common estate plans we draft
for our clients: © Copyright by Kevin M. Connelly
Wills range from simple to complex. Many married couples sign wills giving everything to the surviving spouse and, upon the survivor's death, to their children in equal shares. That is a simple will. A more complex will might include trusts for children or grandchildren. All wills appoint a personal representative, usually a family member, whose legal responsibility it is to settle the decedent's estate which means making sure all bills, debts, and taxes of the decedent are paid, liquidating property, and distributing the gifts as instructed by the will, all under supervision by the local probate court (unless the probate estate is worth under $50,000). The probate process typically lasts a year or longer and incurs substantial attorney fees and costs. Many alternatives are available that bypass probate court as discussed below.
REVOCABLE LIVING TRUST
A revocable living trust is sometimes called a “will substitute” because it accomplishes the same tasks in settling a decedent's estate without needing a will or going through probate court. This facilitates a quicker, private, and much less expensive process for the decedent's family. “Revocable” means the person who creates the trust (the “settlor” or “grantor”) may change its terms or revoke it at any time during his or her life. In Wisconsin, married couples can execute a joint revocable trust. Typically the settlor names himself as trustee to manage the assets he puts into the trust for his benefit during his life which means there is no loss of control over one's assets with this type of trust. If the settlor becomes incapacitated, a successor trustee steps in to manage the assets which helps to prevent the need for a guardian--another undesirable court process. Upon the settlor’s death, the successor trustee settles the estate according to the instructions contained in the trust.
IRREVOCABLE TRUST (Asset protection)
As discussed more fully on the home page of this website, valuable assets such as one's house can be protected from future nursing home costs using a Medicaid asset protection trust which is an irrevocable trust. Under Medicaid law, a five-year lookback rule applies to this kind of transaction which means there will be a divestment penalty if someone applies for Medicaid and they gave assets to such a trust in the last five years. This is not a strategy for last minute planning.
TRANSFER ON DEATH DEED (A popular and inexpensive method to avoid probate court for your house)
A common estate planning tool for transferring real estate upon death is the Transfer on Death Deed. By signing and recording this deed (it must be recorded before your death) at the Register of Deeds office in the county where your real estate is located, you can transfer your house or other real estate in Wisconsin to designated beneficiaries without probate court involvement.
MARITAL PROPERTY AGREEMENT
Wisconsin is a marital property state which means all property owned by a married couple is presumed marital property (owned 50/50) unless a legal classification overcomes that legal presumption. One way to change the property classification is with a marital property agreement. There are a wide variety of uses for such agreements. A couple can choose to “opt out” of the marital property law entirely and allow the name on property title govern management and control of the property. Or they can choose to expressly “opt in” by agreeing that all of their property is marital property which has the tax benefit of getting a “double step-up in basis” for federal capital gains tax purposes. Or they may have a hybrid agreement that classifies some items as individual property and others as marital. Spouses in second marriages often use an agreement to classify property they bring to the marriage as their individual property so that they are free to leave such property to their children of a prior marriage without worry of a spousal ownership claim being asserted against that property. Where estate taxes are a concern, an agreement can balance the estate so that it does not matter who dies first. Lastly, marital agreements can also be used to avoid probate court.
FINANCIAL (DURABLE) POWER OF ATTORNEY
This legal instrument authorizes an agent to manage a person’s finances and property on their behalf. It is “durable” because the agent’s authority is not affected by the principal’s subsequent disability or incapacity. Routine powers are often included (e.g. bank transactions) while “dangerous” powers (gifting, changing estate plan beneficiaries) require caution. Special powers for nursing home planning should be included if appropriate. Also, a person may nominate their own guardian if guardianship ever becomes necessary although a primary benefit of having a durable power of attorney and health care power of attorney is to make a guardianship unnecessary.
A will or revocable trust might include a sub-trust for the benefit of minor children or grandchildren. Young parents should have such a trust in their estate plan for the unlikely event both parents die so that a trustee can manage the assets for the benefit of minor children until they reach an appropriate age of maturity. The trustee might be a trusted relative, friend, or professional corporate trustee.
SPECIAL/SUPPLEMENTAL NEEDS TRUST
This trust holds assets for the benefit of a disabled person in such a way that the assets do not jeopardize needs-based government benefits being received by the person. A cash payment or gift made outright to a disabled person could result in ineligibility for certain government benefits such as SSI and Medicaid. If, instead, the gift is paid to a special needs trust that will not happen. The trustee will have the discretion to purchase goods or services that supplement or enhance the disabled person’s quality of life such as uninsured medical expenses, household goods and furnishings, transportation, and recreational activities.
HEALTHCARE ADVANCE DIRECTIVES
A person may state in a written instrument their instructions, preferences, and desires regarding future health care, including the refusal of certain treatments, if they ever become unable to communicate such wishes to their medical providers. The Health Care Power of Attorney appoints an agent to make health care decisions on one’s behalf if one becomes incapacitated. The Declaration to Physicians, often called a “living will,” instructs a physician to discontinue the use of artificial life-sustaining procedures if a person has a terminal condition or is in a persistent vegetative state.