Distribution to a Revocable Living Trust (RLT)

Under a fairly common estate plan, a decedent’s will provides that any assets passing under the residuary clause of the decedent’s will are to be distributed to the trustee of the decedent’s RLT. In some instances, an executor will disregard these directions in the will and distribute the estate assets directly to beneficiaries named in the trust rather than to the trustee of the RLT. If the decedent’s will expressly authorizes such direct distribution the Commissioner will likely approve the direct distribution. If not addressed in the will direct distributions to beneficiaries is contrary to and violates the provisions of the decedent’s by the executor. The executor must follow the terms of the will, unless otherwise approved by the Commissioner or the Court in advance. 

Insolvent Estates

An estate is insolvent when the assets of the estate are not sufficient to satisfy estate administrative expenses, estate debts and creditor claims and specific bequests or legacies under a decedent’s will. In the early stages of an estate administration, it may not appear that the estate is insolvent, but it later becomes insolvent due to initially unknown expenses or claims. Virginia provides certain priorities of payment of estate assets for insolvent estates. Disbursements or distributions by an executor or administrator contrary to such payment priorities may result in personal liability of the executor or administrator. Therefore, it may be prudent for an executor or administrator to wait at least six months before making and distributions or disbursements and to seek legal advice if it appears that the estate may be insolvent, or the personal representative is unsure.

Settlement of Creditor Claims

Personal representatives may wish to obtain professional tax advice when considering a settlement of an estate creditor claim for less than the amount owned on the claim as the agreed reduction may be deemed taxable income to the estate.