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When a Virginian dies with assets such as a house, car, bank accounts and investments, these assets usually must go through probate before being distributed to heirs. The probate process ensures that assets go where they should but can take over a year and incur fees. Virginia’s process can be particularly long and costly and includes an unusual probate tax. Fortunately, legal options offer ways to avoid full probate. Understanding how these work can help your heirs inherit faster with lower costs. Consider working with a financial advisor to help you make the most of your inheritance.
Virginia Estate Planning Basics
Like most states, Virginia doesn’t have estate or inheritance taxes. But assets left in a will usually must go through probate. In this process, the court appoints an executor, the will is proved valid, assets are inventoried, debts are paid, and taxes filed before the assets can finally get distributed.
Real estate and estates above $50,000 in personal property must use formal probate in Virigina. Estates below $50,000 can use a streamlined process. Assets in trusts as well as non-probate assets like life insurance and 401(k)s with beneficiaries also avoid probate.
The Probate Problem
Time and money both provide reasons to avoid formal probate in Virginia. The court must confirm the will, creditors notified, assets managed and taxes filed. The executor must accurately inventory assets. While these tasks are being completed, which can take a year or more, family members can’t use assets from your estate to pay their bills.
Another burden is Virginia’s rare probate tax of $1 per $1,000 of assets, which can mean thousands in extra costs. Furthermore, the entire probate process is public, which can open your estate to creditor claims. Probate also forces sales of some assets to raise cash for taxes. With all this in mind, in Virginia avoiding probate is a primary goal of estate planning.
Small Estate Affidavits
Heirs in Virginia can avoid probate entirely for estates under $50,000 by using a small estate affidavit. This legal form lets one heir collect assets by swearing they’re entitled to the assets.
To be suitable for this process, at least 60 days must have passed since the death. Also, there must be no probate application pending. The affidavit will list assets, heirs and the heir claiming them. The affidavit must be notarized and all heirs have to agree in writing to using the affidavit, which can be a significant obstacle.
Once it’s completed, however, financial institutions must immediately release assets such as bank accounts to the affidavit holder. In this way, using a small estate affidavit completely avoids probate delays and costs.
Living Trusts
Living trusts also offer a way to avoid probate. To do this, as part of your estate plan you transfer assets to a trust you control. On death, assets go directly to heirs per the trust terms, skipping probate.
Unlike when wills alone are used to distribute assets, trusts avoid public records. In Virginia, they ensure privacy and avoid probate delays and the probate tax. But trusts cost $1,000 or more in legal fees. You will still need a pour-over will naming the trust as beneficiary. And planning ahead is essential, because you have to transfer assets into the trust while alive.
Avoiding Probate in Virginia
A couple of examples can clarify how this works. Say you have a $200,000 estate. Three quarters is in a bank account, while a vehicle represents the rest. Probate would take a year, cost $200 in probate taxes and be public.
Instead, you create a living trust and name heirs. You record the title to the vehicle in the trust’s name, change the owner of the bank account to the trust and pour-over the will into the trust. On death, assets transfer privately and immediately with no probate tax or public scrutiny,
For a more modest estate consisting of a bank account containing $40,000, a small estate affidavit can work. To do this, 60 days after the death, the heir files a notarized affidavit, claiming the assets. After the affidavit including written consent from other heirs is filed, the bank must release the funds directly to the heir without going through probate.
Limits and Costs
These probate avoidance tactics can save significant time, money and privacy. However, they won’t work for all estates and have to be done correctly.
For instance, small estate affidavits only work up to $50,000 and only if all heirs consent. Living trusts cost money to create and transferring assets can be tedious. You still need a will for any assets not in the trust. Finally, any of these probate avoidance tools can be challenged in court if improperly executed.
Bottom Line
Probate avoidance tools like small estate affidavits and living trusts can help Virginians inherit faster, with lower costs and more privacy. Small estates under $50,000 can use affidavits to collect assets out of probate. Larger estates can use living trusts to avoid probate and keep estates private. Each option has pros, cons and costs but can be helpful estate planning tools in many cases.
Estate Planning Tips
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Consult a financial advisor if you have questions about how probate works where you live and the best strategies for transferring your assets to your desired beneficiaries. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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While Virginia has no estate or inheritance tax, a federal estate tax may apply. Learn about it with SmartAsset’s guide to the federal estate tax.
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The post How to Avoid Probate in Virginia appeared first on SmartReads by SmartAsset.
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