Why Your Business Needs a Buy-Sell Agreement

Why are buy sell agreements important? How do buy sell agreements work? What does a buy-sell agreement do?

If you own all or part of a business—any business—you should know about buy-sell agreements. Unless you plan to be lucky forever, you’d better have one. Without it, a closely held or family business can face a world of financial and tax problems on an owner’s death, incapacitation, divorce, bankruptcy, sale or retirement.

Four Ways to Avoid Probate in Virginia

All of us would like to pass on a little something to our children or other loved ones. We save and save to make life a little easier for the people we care about.

Avoiding the delays and costs of probate is much easier than you think. Here are four common ways to keep more of your estate in the hands of the people who matter most.

Malpractice Issues in Estate Planning

In most cases, an attorney owes no duty to a non-client and therefore cannot be successfully sued for malpractice by a party they have not represented. One exception to this rule is in estate law. Of course an estate-planning attorney owes a duty to their client prior to the client’s death. Some areas in which estate-planning attorneys can be found negligent include drafting errors, errors in execution, failure to accomplish a testator’s intent, failure to update an estate plan based on new laws or facts, failure to investigate heirs and assets, allowing execution when the testator lacks testamentary capacity, and delay in implementation of an estate plan.
Under the privity doctrine, lawyers are directly liable to their clients for breaching their duty. The liability may extend to third parties, specifically the intended beneficiaries.
A Richmond lawyer and his firm are liable for a $603,409.90 bequest that should have gone to the Richmond Society for the Prevention of Cruelty to Animals (“RSPCA”), as a divided Supreme Court of Virginia has upheld a trial court’s decision in a legal malpractice case.
A Chesterfield County resident requested a Richmond lawyer prepare her will to leave her estate to her mother, but if her mother predeceased her, then the estate was to go to the Richmond Society for the Prevention of Cruelty to Animals. The will was prepared and executed in 2003.
The client passed away in 2008, after her mother had died, and the attorney, as the estate’s co-executor notified the RSPCA that it was the estate’s sole beneficiary. However, a title insurance company said the will left only the tangible estate to the RSPCA, but all real estate passed to her heirs at law. The RSPCA sued the attorney who prepared the will for legal malpractice.
At trial, the parties stipulated that the attorney had a duty to prepare his client’s will accurately and that he did not accurately incorporate her intent to give her real estate to the animal welfare organization. The RSPCA’s ultimate bequest, less expenses, would have totaled $675,425.50. A Richmond Circuit Court found the sum of $603,409.90 as damages for the RSPCA. A six-member majority of the court upheld the ruling in its June 2 decision.
Justice Elizabeth McClanahan dissented, saying the RSPCA did not have standing to sue for breach of the contract for legal services between the attorney and his client. The rule of strict privity in legal malpractice actions has not been abolished in Virginia, McClanahan said, and any decision to abolish the common law privity requirement should be left to the General Assembly.
Abandonment of the privity doctrine is “particularly troublesome” in the context of estate planning services, McClanahan said, under the majority holding that the legal malpractice cause of action accrues on the date of the client’s death. This means an attorney may be held liable for malpractice decades after the will was drafted, she said.
Golightly Mulligan and Morgan can assist you with both estate-planning needs and professional liability litigation. Contact us for more information or a consultation.

A Will and a Living Will: What is the Difference?

Although it is a difficult subject to discuss, what will happen to your possessions after you are gone is something everyone should consider. Whether you have many assets or only a few, who will gain control of them should be predetermined before there is ever a need to act upon those wishes.

Some estate planning documents and terms can be confusing. A competent estate planning attorney can explain what each term means and how it applies to your particular situation. You should consider both your death and the time leading up to your death when preparing these documents. While a last will and testament serves to distribute your assets after death, a living will, also known in Virginia as an Advance Medical Directive, allows you to prepare for the time prior to your passing. It is important to distinguish between the two.

A last will and testament does not go into effect until after you die. Its purpose is to distribute your assets such as real estate or tangible personal property to those you wish to inherit them. A living will is designed to prepare for any time you may not be able to make medical decisions for yourself. If you lapse into a coma, if you lack capacity to understand your medical condition and make decisions, your family members and other loved ones will know what you wish for them to do on your behalf, thereby sparing them the emotional, financial and legal burden of deciding your end-of-life care.

A Last Will and Testament should nominate someone to carry out your instructions. Under Virginia law, you can appoint anyone over the age of 18. You should discuss it with the person ahead of time to make sure that 1) they are willing to serve; and 2) they are responsible enough to accept the task at hand. This person is known as an executor and they have a duty to make sure that your property is distributed as you requested in your will.

Different than a last will and testament, a living will is a person's declaration that, under certain conditions, the person wishes to die naturally and without artificial means prolonging the dying process. A person making a living will can specify the conditions triggering the living will’s instructions, and family members are bound to accept those wishes.

It is highly recommended that you have professional legal guidance at the drafting and signing of these documents. An attorney can foresee potential legal disputes and ensure that your instructions will be carried out. Legal guidance ahead of time can prevent your will from being contested or costing your beneficiaries greater expense in legal fees because of poor planning. It is also a good idea to periodically review whether your old estate plan needs to be updated, particularly if you have had a change in finances or circumstances.

Golightly Mulligan and Morgan has vast estate planning experience. Contact our office to set up a consultation to review your estate plan today.

Mary Morgan Joins the Firm, Changing Its Name to Golightly, Mulligan & Morgan

On January 1, 2016, Golightly, Mulligan & Booth became Golightly, Mulligan & Morgan and added an office in Chesapeake with the addition of partner Mary T. Morgan, formerly of Cooper, Spong & Davis in Portsmouth. Jerry Booth has been retained as of counsel for the firm.

Ms. Morgan focuses on professional liability defense and defense of bar complaints and handles general civil litigation matters. She is admitted to practice in all of the state courts of Virginia, the United States District Court for the Eastern District of Virginia and the Western District of Virginia, the United States Bankruptcy Court and the United States Tax Court and has tried numerous cases in the General District Courts, Circuit Courts and the United States District Court.

Ms. Morgan is a graduate of the University of Richmond School of Law was named to the 2015 Class of “Influential Women of Virginia” by Virginia Lawyers Weekly. She is president of the Norfolk and Portsmouth Bar Association, a director at large for the Virginia Association of Defense Attorneys, secretary of the James Kent American Inn of Court, and a past president for the Hampton Roads Chapter of the Virginia Women Attorneys Association. Ms. Morgan also serves as the chairman of the Board of Directors for Edmarc Hospice for Children.

Attorneys Michele Mulligan and Scott Gollightly formed the firm in June of 2012. “I am honored to join with two such reputable attorneys and fine people as Michele and Scott,” said Ms. Morgan. Like Ms. Morgan, both Ms. Mulligan and Mr. Golightly are graduates of the T.C. Williams School of Law at the University of Richmond. Ms. Mulligan also received an MBA from the University of Richmond and has over twenty years of experience in the defense of professionals in malpractice claims. She generally practices in the areas of civil litigation, including professional liability, real estate and business disputes, as well as in the fields of community association law and insurance coverage. Mr. Golightly grew up in Newport News and received his B.A. from Christopher Newport University. His practice is centered on estate planning, entrepreneurial and corporate law, and business succession.

What is a Stepped Up Basis?

From an income tax perspective, we are often concerned with a person’s “basis” (or “cost basis”) in property. In basic terms, a person’s “basis” in property is the original cost of the property. When property is sold, income tax may be imposed on the difference between a person’s basis and the amount he or she received in the sale. This difference results in a gain (often called a “capital gain”) that may be subject to income tax. Therefore, generally speaking, the higher one’s cost basis in certain property, the lower one’s taxable gain will be, resulting in a lower income tax bill. So, high basis = good; low basis = bad.

When someone dies, the property that person leaves as a gift to others receives a “step up” in basis to the property’s fair market value on the date of death. For example, your favorite aunt just left you a house valued at $250,000 in her will. You learn that your aunt purchased this house in 1975 for $30,000. So, your aunt’s original cost basis in this house is $30,000. Well, because you received this property in your aunt’s will, you inherited the house, but (thankfully) you did not inherit her low basis. Your basis is “stepped up” to $250,000, which was the house’s fair market value at her death. Therefore, when you ultimately sell this house, you get to use your fresh, new basis of $250,000 to calculate your gain for income tax purposes, which can save a bundle on taxes. In fact, if you were to immediately sell this house for $250,000 to an eager buyer, your taxable gain would be a grand total of $0.00.

To really point up the significance of this “step up” in basis rule, imagine your favorite aunt had instead gifted this house to you one day before she died. Under this scenario, you would be forced to use your aunt’s original basis of $30,000 (called a “carry over” basis) when calculating gain on the sale. That same transaction above with our eager buyer has now resulted in a taxable gain of $220,000, all of which may be subject to income taxes. That’s a good day for the IRS, but not so much for you.

By definition, good planning requires that you plan. We can help. Let’s get started today – info@golightlylaw.com.

My Top Four Ways to Avoid Probate in Virginia

As far as probate goes, Virginia is not a bad place to die. Virginia probate is relatively inexpensive and simple. However, probate requires publication of the will (and, therefore, a lack of privacy), and it can cause significant delays in getting assets to your beneficiaries. Read more to learn about my top four ways to avoid probate.

For starters, if you want to learn more about probate in Virginia, please see my probate blog here. If you understand probate and know you want to avoid it, below are some ways to do so.

Now, as you read this blog, keep in mind this basic rule: the only assets that must be probated are those assets owned solely by you when you die – that is, assets titled in your name alone. So, you may avoid having to probate an asset if someone else has an ownership interest in that asset at your death. Well, how do you do that?

Beneficiary Designations. For assets like life insurance and retirement accounts, you may often fill out a simple form with the applicable company holding the asset that states whom you’d like to receive the proceeds when you die. Simply call the customer service number and explain you’d like to review and possibly change your beneficiary designation. Many companies offer lots of flexibility in doing this. You can name primary and contingent beneficiaries, and can usually establish different percentages for different people if you’d like.

Transfer on Death (“TOD”) or Pay on Death (“POD”). Similar to making a beneficiary designation on insurance and retirement accounts, you can set up bank accounts to be transferred to another person at death (“TOD”). Likewise, you can set up brokerage accounts to be paid in the same manner (“POD”). In my experience, the terms “TOD” and “POD” are often used interchangeably. So, when you die, this type of asset is paid to your chosen person automatically without need for probate.

Joint Ownership. If you own an asset “jointly” with another person, that asset becomes the property of your joint owner at your death without having to go through probate. We usually see joint ownership on real estate deeds and checking accounts, usually, but not always, between married couples.

Living Revocable Trusts. To learn more about living revocable trusts, read my blog here. Basically, you create the living revocable trust during your lifetime, naming a trustee to manage the trust and selecting your beneficiaries who will receive the trust assets at your death. Once you transfer (or re-title) an asset in the name of your trust, you no longer legally own the asset – your trustee does. Remember, the only assets that get probated are assets you owned alone at death. Your living trust effectively removed assets from your probate estate, and your trustee can distribute those assets without having to go through the probate process.

Using these techniques can help you avoid probate and provide for a quick and effective method of transferring assets at death. Keep in mind, however, that probate avoidance should be part of your overall estate plan. There are potential pitfalls to this type of planning if you’re not careful. Call us today at 804-658-3873 or email us at info@golightlylaw.com and let us help you get your planning in order. Thanks for reading!

Will or Living Revocable Trust. Which One is Better for Me and My Family?

You may read a lot about living revocable trusts but still be unsure how those are different from a last will and testament. Well, let's discuss that and start with some definitions.

What is a Last Will and Testament?

A Will provides for passing property to one’s chosen beneficiaries and names a guardian for any minor children. It is executed with formalities according to state law. Upon the death of the “testator” (person who drafted the Will), the Will needs to go through a process called “probate.”

What are trusts?

In general, a “trust” is simply a legal arrangement where the trust itself owns property that is managed by a “trustee” for the benefit of one or more “beneficiaries.” Trusts can come in many flavors, often with funny sounding acronyms -- Irrevocable Life Insurance Trust (ILIT), Qualified Personal Residence Trust (QPRT), Qualified Terminable Interest Property Trust (QTIP), etc., etc.

What is a Living Revocable Trust?

Living Revocable Trusts are often used as a “will substitute” and pitched by some lawyers (and many non-lawyers) as a probate avoidance tool. The “settlor” (the creator of the trust) often serves as the initial trustee, using the trust property on which to live. If the settlor/trustee becomes incapacitated, a successor trustee takes over management duties. When the settlor/trustee dies, the successor trustee ensures that the trust property passes to the beneficiaries outside of probate.

Benefits to Using a Living Trust Plan.

Using a living trust plan can avoid probate and the cost of estate administration. The trust can also streamline handling real estate in more than the home state; that is, you do not have to hire an out-of-state lawyer to probate real estate owned in that other state or states. The living trust plan can increase privacy. Unlike the Will, the living trust is not recorded among the courthouse records because there is no probate of the living trust. The living trust can also appoint a successor trustee to take over if the settlor becomes incapacitated. Lastly, although the trust can still be attacked by a disgruntled beneficiary (or someone who thinks he or she should have been a beneficiary), the Will may be more susceptible to attack, primarily because the Will is recorded at the courthouse and requires more formalities when executing it than the trust.

Are there Downsides to Using a Living Trust Plan?

Creating living trusts can be expensive — costing as much as twice the cost of drafting the Will Plan. All trust assets need to be formally transferred into the trust, meaning preparation of real estate deeds, renaming and retitling bank accounts, etc. Contrary to popular belief, living trusts by themselves do not provide tax benefits; for tax purposes, more extensive planning is needed. Unlike the Will Plan, living trusts do not allow the settlor to pick a guardian for minor children. Lastly, in Virginia, the probate process is really nothing to be feared, and the increased costs, etc. of the living trust may not justify simply “avoiding probate."

Benefits to Using a Will Plan.

A Will is the only document in which one can pick a guardian for minor children. It also has low ongoing maintenance and oversight, and a relatively low cost to create. Lastly, using a Will Plan can shorten time periods for creditors’ claims against the estate.

Are there Downsides to Using a Will Plan?

A Will Plan is not a great way to handle estates including out-of-state property because your executor may have to hire a lawyer to deal with such property. For folks with privacy concerns, they should note that the Will is recorded in the courthouse, so it's there for the public to see. Also, standing alone, Will Plans have no effect if the testator becomes incapacitated (may need power of attorney too). Lastly, as mentioned briefly above, wills are generally easier to attack by an upset beneficiary (or someone cut out of the will) in the form of Will contests.

So, Which Plan is Better for Me and My Family?

How is this for a lawyer answer — “It depends.” As a general rule, for relatively simple Virginia estates with no real property outside of Virginia, a Will Plan will almost always be more cost-effective and efficient than a living trust plan. If one owns real property in several states, has serious privacy concerns about the will being recorded, and/or does not want court oversight and associated delays in administering the estate through probate, perhaps the living trust would work better. Do your research, get good advice, and avoid “putting the tool before the task.” Outline your goals and choose a plan that helps you achieve them most effectively.

Can You Disinherit Your Spouse in Your Will?

There may be situations when a person wants to disinherit a spouse. In Virginia, however, this may not be as simple as just cutting the spouse out of the will. To protect a surviving spouse, Virginia law allows him or her to claim an elective share in the deceased spouse's "augmented estate." The surviving spouse must make such an election within 6 months from date of opening probate of the will.

A detailed discussion of what amounts to an "augmented estate" is beyond the scope of this article. In very basic terms, an "augmented estate" equals assets in the deceased spouse's name only (or probate assets), plus assets passing upon the deceased spouse’s death outside probate (jointly held property, etc.), plus certain transfers by the deceased spouse during his or her lifetime, minus assets received by the surviving spouse from the deceased spouse. As you can see, in this situation, the deceased's spouse's estate is increased or "augmented" to include assets over and above those that make up the customary probate estate.

If the surviving spouse makes a claim for an elective share, he or she is entitled to receive one-third (1/3) of the deceased spouse's augmented estate if the deceased spouse is survived by children. If the deceased spouse does not have any surviving children, the surviving spouse is entitled to one-half (1/2) of the augmented estate.

Note that the right to claim an elective share is not available to the surviving spouse in every situation. For example, if the surviving spouse deserted or abandoned the deceased spouse, Virginia law prohibits or "bars" the surviving spouse from claiming the elective share.

This area of the law can be quite complicated. Each situation is unique to its own set of facts and circumstances. If you are a spouse seeking to cut the other out of your estate plan, or you are a surviving spouse who has been cut out, you should seek an experienced estate-planning attorney to help guide you.

Virginia Uniform Power of Attorney Act

Due to medical advances, people are living longer than ever. In fact, the fastest growing segment of the U.S. population are folks over the age of 65. With increased age often comes the increased likelihood that someone will suffer some sort of disability or incapacity. It is important to plan for this possibility, and a good tool is the durable power of attorney. Fortunately, Virginia has recently taken an important step in passing into law the Virginia Uniform Power of Attorney Act (UPOAA). So, what does the UPOAA do and why is it important to me?

Let’s start with a basic overview. The person creating the power of attorney (called the “principal”) appoints an “agent” who will have legal authority to act with third parties on the principal’s behalf. These third parties often include banks, financial institutions, creditors, the IRS, etc. In the event that the principal is unable to act with respect to these types of third-party relationships, the appointed agent “steps in the shoes” of the principal and can get things done on his or her behalf. This type of principal/agent relationship is particularly helpful if the principal has become incapacitated and lacks the legal competence to handle legal transactions on his or her own.

In July of 2010, the Virginia General Assembly enacted Virginia’s version of the Uniform Power of Attorney Act. Why did we need this? Prior to the UPOAA’s enactment, the laws governing the creation and enforceability of powers of attorney were spread out among dozens of statutes in various titles of the Virginia code and in case opinions written by judges. These various laws and opinions were not always consistent with one another, nor did they provide answers to all of the legal questions surrounding powers of attorney. The UPOAA consolidates all of the laws relating to powers of attorney into one section of the Virginia Code, and it does a good job at codifying prior case law and lawyers’ best practices over the years.

One of the best things about the UPOAA is a principal’s ability to incorporate by reference specific statutes granting the agent powers. These statutes include:

So, with the UPOAA, your power of attorney document does not need to run on for dozens of pages. You may simply incorporate some or all of the statutes above by reference. Perhaps even better, you may simply say, “I grant my agent authority to do all acts that I could do as set forth and defined by the Uniform Power of Attorney Act” (or words to that effect). Saying just this will legally authorize your agent to act on your behalf with respect to all of the transactions above.

It is important to note, however, that there are certain powers that a principal must expressly grant to his or her agent for them to be effective. These so-called “hot powers” include:

In conclusion, the UPOAA has done a nice job at consolidating these laws into one place and providing a streamlined way for people to create powers of attorney. Hopefully, with this new act, we will see an increase in the number of powers of attorney being created. If you would like help putting together a power of attorney, or would like to learn more, please give us a call at 804-658-3873 or email us at info@golightlylaw.com. Thanks for reading!