4.11 COMMON CLAUSES AND UNCOMMON RESULTS
4.1101 Debts of the Decedent.
The source of payment of debts and the order of abatement if the primary source is insufficient should be considered. From what source should secured debts be satisfied? Is there an option? What about out-of-state real estate and differing local laws? Under Virginia law, a general directive in the will to pay debts does not ordinarily result in the exoneration of a secured debt on a specific devise or bequest. 418 If exoneration is intended, the testator must specifically provide for it. Section 64.2-531(B) creates a procedure by which the personal representative can give written notice to a creditor holding such a debt that there is no right of exoneration created for the property in either the will or a transfer-on-death deed.
Other states may have different rules. For example, in Maryland, unless otherwise directed by the will, a specific devise or bequest of property passes subject to any mortgages or deeds of trust that were in effect when the will was executed (including renewals, extensions, or refinancing of such debt), but a specific devise of property will be free of any debt that was created after execution of the will. 419
Can joint debts on property passing by right of survivorship be left for the surviving joint tenant to pay? What exposure does the executor have if the executor does not pay off the debt? A creditor could look to the fiduciary for partial or full payment without foreclosure in some circumstances. 420 Because an executor faces personal liability for the debts of an estate that he or she administers, a novation should be sought from the creditor, or at the very least, an indemnification should be sought from the joint obligor. If the surviving joint tenant elects to live in the property after the decedent's death, what is the effect of a direction in the will to an executor to not pay a joint mortgage? Could a clause requiring the surviving spouse to assume the full loan as a condition of receiving benefits under the will affect the marital deduction? What is the impact of a waiver in the will of the right of contribution for joint debts? What is the executor's duty if there is no waiver? Drafting for the specific outcome the client desires is preferred, especially in areas like payment of joint debts that are the subject of continual review and proposed legislation.
4.1102 Death Taxes.
Most tax clauses provide that all taxes are to be paid from the residue as an administration expense, which differs from the effect of Virginia's apportionment statute. A natural tension exists between pre-residuary bequests and residuary dispositions. On the one hand, most testators intend for a specific legatee to receive the actual dollar amount of the bequest, not a net amount after payment of a pro rata portion of estate taxes. On the other hand, most residuary beneficiaries are usually the natural objects of the testator's bounty, and making their shares responsible for estate taxes may reduce the amounts that the testator intended for them. A direction in the will that estate taxes be paid from the residue can have a substantial effect on the beneficial interests and the amount of estate tax if the residue is distributable to both taxable and non-taxable...
