BUSI 354 Week 5 Client Interview Example

The Ellison Family Without an Estate Plan: Probate, Tax and Planning Issues

Client Facts

Mark Ellison, 58, and his wife Dana, 52, live in Lynchburg, Virginia. From his first marriage Mark has two grown children, Jake, 29, and Lily, 26. Mark and Dana have one daughter, Sophie, 14. Neither spouse has a will, a power of attorney or an advance directive. Mark owns 60 percent of a landscaping company organized as a limited liability company; his business partner owns the rest, and there is no buy-sell agreement.

Probate Analysis if Mark Dies First

Dalton and Langdon (2017) explain that property titled with a right of survivorship and property with a named beneficiary pass outside probate, while property titled in the decedent's name alone, or payable to the estate, passes through it. Mark's probate estate would therefore include the brokerage account, the LLC interest, the life insurance payable to his estate and his individual personal property, about $1.36 million.

Without a will, that property passes under Virginia's intestacy statute. Under section 64.2-200 of the Code of Virginia, when a decedent leaves a surviving spouse and children who are not all children of that spouse, the spouse receives one-third and the decedent's children receive two-thirds. Dana would receive about $450,000, and Jake, Lily and Sophie would each receive about $300,000. Sophie's share could not simply be handed to a 14-year-old; a court-supervised conservatorship or similar arrangement would manage it until she turns 18, when she would receive it outright. Dana would also receive a 60 percent business interest split among four owners, three of whom have never worked in the business. Without a buy-sell agreement, the partner who runs the company day to day would suddenly share control with a widow, two adult stepchildren and a minor's conservator, none of whom may want to be in the landscaping business. Disagreements over whether to sell, reinvest or pay distributions could reduce the value of the very asset meant to support the family, and the partner might leave rather than work under that arrangement.

Nonprobate Analysis

The home would pass to Dana by survivorship, which is what Mark would want. The 401(k) is the most dangerous asset. Langbein (1984) observed that will substitutes like retirement accounts now carry much of a family's wealth outside the probate system, and they follow their own rules. The plan administrator will look to the beneficiary form and federal plan rules, not to Virginia probate law. Depending on the plan's terms and federal spousal protections, the $620,000 could go to Mark's former wife or be contested by Dana, a dispute a new form would prevent. A twenty-year-old beneficiary form can outweigh everything the family believes about where the money will go.

The life insurance, by naming the estate, is pulled into probate, where it becomes subject to the intestacy split, delay and the claims of Mark's creditors.

If Dana Dies First, or Both Die Together

The analysis changes if Dana dies first. Her IRA would pass to Sophie as the named beneficiary, which means a 14-year-old would inherit $150,000 subject to the ten-year distribution rules once she reaches majority, with a conservator managing it in the meantime. The home would pass to Mark by survivorship. Dana's small probate estate would be divided under the same statute, with Mark receiving her estate outright because Sophie is the child of both. If both spouses died together, Sophie's situation would be the most serious problem of all: with no will, no guardian nomination and no trust, a court would choose who raises her and who manages roughly a third of Mark's probate estate on her behalf, while Jake and Lily, both adults, would receive their shares outright. The family would also lose the chance to choose a trusted relative or friend as Sophie's guardian, a choice Dalton and Langdon (2017) describe as one of the most important reasons young parents need wills.

Tax Analysis

Mark's gross estate for federal purposes would include half of the home, the 401(k), the life insurance, the brokerage account, the business interest and his share of other property, roughly $2.26 million. That is far below the federal basic exclusion amount of $15 million per person for 2026 (Internal Revenue Service, 2025), and property passing to Dana would qualify for the unlimited marital deduction in any case. Virginia has no estate tax. No estate tax would be due. Income tax matters more: whoever inherits the 401(k) will owe income tax on withdrawals, and most nonspouse beneficiaries must empty an inherited account within ten years, while a spouse has more flexible options. Inherited brokerage assets and the business interest would generally receive a stepped-up basis.

Planning Issues

• 1. The 401(k) beneficiary form names Mark's former wife.
• 2. Life insurance payable to the estate exposes it to probate and creditors.
• 3. Intestacy gives Dana only one-third of the probate estate, which may leave her short of what she needs.
• 4. Sophie would receive a large sum outright at 18.
• 5. No guardian is named for Sophie if both parents die.
• 6. The business has no succession plan or buy-sell agreement.
• 7. Neither spouse has a power of attorney or advance directive.

Outline of an Estate Plan

• New 401(k) beneficiary form naming Dana, with contingent beneficiaries matching the plan below, signed immediately.
• Wills for both spouses nominating a guardian for Sophie and pouring over to a revocable trust.
• A revocable trust that, at Mark's death, divides into a marital trust for Dana's lifetime, qualifying for the marital deduction, with the remainder to all three children, plus separate trusts for each child with staged distributions.
• Life insurance beneficiary changed from the estate to the trust.
• A buy-sell agreement with Mark's partner, funded with insurance, so the business interest converts to cash at death.
• Durable powers of attorney and advance medical directives for both spouses.

Closing Perspective

Blended families face a hard question: how to provide for a surviving spouse without disinheriting children from an earlier marriage. Paul says that a believer who neglects to provide for relatives, above all for those in the household, has denied the faith (English Standard Version Bible, 2001/2016, 1 Timothy 5:8). A plan that protects Dana for life and preserves the remainder for all three children lets Mark provide for every member of both of his households.

References

Dalton, M. A., & Langdon, T. P. (2017). Estate planning (8th ed.). Money Education.

English Standard Version Bible. (2016). Crossway. (Original work published 2001)

Internal Revenue Service. (2025). What's new: Estate and gift tax. U.S. Department of the Treasury. https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax

Langbein, J. H. (1984). The nonprobate revolution and the future of the law of succession. Harvard Law Review, 97(5), 1108-1141. https://doi.org/10.2307/1340825