What is Probate?
Probate is the process of "administering" and distributing a deceased person's assets that pass through the “decedent’s” estate. To administer and distribute an estate, a Personal Representative, known as an “Executor” if there is a will or an “Administrator” if there is not a will, must qualify in the Clerk’s office in the jurisdiction where the decedent last lived or owned real estate. A Personal Representative does not have any authority to act until he or she has qualified. At the time of qualification, the Executor will also record the will in the clerk’s office and pay Virginia’s probate taxes of One Dollar ($1) for every One Thousand Dollars ($1000) for the estimated value of the estate. Individual localities have the option of collecting an additional one-third (1/3) of the state rate. Once the Personal Representative has qualified, he or she is charged with notifying all legal heirs and beneficiaries named in the will of his or her appointment. The Personal Representative must also collect all of the decedent’s assets and determine whether there are enough assets to pay all of the debts owed by the estate. If the estate has more debt than assets, called an “insolvent estate”, the Personal Representative should immediate seek legal counsel and refrain from paying any of the debts at that time. If the estate contains enough assets to pay all debts, then the Personal Representative may pay the debts and distribute the remaining assets according to the will or according to Virginia’s laws of intestacy when a valid will does not exist.
The Personal Representative is supervised by the Commissioner of Accounts in the administration and distribution of the estate. The Personal Representative must file an affidavit stating that proper notice was given to legal heirs and beneficiaries within thirty (30) days of his or her qualification. Next, the Personal Representative must file an “Inventory”, which is an explanation of the type and value of the decedent’s assets on the date of his or her death. The Inventory must be filed with the Commissioner of Accounts within four (4) months of the Personal Representative’s qualification with the proper recording and review fees. Within sixteen (16) months of qualification, the Personal Representative must file an “Accounting” with the Commissioner of Accounts. The Accounting shows all receipts, gains, losses, disbursements, distributions and assets on hand for the year after the Personal Representative qualified. An Accounting must be filed for every year that an estate contains assets. An accounting can be filed early, but the Personal Representative will personally be charge a penalty fee for late filings. The administration process commonly takes a year and often takes longer depending on the type and amount of assets, issues surrounding the debt of the estate, and specific directions in the will In many cases, it is desirable to avoid the procedures and costs of probate.
What Property is Subject to the Probate Process?
The probate estate includes the assets (real property and personal property) which were held in the decedent's name at death, and those which pass under the will. This excludes two general categories of assets: jointly-owned property with rights of survivorship and assets payable pursuant to a contract.
Real property which you own with another person is typically owned either as "tenants in common" or as "joint with right of survivorship." Husband and wife can also own property as "tenants by the entirety." Any interest you own as "tenants in common" can be transferred by your will to your designated beneficiary or to your legal heirs if you die without a will. "Joint with survivorship" and "tenants by the entirety" property interests, however, pass directly to the survivor or survivors upon death, by operation of law. When you initially acquire and take title to the real property, you are defining the rights and creating this ultimate effect.
Personal property is also sometimes held in the same way. When you create a joint bank account, payable on death account, joint certificate of deposit, or similar type of account or investment, you are also defining the rights and creating an automatic transfer on death. These are pursuant to the documents you sign with the bank or other party, which constitute a contract. On your death, the bank must pay according to the contract, which you cannot change by making an alternate disposition in your will. Retirement plan assets and property held in trust also escape probate, for the same reasons.
A life insurance contract is another type of contract. The proceeds of the contract are paid to the beneficiary designated by the owner of the contract. If the beneficiary is the estate of the decedent, then the proceeds will be included in the probate process. If the decedent owned the policy on the life of another person, then it will also be a part of the probate estate.
Virginia now also allows an owner to transfer real property at the time of his or her death directly to a beneficiary without the real property passing through probate with a Transfer of Death Deed. A Transfer on Death Deed must be recorded before the death of the Grantor and may be revoked by recording a revocation or new deed.
Real property, which is not held jointly or left to a beneficiary through a Transfer on Death Deed, passes directly to the beneficiaries named in the will or to the legal heirs, and is not part of the probate estate in Virginia unless the will authorizes the executor to sell it. It is important to note that some of these items which are not part of the probate estate are counted as part of the taxable estate for Federal estate tax purposes.
How is the Probate Process Started?
As explained above, the probate process is started by making an appointment with the probate clerk of the Circuit Court, usually where the decedent last owned property or lived. The original will and death certificate, along with other information to be provided on the Court's forms, are filed with the Clerk by an interested party. The Executor must also provide the Clerk with a list of the decedent's heirs, and must mail notice to each heir and each beneficiary named in the will within 30 days after appointment, informing them of the death and of the executor's appointment.
Most wills today include a "self-proving affidavit," which means the signatures of the testator and witnesses have been properly notarized. If the will is not self-proving, either two disinterested witnesses must identify the handwriting and signature of the decedent under oath or the witnesses to the signature must complete a deposition affirming under oath that all of the requirements were present at the time the will was executed. Unless waived in the will, the executor will also be required to post a commercial surety bond to secure his or her obligation to properly execute the terms of the will. Even if surety is waived, if none of the executors are a Virginia resident, the non-resident(s) must either post the bond or appoint a Virginia resident to serve with them.
In the event there was no will, a surviving spouse or heir will usually qualify as Administrator, to fulfill the same functions as an Executor. An Administrator will always be required to post a commercial surety bond.
What is the Probate Tax?
Upon probate of the will, the Clerk will collect the State and Locality (if applicable) probate tax, which is imposed on the value of all real and tangible property located in Virginia, as well as all intangible property wherever located. Examples of property not included in the valuation of the estate for probate tax purposes include:
• Property held jointly with right of survivorship.
• Insurance proceeds, unless payable to the estate.
• Property that passes by inter vivos trust.
• Property passing through the exercise of a power of appointment.
• Bonds payable on death to a named beneficiary.
• Real estate that passes directly to a beneficiary through a Transfer on Death deed.
What is the Personal Representative's responsibility?
As explained above, the Personal Representative is responsible for collecting and protecting the probate property, for paying all debts of the estate, for making distribution of the assets in accordance with the provisions of the will or Virginia law, or for filing all necessary information for the estate administration process. The final accounting shows the distributions to the beneficiaries whether named in the will or according to Virginia law. Receipts from the beneficiaries will need to be provided to the Commissioner of Accounts with the corresponding accounting.
The Personal Representative is also responsible for the filing of the decedent's final income tax return, as well as an income tax return for the estate if the estate earns more than $600 of taxable income in a year. If the value of the decedent's taxable estate exceeds $5,490,000 (2017) the Personal Representative must also file an estate tax return within nine months of the date of death, even if no estate tax is owed.
The Personal Representative represents the estate in any debts and demands hearing, will contest or hearing for Aid and Direction. Personal Representatives are allowed to obtain a fee for their time and efforts, the amount of which must be approved by the Commissioner of Accounts. It is therefore advantageous for a Personal Representative to document all time and actions performed due to his or her position as Personal Representative. All costs paid out of pocket that are directly related to the estate administration can be reimbursed with proper proof.