I determine to disinherit a child. If I have a TOD deed, I need to change my will and revoke or modify my TOD deed. This is an extra step and cost. There are other considerations here including creditors, mortgages on the property, etc. It is not one size fits all.

My law partner served on the committie that drafted the legislation. We would sit around the office and ponder the need for the legislation, almost to the point of laughter. The ultimate answer to the question is probably that the new law allows you to pass real estate without probate and, more importantly, outside of the probate estate. There are possible reasons for this. One situation where I talk with clients about the option is a second marriage with adult children from a prior marriage. Typically, for blended families it is best to have the assets pass where the need to go AS FAST as possible and without the need for any cooperation and the TOD does this.

Your lawyer is a good lawyer. He is trying to achieve your goals in the simplest, cheapest and most elegant manner--the essence of the Boglehead way. As we all understand by reading this forum, there is no perfect plan, and the simpler solution is usually the best.
I don't think it was wise for Virginia (and a few other states) to permit TOD deeds. TOD for brokerage and mutual fund accounts has defeated many carefully planned estate plans. No doubt TOD deeds will do the same.

The most common problems in estate plans for second marriages are (i) whether either the spouse or the children took advantage of the decedent, (ii) whether the decedent created TOD accounts without realizing that it would defeat his/her estate plan, and (iii) creating a trust in which both the spouse and the children are beneficiaries, where the spouse wants larger distributions and the children want the spouse to get smaller distributions. Depending on the situation, case (iii) is sometimes difficult to avoid.

c1over8
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Re: Your house can bypass probate in Virginia--true?

Post by c1over8 » Sun Jul 16, 2017 7:39 pm

Lastrun wrote: So if a person has a Will in VA and dies, when the Will is filed for probate (with or without qualification of an executor) this is effective as a deed to convey title to the beneficiaries listed in the Will. Amazingly, the property tax folks will automatically change the tax bill records as soon as the Will is filed.

...

For this reason, I professionally think for many it is not worthwhile to transfer VA real estate to their revocable trusts since the pour over Will gets it there at death easily and cheaply.
If the pour over Will passes the real estate to the trust, it is an easy process but don't they still owe probate taxes? My understanding is that depending on the value of the real estate, it may be cheaper to pay for a TOD deed to avoid paying probate tax on the real estate when you file the Will. Probate taxes on $500,000 house would be $500, on $1 million house would be $1,000, a TOD deed and the $22/$23 recording fee should be cheaper than that.

Lastrun
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Re: Your house can bypass probate in Virginia--true?

Post by Lastrun » Sun Jul 16, 2017 8:03 pm

c1over8 wrote:If the pour over Will passes the real estate to the trust, it is an easy process but don't they still owe probate taxes?
Yes, they would and this is a fair point.

Some points:

1. You likely will want to file a deed of confirmation after death, if for no other reason than to just have it clear in a subsequent title search that the original owner is dead. So this is the cost of two deeds to compare to the probate tax.

2. What are the chances the client will even own the house at their death? Something to consider---pay me now or pay me later.

3. You have increased your costs if you desire to change your planning later on.

4. I am not a title insurance expert, but there could be a difference under an old title insurance policy between inheritance of the insured property by will, versus through a TOD deed that a title insurance policy issued some time ago never contemplated.

5. You need to consider the effect of the Virginia "doctrine of exoneration" if the property is mortgaged. This could really screw things up. This is BSteiner's point that TODs can create more problems then they solve.

No perfect solutions, just a lot to consider.

FCM
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Re: Your house can bypass probate in Virginia--true?

Post by FCM » Mon Jul 17, 2017 8:22 am

I have a related question that I would like to pose:

My wife and I have our house titled in the name of our living trust. We are both around 70 years old. If we wanted to sell the house while we were both still alive, would we only get one $250K capital gain exemption as opposed to two $250K capital gain exemptions because the trust is considered a single entity?

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dm200
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Re: Your house can bypass probate in Virginia--true?

Post by dm200 » Mon Jul 17, 2017 8:29 am

Here is another question (do not know answer and may depend on local/state details):

Some taxing jurisdictions offer exemption and/or deferral of real estate taxes for those of a certain age who have under a certain income and under an asset threshhold - not including home equity. Migh certain ownership (such as in a trust or with TOD) possibly exclude getting the exemption?

Our local Virginia County has a generous such deferral/exemption that my DW and I benefit from.

Lastrun
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Re: Your house can bypass probate in Virginia--true?

Post by Lastrun » Mon Jul 17, 2017 8:39 am

FCM wrote:I have a related question that I would like to pose:

My wife and I have our house titled in the name of our living trust. We are both around 70 years old. If we wanted to sell the house while we were both still alive, would we only get one $250K capital gain exemption as opposed to two $250K capital gain exemptions because the trust is considered a single entity?
The Treasury Regulations provide:

1.121-1(c)(3)(i) Trusts.
If a residence is owned by a trust, for the period that a taxpayer is treated under sections 671 through 679 (relating to the treatment of grantors and others as substantial owners) as the owner of the trust or the portion of the trust that includes the residence, the taxpayer will be treated as owning the residence for purposes of satisfying the 2-year ownership requirement of section 121, and the sale or exchange by the trust will be treated as if made by the taxpayer.

Assuming you both have the power of revocation over the joint trust, then the regulation will apply.

Lastrun
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Re: Your house can bypass probate in Virginia--true?

Post by Lastrun » Mon Jul 17, 2017 8:44 am

dm200 wrote:Here is another question (do not know answer and may depend on local/state details):

Some taxing jurisdictions offer exemption and/or deferral of real estate taxes for those of a certain age who have under a certain income and under an asset threshhold - not including home equity. Migh certain ownership (such as in a trust or with TOD) possibly exclude getting the exemption?

Our local Virginia County has a generous such deferral/exemption that my DW and I benefit from.
The exact answer is yes, it could possibly exclude you from the lower tax rates. Honestly, the best advice is to call the local Commissioner of Revenue for the County. They are each like little fiefdoms and you could possibly get a different answer from one county to another.

Overall, in my experience, a revocable trust is OK, irrevocable is suspect. See http://law.lis.virginia.gov/vacode/titl ... 58.1-3210/

I don't think there is anything out there on the TOD situation, but suspect it is not an issue since the elderly (sorry) ....... eligible person is still the owner.

FCM
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Re: Your house can bypass probate in Virginia--true?

Post by FCM » Mon Jul 17, 2017 9:03 am

Thanks, Lastrum, for the clarification! We probably won't sell our house before at least one of us dies, but I wanted to feel that we hadn't done anything detrimental by titling our house in the name of our revocable living trust. Both my wife and I are the grantors.

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Re: Your house can bypass probate in Virginia--true?

Post by bsteiner » Mon Jul 17, 2017 9:42 am

FCM wrote:Thanks, Lastrum, for the clarification! We probably won't sell our house before at least one of us dies, but I wanted to feel that we hadn't done anything detrimental by titling our house in the name of our revocable living trust. Both my wife and I are the grantors.
"Our?" In another thread, you said you were in Virginia, which isn't a community property state. Joint revocable trusts are mainly a California thing, since they're geared to community property, and California is the largest community property state and the one where dealing with the probate court is said to be difficult.

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Re: Your house can bypass probate in Virginia--true?

Post by TBillT » Mon Jul 17, 2017 11:57 am

Hi OP we are also in Virginia also working on our will or trust.
My understanding is they changed the Va. law a few years back to allow the house to be TOD and skip probate.
We are planning to do that too.
We are struggling between will or trust but my wife is not comfortable with the trust idea so we are heading to a will approach.

Meanwhile we were delayed by loss of loved one in CA and they had a trust, so we are getting that experience.

skepticalobserver
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Re: Your house can bypass probate in Virginia--true?

Post by skepticalobserver » Mon Jul 17, 2017 3:06 pm

Lastrun wrote:I don't think the TOD is a no brainer
I'm sensitive to the issues you raise. The operative part of my remarks was "everything else being equal."

It's my understanding that a major reason the MD legislature took a pass on real estate TODs was loss of transfer tax revenue.

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Re: Your house can bypass probate in Virginia--true?

Post by ChrisC » Mon Jul 17, 2017 3:16 pm

TBillT wrote:Hi OP we are also in Virginia also working on our will or trust.
My understanding is they changed the Va. law a few years back to allow the house to be TOD and skip probate.
We are planning to do that too.
We are struggling between will or trust but my wife is not comfortable with the trust idea so we are heading to a will approach.

Meanwhile we were delayed by loss of loved one in CA and they had a trust, so we are getting that experience.
I'd do the TOD as an interim measure until you get your act together on trust vs will. We probably should have done that for my MIL, who passed 12 days ago after 98 years on earth. We had POAs for her, an irrevocable special needs trust, and revocable trusts, and pour over will. We moved her from Virginia to live with us in NC and were expecting she'd reach 100 and beyond. We were in the process of selling her house in VA, with a contract already in place and closing to occur the end of this month.

Now, since the house never made it into the trusts (and no TOD) we're going through NC probate and ancillary VA probate to deliver title to the buyer. Fortunately, I believe NC like VA has real estate drop like a rock to a named beneficiary under a Will, which in our case is her irrevocable trust. But I'm not looking forward to this process especially with a real estate buyer already balking about potential time delays. And a title insurance company hiking fees.

Advice here by the lawyers on this thread (excluding me as a retired one) is quite useful. Just as an academic point, anyone know if the TOD thrumps a Will if different transfer designations.

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