Don’t Get Burned by “Fire” Insurance’s 12-month Statute of Limitation

Don’t Get Burned by “Fire” Insurance’s 12-month Statute of Limitation

If you were trying to get yourself to sleep by perusing the Wisconsin Statutes on Insurance Contracts, you may run across Wis. Stat. § 631.83(1)(a) – statutory periods of limitation on fire insurance.  The section states: “An action on a fire insurance policy must be commenced within 12 months after the inception of the loss.  This rule also applies to riders or endorsements attached to a fire insurance policy covering loss or damage to property or to the use of or income from property from any cause, and to separate windstorm or hail insurance policies.”  This is a sneaky statute that can have huge implications for homeowners and should be known by all.

First, “fire insurance” means a whole lot more than just “fire.”  In fact, Wisconsin courts have said that “fire insurance” is merely a “generic term” that “covers indemnity insurance for losses to property caused by many other perils than fire.”  Villa Clement, Inc. v. Nat’l Union Fire Ins. Co., 120 Wis. 2d 140 (Ct. App. 1984).  “Fire insurance” is broad enough to include perils such as fire, lightning, hail, tornado and even theft.  Considering the many possible causes of property damage that have nothing to do with actual fire, it is crucial to know that this 12-month statute of limitation applies “to any suit to recover for loss from any peril covered by the policy.”  Id. at 145-46.

Second, fire insurance’s statutory limitation of 12 months is much shorter than many commonly known statutes of limitation in Wisconsin, such as three years for most negligence actions or six years for most contract disputes.  Also, the limitation is 12 months “after the inception of the loss,” not the discovery of the loss.  Wisconsin courts have ruled that “inception of the loss” unambiguously means the date on which the loss occurs.  It does not matter when the owner-insureds discover the damage.  In other words, it is the date of the storm that is important, not the date you discovered the hail damage.

As such, if you are unable to reach an agreement with your insurance company on your property damage, it is crucial to act fast, getting counsel or filing suit yourself, to avoid having your claim completely time-barred by this sneaky 12‑month cutoff.

 

What is a Supported Decision-Making Agreement?

What is a Supported Decision-Making Agreement?

A supported decision-making agreement is a method of decision-making available to individuals with disability through an arrangement with another trusted person. These agreements give individuals with functional impairments the ability to create a formal arrangement for support that service providers must recognize, while retaining rights and self-direction that might otherwise be lost through guardianship or even by using power of attorney. These agreements are based on three principles: (1) that everyone has the right to make choices, (2) that people can get help making choices without giving up that right, and (3) that people will often need help in understanding, making and communicating their choices.

With supported decision-making agreements, the individual retains their right to make decisions. The individual can make their own decisions and they can identify areas of their life where they would like to have someone support them in their decision making. The supporter would assist the functionally impaired individual in gathering information, comparing the different options, as well as helping the individual communicate their decision to a third party. All the tasks that the supporter can assist with are only used to assist the functionally impaired individual and it does not give the supporter any legal authority over the individual. Therefore, these agreements can be useful in maintaining the impaired individual’s rights and self-direction.

These agreements can be used in combination with other legal arrangements, such as power of attorney and/or guardianship. These documents are not mutually exclusive and in fact can be used to complement each other. A supported decision-making agreement can help cover areas that are not traditionally covered by a power of attorney, such as housing, filing taxes or even choosing a service provider. Additionally, these agreements can be a way to transition an individual to more support when needed, especially in cases where the individual’s impairment gets worse over time.

It is important to note that a supported decision-making agreement is distinctly different from a power of attorney. Firstly, the supporter does not have any authority to make the decision for the individual. The impaired individual still retains their right to make the decision, whether or not the supporter agrees with the decision is irrelevant. Secondly, the supporter does not have the legal authority to sign documents for the impaired individual or bind that individual to a legal agreement. Lastly, the supporter is limited in their role by the specific terms of the agreement as determined by the impaired individual. Therefore, the impaired individual can specifically designate in what areas and to what extent the supporter is allowed to assist with the decision-making process.

In respect to guardianship proceedings, the presence of a supported decision-making agreement is not evidence of incapacity or incompetency. In fact, now during a guardianship proceeding, the judge must consider the use of alternatives to guardianship. These alternatives include whether a supported decision-making agreement has been attempted. Additionally, the judge may consider whether less restrictive means, such as a supported decision-making agreement, could be used in the situation. Therefore, it is important to consider whether a supported decision-making agreement would be a feasible possibility for an impaired individual prior to considering a full guardianship proceeding.

If considering entering into a supported decision-making agreement, it may be a good idea to get your attorney involved. When entering into these types of agreements, it is important to consider what areas you would like support in your decision-making and what kind of support you would want. You need to consider if you would like the supporter to gather information, help you understand your options and/or help you communicate those decisions. Additionally, it will be important to consider the person you would like to designate as your supporter. Who will be able to assist you the most effectively in making decisions in certain areas of your life? Due to all of these considerations that go into the process of drafting a supported decision-making agreement, it is important that an attorney assist you in making sure the agreement represents your wishes and provides you with the needed support you require in making decisions.

 

Estate Planning for Second Marriages

Estate Planning for Second Marriages

Although second marriages are more common than ever, developing an estate plan for couples in second marriages can be complicated and challenging, especially when one or both spouses have children from prior relationships as well as an accumulation of wealth and assets that each spouse has brought to the marriage.  As an attorney who settles estates, I often find that spouses in second marriages have not done any planning to address how their assets should be allocated between their surviving spouse and their respective children.  This can lead to disagreement and litigation as the surviving spouse and children of the deceased each attempt to determine the deceased spouse’s intentions.

While there are a variety of reasons individuals and couples procrastinate in completing an estate plan, I have found that many times spouses in second marriages have simply made the incorrect assumption that if they keep the assets that they have each accumulated prior to the marriage in their separate names that they can easily and seamlessly leave assets to their respective children without involving their spouse. Unfortunately, this does not work under Wisconsin’s marital property laws.

Why does planning matter?

Under Wisconsin law, all property of spouses is presumed to be marital, regardless of whether spouses hold assets in their own names or keep their assets physically separate.  This means that spouses are only free to leave half of all marital property to their children, since their spouse is presumed to already own the other half.  This can have disastrous consequences to an intended distribution upon death, particularly when naming the spouse or children on a life insurance policy, retirement account, or other financial account as a direct beneficiary.  These designations do not take into account that both the children and the spouse are each entitled by law to a portion of the assets, regardless of the beneficiary designation.

Fortunately, spouses are free to opt out of marital property law by executing a marital property agreement.  While we often think of marital property agreements as a contract spouses enter into in case they divorce (also called prenuptial agreements), marital property agreements are widely used in estate planning to create a clear plan and obligations about the distribution of property upon death. A marital property agreement coupled with a Will or Trust that spells out the decedent’s intentions is important to make sure that both the surviving spouse and the children of the prior relationship receive those portions of the estate as intended by the decedent.

What if you are in a second marriage but do not have a marital property agreement?

If there is no marital property agreement and a spouse dies without a Will (called dying “intestate”), the assets automatically go to the living spouse. However, in second marriages where there are children from a prior relationship, the children from the prior relationship are entitled to one-half of the deceased spouse’s individual property and all of the deceased spouse’s interest in marital property.  Surviving spouses are often surprised to find that one-half of the property that they brought to the marriage is also a part of the deceased spouse’s estate, and that the children from the prior relationship may be entitled to half of the value.

This is where things can get complicated and why estate planning documents (like marital property agreements, wills and trusts) are so important in second marriages.  After death, disputes commonly arise about property division. This can lead to a lack of trust and damaged relationships among the survivors.  Furthermore, either the spouse or the children may be the only ones to have access to relevant financial information while others don’t. It is important to make sure you have Powers of Attorney for healthcare and finances in place so spouses can name who may make decisions on their behalf in order to avoid spouses and children battling for control through the courts.

While estate planning for couples in second marriages can be more complicated than for first marriages, advanced planning to make sure that your intentions are clear goes a long way to avoid litigation, financial and emotional fallout for all parties involved.

 

What Does “Sound Mind” Mean When Writing a Will?

What Does “Sound Mind” Mean When Writing a Will?

A last will and testament, along with other important estate planning documents, records a person’s decisions regarding the disposition of their property upon their death. Once you turn 18, you can write and amend your estate planning at any point during your life, so long as you have a “sound mind” at the time you execute the documents.

Like most states, Wisconsin’s laws on the mental capacity required to make and amend estate planning documents find their basis in the English common law. The exact language is found in Wisconsin Statute Section 853.01, which states that “Any person of sound mind 18 years of age or older may make and revoke a will.” While the age requirement is straightforward, the exact requirements of having a “sound mind” are less obvious.

To begin with, it should be noted that the capacity to make estate planning decisions, also known as “testamentary capacity,” is a distinct analysis from other types of capacity related questions. Someone may no longer be capable of living on their own due to mental decline but still may have the capacity to make or amend their estate planning. Even being under the legal guardianship of another does not itself prove the person lacked testamentary capacity.

Unfortunately, a clear and simple test is impossible because mental capacity exists on a multi-dimensional spectrum, while the legal analysis requires a “yes” or “no” answer. Borrowing from the common law tradition, Wisconsin cases have established a three-part test to determine on a case by case basis whether someone was of sound mind at the time of a document’s execution:

(1) The person executing the estate planning documents, also known as the “testator” must understand the nature and extent of his or her estate. This does not require an exact knowledge of investment allocation or dollar signs, but generally the testator should be able to roughly identify what assets they own and about how much they are worth.

(2) The testator must understand who the “natural objects of his or her bounty” are. Unlike some countries, in the United States adult children are not legally entitled to inherit anything from their parents, and subject to a number of limitations, spouses are not legally entitled to inherit from one another either. However, this test requires that at the time the testator made the estate planning decisions, they at least understood which individuals would be expected to receive their estate, usually this means the testator’s spouse or children.

(3) The testator must be able to form a rational conclusion on the selection of beneficiaries and the disposition of the estate. This requirement roughly translates to at least a basic understanding of the facts regarding their family situation and the effect of the estate planning documents. The testator is not required to have a detailed understanding of all of the exact workings of their estate planning documents so long as they basically understand the end-result.

In short, the requirements boil down to: you need to know roughly what you have, who would be expected to receive it and how the estate documents you are signing will affect where things go.

Because the bar for testamentary capacity is somewhat low, applying the three-part test sometimes leads to results where a court finds the testator had a sound mind but where the lay person would probably not think so. A good example of this is the rule for persons suffering from “insane delusions.” If a testator believes all manner of conspiracy theories and holds absurd opinions on matters, but understands their estate, the natural objects of their bounty, and the general effect of the plan they are signing, they likely have proper capacity and a sound mind for estate planning purposes. There is some room for challenge if the insane delusion “materially affected” the disposition because it can be argued the insane delusion impacted their ability to meet the prongs of the test, but even then, these challenges are difficult as courts are usually reluctant to weigh in on whether a belief is “insane” or not. The line between eccentricity and insanity is a difficult one to draw. A now infamous 1947 case is an often-cited cautionary tale of a court extending its analysis past strict legal questions as several male judges weighed in on whether a woman was “insane” for disliking men and giving her fortune to a women’s charity. Needless to say, the case has not aged well.

As an example of an insane delusion “materially affecting” the disposition, consider the following. If a parent disinherited you and also believes aliens have infiltrated our society, then the decision will likely stand if the three factors of the test are met. In contrast, if a parent disinherited you because they believe you are an alien who infiltrated our society, then you may have an argument to challenge the will because the insane delusion affected the ability of the parent to rationally select beneficiaries under the third factor of the test.

The three-factor test is analyzed at the time the document is executed, and it is possible that someone may lack capacity one day and have it the next. It is common for people suffering from certain types of cognitive decline to have good days and bad days. While this type of situation poses certain evidentiary hurdles if a challenge is brought, there is nothing inherently invalid about documents executed during a period where the signor temporarily has a sound mind. This is sometimes referred to as a “lucid period,” and in these situations it is usually wise to take extra care to record the evidence of capacity at the time of document execution. This is especially true if someone in the family is going to be upset with their treatment under the plan, as it increases the odds of a legal challenge.

Even if a testator has a “sound mind” as defined in the three-part test, a will, or portion of a will, may be challenged if an individual exercised “undue influence” over the testator to secure a benefit for themselves. Undue influence is beyond the scope of this article, but generally refers to a situation where someone has improperly applied their influence to get someone to change their estate planning to benefit themselves. One of the requirements for an undue influence claim is that the testator was “vulnerable” to undue influence, usually meaning some level of cognitive impairment, but not to the level of lacking a sound mind for estate planning purposes.

If a testator lacked a sound mind when they created or changed their estate planning directives, then those decisions, in theory, will not be valid or effective at their death. In practice, the technically invalid documents will be submitted to the court, and, if properly executed, will be presumed valid until an interested party to the estate proceedings formally challenges the documents within the required time frame. If no one raises the issue, the court overseeing the estate will have no way of knowing the validity of the presented documents is in question and will likely approve whatever distributions are called for in them. Claims not timely brought are forfeited, as courts have a legitimate interest in bringing all matters relating to an estate to rest within a reasonable amount of time following the death of the individual.

If you have questions or concerns about testamentary capacity or other estate planning topics, you should discuss them with an estate planning attorney.

 

So, You Want to Sell Your Life Estate?

So, You Want to Sell Your Life Estate?

Many people have established a life estate in their residence to protect it if they require Medicaid benefits to pay for their long-term care.  A person establishes a life estate in their residence by signing a deed which transfers ownership to their desired recipients, but also reserves them the legal right to use and benefit from the residence for their lifetime.  Under current Medicaid rules, a life estate is considered an unavailable asset and the underlying residence is not counted in determining the life estate holder’s eligibility for the program if more than five years have passed since its creation.  Life estates created prior to August 1, 2014 are also protected from the Estate Recovery program, which is designed to recover amounts paid for Medicaid benefits from recipients’ estates following their deaths.

A common question arises if the life estate holder no longer occupies the underlying residence: can the residence now be sold?  After all, there are many expenses associated with maintaining a residence, including property taxes, insurance, utilities and maintenance.  If the life estate holder left the residence to enter a long-term care facility, then the cost of such care often means there is little income available to pay for such expenses.

Once a life estate has been established, the underlying residence can only be sold if the life estate holder and all other owners agree to the sale.  However, prior to any sale, it is important to understand the ramifications for the life estate holder’s Medicaid eligibility.  While the life estate itself is considered an unavailable asset for Medicaid purposes, the proceeds from its sale are not.  Accordingly, if a life estate holder is receiving Medicaid benefits and sells his or her life estate, the resulting sale proceeds could cause him or her to have too many assets to continue to qualify for the program.  Alternatively, if the life estate holder does not receive his or her share of the sale proceeds, then under Medicaid rules he or she will be considered to have divested them and this may also disqualify him or her from the program for a period of time.

In light of these Medicaid eligibility issues, it is often beneficial to avoid selling the residence until after the death of the life estate holder.  The owners may consider renting the residence to help cover the costs of maintaining it during such time.  However, many people do not wish to become landlords and decide to sell the residence anyway while relying on other planning options to deal with the sale proceeds, such as using them to purchase assets that do not count for Medicaid eligibility or contributing the proceeds to a Wispact special needs trust.  If the underlying residence is sold and the life estate holder is concerned about his or her eligibility for the Medicaid program, it is important to correctly value the life estate for Medicaid purposes to ensure the life estate holder receives the correct share of the proceeds.

The Medicaid program uses a standard table to value life estates based on the life estate holder’s age at the time of sale.  The value of a life estate decreases as the life estate holder ages since statistically he or she has a shorter life expectancy during which to use the underlying residence.  Accordingly, the older the life estate holder, the less valuable his or her life estate.  For example, for Medicaid purposes, the life estate of a 70 year old is worth approximately 60% of the value of the underlying residence, while an 85 year old’s life estate is only worth approximately 35%.  In the event of a sale, the life estate holder should receive a percentage of the sale proceeds that corresponds to the value of his or her life estate.  If the life estate was established more than five years prior to such sale, then the remaining sale proceeds can be divided by the other owners without penalty.

Prior to selling a residence with an outstanding life estate, it is important to understand the Medicaid ramifications of such sale.  It is also important to discuss any potential income tax ramifications.  Taking the time to consult with a knowledgeable attorney and accountant prior to the sale can help you avoid many of these potential pitfalls.

 

The First Ruling on Issue Finds No Insurance Coverage for Business Interruption Due to COVID-19

The First Ruling on Issue Finds No Insurance Coverage for Business Interruption Due to COVID-19

This article is a follow-up to my article of May 4, 2020, which addressed litigation and claims involving business losses as a result of COVID-19. Hundreds of lawsuits have been filed throughout the country by business owners who have been forced to close their doors or restrict their operations due to mandated governmental orders and closures due to the spread of the COVID-19 virus.

On July 2, 2020, the first court to make a substantive ruling on these insurance coverage issues held in favor of the insurance company and denied coverage under the business owner’s insurance policy under the “business interruption” coverage provision. In Gavrilides Management Company, et al. v. Michigan Insurance Company, the owner of the Soup Spoon Café and The Bistro in Lansing, Michigan filed a $650,000.00 claim with its insurance company for damages it incurred as a result of the government mandated closure of the inside dining in its restaurants due to COVID-19.

The restaurant owner argued that the government order restricted the operations of the restaurant and this amounted to a “direct physical loss” under the terms of the policy because the order blocked public entry to the property. The restaurant owner also argued that the “virus exclusion” in the policy did not apply because the loss of access was caused by the government order, not the virus. The Michigan court rejected both arguments and held that there has to be something that physically alters the integrity of the property and there has to be some tangible, physical damage to the property in order for it to be a “direct physical loss” which could provide coverage. The court further held that the virus exclusion in the policy excluded coverage caused by the impact of COVID-19.

While this case is not binding precedent on Wisconsin courts, because it is the first court to address the substantive provisions of business interruption insurance coverage in light of the COVID-19 virus, this case will likely be cited by insurance companies in all of the other pending cases throughout the country. Only time will tell if other jurisdictions will follow the reasoning of the Michigan court, or if it will take an alternative approach. It should be noted that each insurance policy must be evaluated based upon its particular language that is in effect, as well as the particular facts of the business owner’s circumstances. Therefore, simply because one court ruled in favor of the insurance company does not mean that this will be the same result in every other claim brought by a business owner who suffered losses as a result of the mandated government closures during the COVID-19 pandemic.

 

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