Trust Settlements – How to Navigate the Process

Trust Settlements – How to Navigate the Process

Regardless of the type of estate plan you have set up, if someone passes away, there are a number of matters that will need to be addressed. A trust sets up the terms for how a trustee should administer the affairs and assets of the deceased. Below are discussion points for some of the most common matters associated with the trust settlement process.

1.) Will
If there is an original last will and testament, it should be filed with the Register in Probate in the county of which the deceased was a resident prior to passing. Whether there is a trust governing disposition of assets or not, filing the original last will and testament is required under Wis. Stat. § 856.05(1).

2.) Debts
A creditor claims notice should be published in the newspaper to bar creditor claims after the notice period. (Of course, there are certain exceptions to what types of creditors’ claims would be barred which I am not going into here.) Debts of the deceased should be paid. Often, there are many medical expenses that have been incurred immediately prior to passing. Those types of expenses have priority to be paid and should be paid promptly. Likewise, funeral/burial expenses have priority (to be paid) and should be paid promptly.

3.) Credit Cards and Credit Bureaus
If there are credit cards in the deceased’s name, those companies should be contacted and provided a death certificate so that no additional charges can be made to those cards. Once those credit card accounts are settled and closed, all the deceased’s credit cards should be destroyed or discarded. Similarly, to avoid additional credit and fraud issues, the three credit bureaus (Equifax, Transunion, and Experian) should be notified of the deceased’s passing. This will prevent credit from being issued in the deceased’s name or with the deceased’s social security number.

4.) Real Estate
If there is real estate in the deceased’s name, the real estate will need to be transferred from the deceased’s name. The method used to transfer the real estate in the deceased’s name will depend on how the real estate is titled. For example, if the real estate is titled in the name of both spouses as survivorship marital property, a termination of decedent’s interest form will need to be recorded with the appropriate register of deeds office. If the deceased owned the real estate solely in his/her name, then someone will need to have authority to sign a deed to transfer the real estate. Usually this person is the personal representative who has been appointed by the register in probate to settle the affairs of the deceased. Alternatively, if real estate is titled in the name of the trust, then the trustee of the trust will have authority to transfer the real estate. Some trusts require the real estate to be distributed directly to beneficiaries or may require the real estate to be sold. There is no single sure-fire method to remove the deceased’s name from the real estate and/or to transfer the real estate to the deceased’s beneficiaries. If there is real estate in the deceased’s name, it is better to take care of this as soon as possible. Leaving real estate in the deceased’s name for many years will only make resolving the situation more complicated. If real estate tax bills are still coming in the deceased’s name, this is an indication that something needs to be taken care of. It is recommended that you consult your estate planning attorney to discuss how to address real estate titled in the deceased’s name or in the deceased’s trust to ensure the provisions of the trust are complied with.

5.) Bank Accounts
If there are bank accounts in the deceased’s name, you will need to know if: (a) those accounts have joint owners listed, (b) those accounts have any pay-on-death designations, or (c) those accounts are in the deceased’s name solely. If there are joint owners, then they are the owners of the account and the deceased’s name can simply be removed from the account. If there are pay-on-death designations, then those pay-on-death beneficiaries would own the account. If the bank accounts are in the deceased’s name only, a probate may be required to transfer those accounts to the deceased’s beneficiaries. If the accounts are in the name of the deceased’s trust, it is important to consult the trust document to make sure that the trust provisions are being followed. Some trusts may require distributions to beneficiaries or to other trusts created under the original trust.

6.) Appraisals and Date of Death Valuations
Generally, real estate in the deceased’s name or deceased’s trust should be appraised to obtain a date of death value. The reason to obtain an appraisal is to take advantage of the step-up in basis rule. The step-up in basis is an adjustment to the value of an asset (usually an appreciated asset) for tax purposes. When an asset is distributed to a beneficiary, the asset is usually worth more than what the deceased paid to acquire it. The appraisal will assign a new basis to the asset so that if the beneficiary later sells the asset during the beneficiary’s life, the beneficiary’s capital gains tax is minimized or eliminated entirely. In conclusion, by having reliable appraisals and valuations completed, the beneficiaries will be able to take advantage of the step-up in basis rule.

Some think that because they have a trust, everything happens automatically. However, the trust settlement process requires involvement in addressing matters such as debts, real estate, wills, and more. If you find yourself in need of help navigating this process, contact our estate planning attorneys at Anderson O’Brien Law.

 

Vacation Rentals and Restrictive Covenants

Vacation Rentals and Restrictive Covenants

The vacation rental market has exploded in recent years due to the popularity of online sites such as Airbnb, VRBO, and HomeAway.  While these sites have created a booming marketplace for homeowners and renters alike, they have also created a myriad of legal and governmental quagmires.  One of these complex issues is restrictive covenants and land use.

A restrictive covenant is a type of agreement that limits permissible use of land.  Generally, a restrictive covenant agreement is recorded so that potential purchasers of real estate are aware that there are restrictions on what they, as landowners, can or cannot do with the real estate.

In a recent Wisconsin Supreme Court decision, Forshee v. Neuschwander, 2018 WI 62, restrictive covenants that prohibited “commercial activity” were held to be ambiguous and unenforceable.

In the Forshee case, the issue was that the landowners were renting their property to vacationers. The question that the Wisconsin Supreme Court analyzed here was whether the prohibition against “commercial activity” included short-term and long-term rentals. Wisconsin law requires that restrictive covenants must be expressed in clear, unambiguous, and peremptory terms in order to be enforceable. The Court held that the phrase “commercial activity” was susceptible to more than one reasonable interpretation and, therefore, ambiguous.  The Court ultimately decided that prohibition against commercial activity did not preclude either short-term or long-term rentals and the landowners could continue engaging in such activities.

The Forshee case could be setting a larger stage for landowners to have the ability to void any restrictive covenant that is ambiguous. If you own land that has restrictive covenants, you might want to closely examine those covenants as not all of them may be enforceable against you.

For developers, it is in your best interest to review those restrictive covenants again and make sure they are clear and convey exactly what you intend. At minimum, you should review those restrictive covenants that are most important to the development.  Having restrictive covenants drafted right the first time is crucial because subsequent landowners will be bound to the covenants as originally drafted. If the language in the covenants does not clearly convey what the restriction is, that restriction will likely be determined by a court to be unenforceable.

 

Credit Freeze

Nearly half of Americans may have had their information stolen in the massive Equifax data breach revealed last week.  One way to protect yourself from further harm is to freeze your credit.  A credit freeze prevents creditors from accessing your credit report and prevents credit cards, loans, and other services from being approved in your name without your consent.  You can place a credit freeze on your account by calling each of the credit reporting agencies listed below.  For more information, visit the Federal Trade Commission’s Credit Freeze FAQs.

Equifax: (800) 349-9960
Experian: (888) 397‑3742
TransUnion: (888) 909-8872

You can also choose to contact the three agencies by mail. Below is their contact information and copies of their individual form letters.

Equifax
PO Box 105069
Atlanta, GA 30348-5069
Equifax Form Letter

Experian
PO Box 9554
Allen, TX 75013
Experian Form Letter

TransUnion
PO Box 2000
Chester, PA 19016
TransUnion Form Letter

 

“As Is” Clause in Real Estate Agreement

“As Is” Clause in Real Estate Agreement

When using an “as is” clause, the seller and the realtor are still obligated to make disclosures about the property, unless the buyers executed a valid waiver to receive the real estate condition report.

Under Wis. Stat. § 709.01, the law requires that sellers of real estate complete a real estate condition report. There is no exception for property sold “as is.” The only exceptions from the requirement of providing the real estate condition report are for (a) Personal Representatives; (b) Trustees; (c) Conservators; and (d) Fiduciaries who are appointed by, or subject to the supervision of a court. Wis. Stat. § 709.01(2).

Sellers of real property also have a duty to exercise ordinary care — the legal obligation to refrain from any act which would cause foreseeable harm to another or create an unreasonable risk to another. Sellers may be liable if they intentionally conceal defects or prevent buyers from investigating the property to discover the defects. Sellers may also be liable to buyers if they make false affirmative statements about the property. Sellers may further be liable if they do not disclose material conditions which buyers are in a poor position to discover (e.g., fire damage that has been repaired or prior mold or pest issues).

Similarly, pursuant to Wis. Admin. Code REEB 24.07, real estate agents are required to inspect the property to familiarize themselves with the property’s condition and disclose adverse conditions to potential buyers. Wis. Admin. Code REEB 24.07(1)(b) further requires real estate agents to “make inquiries of the seller on the condition of the structure, mechanical systems, and other relevant aspects of the property as applicable.” Simply because the real estate is being sold “as is” does not mean that a real estate agent no longer must comply with such prescribed duties.

In conclusion, if you are selling your property and you want the sale to be an “as is” sale, you may still be required to make disclosures about the condition of the property. To limit your risks, talk to your attorney about proper disclosures when selling real estate.

Health Savings Account Account (HSA)

Health Savings Account Account (HSA)

Have a Health Savings Account? Do you know what happens to your HSA when you die?

An HSA account is a tax-exempt, medical savings account that is available to United States taxpayers who are enrolled in a high-deductible health plan. Over the last few years, HSA accounts have become more common. However, many HSA account owners are unaware of the implications of the rules governing HSA accounts in the event of their death.

Death of an HSA Holder

If you die with an HSA account and you have named your spouse as the designated beneficiary of your HSA, then the HSA will continue to be treated as your spouse’s HSA after your death. Your spouse will then be able to use the money tax-free to pay for qualified medical expenses even if your spouse is not enrolled in a high-deductible health plan. Your spouse will also be able to use the account funds to pay for any qualified medical expenses that you incurred prior to your death if your spouse pays those expenses within a year of your date of death. However, if your spouse is younger than 65, takes a distribution of funds, and uses the funds for something other than medical expenses, then your spouse will be required to pay a 20% penalty tax on the amount withdrawn plus income taxes. (This is the same rule that applies to you while you are alive.)

If you named someone other than your spouse as the HSA account beneficiary, then the HSA account stops being an HSA, and the fair market value of the HSA becomes taxable to the beneficiary in the year in which you die. However, the taxable amount can be reduced by any qualified medical expenses that you incurred prior to your death if those expenses are paid by the beneficiary within a year of your date of death.

If no beneficiary is named or, in other words, if your estate is the beneficiary of the account, then the HSA and the account value shall be included on your final income tax return. The amount reported on your return cannot be reduced for the payment of any qualified medical expenses incurred by you and that your estate paid within a year of the date of your death. This is true even if your spouse is the sole beneficiary to your estate.

In conclusion, naming your spouse as the beneficiary of your HSA account carries numerous tax advantages. If you are not married, naming another person as the beneficiary of your HSA account is a good option, depending on the value of the account and the tax implications you might have if you named no beneficiary and had the value reported on your final income tax return.

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