MEQUON LAW – ESTATE PLANNING GUIDE

I realize that the completion of one’s estate plan is sometimes not considered a top priority and is often delayed or postponed. Yet, the completion of such a plan is very important and can help in several ways. For example, the completion of a Will along with other estate planning documents can achieve the following objectives and benefits:

1. The Will and/or Revocable Trust can set forth your desires regarding whom you wish to designate as Personal Representative or Trustee of your estate at your death, which person is then responsible for making sure that your desires about the disposition of your property are properly carried out. Moreover, in your Will, you can provide that such person does not need to be bonded which can result in the savings of hundreds or thousands of dollars for your estate;
2. For those couples with joint estates which exceed $11,180,000 in 2018 (including, for example, the face value of any life insurance, retirement death benefits, IRAs, stocks, investments, real estate, tangible personal property, businesses, and pension benefits), the proper use of family and marital trusts coupled with a Marital Property Agreement, or, in the alternative, the timely filing of a federal estate tax return after the death of the first-to-die spouse in compliance with the new portability rules, can result in the dramatic savings of federal estate taxes. In addition, although Wisconsin currently does not impose estate taxes at the state level, the use of family and marital trusts, or the filing of such federal estate tax return, may be advantageous if Wisconsin decides to bring back its former state estate tax. Moreover, current tax law allows your spouse, with certain language added to the trust, to serve as the trustee of such trust if you so desire without the need for a bank or trust company to be designated as a trustee;
3. Following the dramatic increase in the federal estate tax threshold and the elimination of the Wisconsin estate tax, I have also recently helped several married couples eliminate the family and marital trust plans which were previously set up in an effort to reduce estate taxes. In these cases, to simplify their estate plans, I have prepared a restated joint revocable trust which no longer splits into two trusts at the death of the first spouse since such division is no longer necessary to save estate taxes if their estates are less than $11 million.
4. Your Will can set forth your desires about whom you wish to designate as Guardian of your children, and the use of a separate Children’s or Grandchildren’s Trust can assist in the appropriate distribution of your assets and preserve such assets for their future benefit. Moreover, through the use of separate “living” trusts for your Children, you can achieve, if you desire, the ability to make sure that the persons who serve as Guardians for your Children have a separate financial overseer (i.e., the trustee of your Children’s Trust– who can be a different relative, e.g.) who is in charge of preserving such assets for your children’s benefit. In addition, the use of separate “living trusts” (as I utilize in the typical situation) will avoid the need for the trustee to file an inventory or annual accountings with the Probate Court. In addition, without the use of such trusts, the child or grandchild would have full access to these assets at age 18 under Wisconsin law;
5. For married couples, the proper use of Marital Property Agreements (which are typically set up to apply at the death of one spouse but not upon divorce) along with the redesignation of certain property can result in a dramatic income tax savings for the surviving spouse. For example, Wisconsin law provides, in general, that assets owned by a married couple prior to January 1, 1986 (e.g., your residence, other real estate or stocks and bonds) are not considered “marital property” unless a Marital Property Agreement or other document reclassifying the property has been signed. In addition, assets received by inheritance are also generally not considered marital property if they are held in the name of one spouse and have not been commingled with other assets. The importance of such classification at death is based upon a substantial tax advantage that is given to marital or survivorship marital property under current tax law. Specifically, if property that has appreciated in value is considered marital or survivorship marital property, such asset is fully “stepped up” to its date of death value so that when the surviving spouse sells same, he or she will only have to pay income tax on the gain, if any, that has arisen on the property after the date of death. If the property is not considered marital property but is instead “joint tenancy” property, the surviving spouse would pay income tax based upon ½ of its total appreciation (i.e., its sale price less its cost or “adjusted basis”) plus ½ of the gain arising after the date of death;
6. Proper estate planning can, in some settings, also be beneficial to avoid probate. While I believe the disadvantages of probate, especially in Wisconsin, have been sometimes overblown ( e.g., I often complete a probate in 4-7 months unless there is a federal or Wisconsin estate tax return that is required due to the size of the estate or unless the sale of real estate or other property holds up the completion of such probate), in some situations, careful thought should be given to attempt to structure one’s estate, through the use of funded revocable living trusts, Washington Will provisions in a Marital Property Agreement, Transfer on Death Deeds for real estate, and/or Payable on Death beneficiary designations for certain bank accounts and other investments, so as to prevent the need for probate. For example, I often utilize a clause in the Marital Property Agreement to allow the assets at the death of the spouse(s) to pass directly to the Joint Revocable Trust without the need to go through probate. In general, however, I do not promote the use of funded revocable trusts for younger married couples because of the fact that this estate planning technique means that all of the couple’s assets need to be titled in the name of the trust and there are many details that must be carried out to accomplish this (i.e, the retitling of real estate, bank accounts, and other investments). Where someone owns real estate in another state, however, I then feel that funded revocable trusts (which would involve the retitling of such real estate into the trust) do make sense because they eliminate the need for an “ancillary probate proceeding” in that other state. In addition, funded revocable trusts are also beneficial for those single persons who are concerned about the future costs of probate and do not object to the additional work and expense involved in setting up and funding this trust.I also am concerned about the widespread use of joint accounts for persons other than spouses because of the dangers and risks relating to same. For example, in the case of Matter of Estate of Frank, the Wisconsin Court of Appeals held that an estate has no cause of action against a surviving joint tenant who withdraws all of the monies in a joint account even if all of the monies were placed into such account by the decedent who was not aware of the subsequent withdrawal of funds before his death. Wisconsin Statute section 705.03 also suggests that such rule would apply to foreclose an action against the withdrawing joint tenant even if the joint tenant who deposited such money was alive and wished to recover the monies withdrawn.
7. Another important benefit of estate planning is that it allows you to select your beneficiaries. Without a Will or other proper beneficiary designation, the intestacy laws of the State of Wisconsin would govern the disposition of your assets. In many cases, this may be contrary to your specific desires. For example, you may decide that you wish to leave a specific bequest or percentage of your estate to your church (or its Foundation) or other charity. Another potential way to include the church in your plan is to designate the church as the beneficiary of your IRA, through which the church would be exempt from the built-up income that had accumulated in the IRA. In addition, you may wish to make some specific provisions for a disabled child or grandchild, and I am very experienced in setting up Disability Trusts which are not considered the disabled child’s assets for Title 19 purposes. Moreover, Wisconsin intestacy law provides that, in the absence of a valid and binding Will or applicable beneficiary designation, for second marriages, ½ of one’s assets pass to decedent’s children and the other ½ passes to the surviving spouse. This may be contrary to your specific intent, and it is often helpful in these situations for a Marital Property Agreement to be set up in such case which clarifies the property ownership and classification issues.
8. Another important function of estate planning for married couples is the use of a Marital Property Agreement to clarify the classification of their property. By law, upon the death of one spouse (assuming that a probate and/or a federal estate tax return is required), such spouse’s marital property must be separately classified and identified on the Estate Inventory. This can be a tedious (and expensive) task in situations where the couple has been married prior to 1986 or for those couples in which one or both spouses have received property by inheritance or brought a substantial amount of property into the marriage.
9. For those persons who own or have an interest in small (or medium-sized) privately-held businesses, estate planning is essential to make sure that the business will be successfully continued even after the owner (or partial owner’s) death. In the appropriate case, lifetime gifting of shares of closely-held stock of the company, along with a buy-sell agreement and the funding of a life insurance plan may be considered so as to pay off potential federal estate taxes which would apply upon the owner’s death. Although there are some provisions in The Taxpayer Relief Act of 1997 that are intended to help family owned businesses in this regard, there are numerous risks in exercising this “relief” provision. In certain cases, other detailed estate planning techniques can be considered with respect to the family business (such as the formation of family limited partnerships or the issuance of two classes of stock), but one must be careful to make sure that the legal costs and other related expenses which relate to any such technique do not exceed the anticipated benefits to be gained from it.
10. Estate planning can also be very useful in order to preserve one’s assets in the context of future nursing home planning. The use of a Durable General Power of Attorney by which you can appoint a trusted relative or spouse to serve as your agent for financial purposes can preserve the ability for your family to address your financial needs even if you later suffer a stroke or become incompetent. Moreover, the use of a Durable General Power of Attorney coupled with a Health Care Power of Attorney will aid in preventing the time-consuming (and expensive) process of the appointment of a Guardian for you in the event you become incompetent or otherwise unable to handle your affairs. I have very detailed and important Power of Attorney forms that can be prepared in conjunction with your estate plan to address these items.

These ten (10) estate planning benefits show how estate planning can serve to clarify your desires, save money, and simplify the transfer process while still preserving your lifetime ownership rights in your assets.

Robert E. Holtz, Esq.

No part of this pamphlet and guide may be copied or used in any way without the written permission of the author, Attorney Robert E. Holtz.

Disclaimer:

Please note that the law relating to estate planning changes quickly and none of the information contained in this pamphlet should be relied upon as legal advice about specific matters or situations. Please consult a lawyer before acting on the information contained herein. Your review of this information does not establish an attorney-client relationship.