I Signed My Will, Now What?

I Signed My Will, Now What?

Completing your estate plan for the first time is a significant milestone.  It means that you have taken an important step forward in planning for your family’s future.  Our clients often breathe a sigh of relief after signing their estate planning documents, knowing the plans they have often long discussed are now finally in place.  However, just because you have signed your documents does not necessarily mean your estate plan is complete.  There are often a variety of tasks we recommend you complete after signing your estate planning documents to ensure your plans are fully realized.

1. Update Your Beneficiary Designations. After signing your estate planning documents, we recommend you review the primary and contingent beneficiary designations you have listed for your (i) life and accidental death insurance policies, (ii) retirement plan, pension plan, 401(k) plan, IRA and profit sharing plans, and (iii) any other contract, annuity, deferred compensation arrangement, policy or plan where a benefit is payable to a named beneficiary upon death. Most of these contract payments pass outside of the provisions of your will or trust directly to the named beneficiary identified in the beneficiary designation form.  This means that simply updating your will or trust does not necessarily change the beneficiary of such contact payments.  It is often necessary to update these beneficiary designations to ensure such payments will be made to your intended beneficiary and coordinated with your overall estate plan.  Your attorney should discuss with you his or her recommendations for updating your beneficiary designations after you complete your estate plan and can often help you to do so if you have any questions.

2. Prepare a List of Tangible Personal Property Bequests. Under Wisconsin law, you can incorporate certain language into your will that allows you the ability to leave a written statement or list disposing of items of tangible personal property at the time of your death. This list is separate from your will, and you can prepare it on your own if you wish.  This provides you with increased flexibility to update such bequests.  The list may only dispose of tangible personal property, such as jewelry, household furnishings, etc., and may not dispose of monetary assets.  To be enforceable, the list must describe the items and their recipients with reasonable certainty, and it needs to be signed and dated by you.  However, if you anticipate any disagreement among the beneficiaries, you can certainly have the list witnessed or notarized.  You may change or revoke the list at any time.  If you choose to prepare a list and decide to subsequently change it, we recommend that you destroy the old list and prepare an entirely new list.  You should always avoid erasing or crossing out prior entries on your list because this can lead to confusion regarding your intentions and possibly compromise the enforceability of the list.

3. Prepare and Maintain a Current List of Assets and Liabilities. We recommend that you regularly maintain a list of all of your substantial assets (home, checking and savings accounts, investments, retirement plans, or otherwise) and liabilities. We also suggest that you maintain a list of your insurance policies, policy numbers, and the name of the agent for each policy.  By regularly maintaining such lists, the person handling your estate will have accurate information regarding your assets and liabilities, and this can significantly increase the ease and efficiency with which he or she can settle your estate.  These lists should be updated at least annually and be kept in a safe and secure location where the person handling your estate knows how to access them.

4. Review and Update Your Estate Plan as Needed. The estate plan which is appropriate for you now may not be suitable years from now. We recommend that you contact your attorney and review your estate plan when any one or more of the following occur (i) when you move from Wisconsin to another state, (ii) when there is a change in your family circumstances (divorce, marriage, death of a child, marriage of a child, new grandchildren, incapacity of spouse or children, etc.), (iii) if there is a significant change in the law which may have an impact on your estate, and (iv) finally, even if you do not have a change in family circumstances or finances, it is advisable to regularly review your estate planning documents to make sure that they are a current statement of your preferences regarding the disposition of your property upon death.

The above recommendations are general tasks that should be completed in most all estate plans.  However, there may also be specific tasks that need to be completed that are unique to your individual estate.  Be sure to discuss with your attorney what tasks need to be completed after your estate planning documents have been signed to ensure your estate plan will fully accomplish your goals.

 

Special Needs Estate Planning

Special Needs Estate Planning

Special needs planning involves parents or caregivers who are interested in ensuring quality of life, advocacy and services to a child or individual with special needs. The planning itself is two-fold: First, parents and caregivers will want to be sure that they can use their own assets to provide resources and services and to ensure that such resources are appropriately handled after death. Second, for individuals with special needs, inheritances, like other resources, can have an adverse impact on needs-based or financially-based public benefits. Therefore, special needs planning also incorporates planning for those types of benefits as well.

A properly drafted special needs plan has two primary goals: (1) preservation of resources and (2) ensuring quality of life. The foundation of such planning includes a Will or Revocable Trust, a Special Needs Trust, and in some cases, Guardianship.

If you do not have a Will, Wisconsin Statutes will determine the beneficiaries who receive your property (the Laws of Intestacy). If you have a child with special needs who is receiving public benefits, you may not want that child to receive your property directly. Instead, you can set up a Special Needs Trust in your Will for your child with special needs ensuring that public benefits will remain intact after your death. If you have been court appointed as legal guardian for your adult child, you can also nominate a successor guardian in your Will.

As an alternative to your Will, you can execute a Revocable Trust, which is a trust that provides for distribution of your assets upon death. Unlike a Will, if the Revocable Trust is properly funded, it will allow you to avoid probate procedures. You can also provide for the distribution of assets to a Special Needs Trust within your Revocable Trust.

A Special Needs Trust is a trust arrangement whereby income and assets are preserved and used for the beneficiary without interfering with or jeopardizing the beneficiary’s eligibility for Medicaid, SSI, and other needs-based government benefits. Assets are held and managed by a Trustee, who distributes the assets in accordance with the instructions in the Trust document.

A Special Needs Trust created under a Will or Revocable Trust is called a third-party trust. A third-party trust is one created and funded with assets owned by someone other than the beneficiary. A third-party trust can also be created and funded prior to death and is called a living trust, or inter vivos trust. Under 42 USC 1396p (d)(4)(A), third-party trusts are not subject to a Medicaid lien.

All Special Needs Trusts provide that funds held in the trust are not to be placed under the control of the beneficiary, and most provide specifically that disbursements from the trust are not to be made to the beneficiary but are to be in the form of payments to vendors. The Special Needs Trust must also be irrevocable. The trust also provides what is to be done with any funds remaining after the death of the beneficiary. Unlike Special Needs Trusts established with a disabled individual’s assets (self-settled trusts), a third-party trust contains no requirement to pay back benefits paid to the beneficiary during his or her lifetime. It is important not to commingle the assets of a third-party trust with a self-settled trust because of this distinction.

Special Needs Trusts involve complex estate planning concepts. It is important that you work with someone who is familiar with different types of Special Needs Trusts, the various options for establishing such trusts, and public benefits planning to ensure that your assets are properly managed and that your loved one maintains necessary benefits following your death.

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.

Beneficiary Designations

Clients often ask questions about the use of beneficiary designations in their estate planning. Beneficiary designations can be a convenient way to avoid probate in some situations. If an individual is named as a direct beneficiary on an asset, that asset passes automatically to that individual, regardless of the terms of the decedent’s Will, Trust, or other estate planning documents.

Your attorney will often recommend that you coordinate your Payable-on-Death (POD) beneficiary designations or Transfer-on-Death (TOD) beneficiary designations to follow the distribution patterns in your overall estate plan for the purpose of avoiding probate. Despite the convenience, however, there are several good reasons to consider alternatives to direct beneficiary designations.

1. When you name direct beneficiaries using TOD and POD beneficiary designations to transfer all of your assets directly to those named beneficiaries, there is no one in charge of settling your estate. Furthermore, naming direct beneficiaries means there is no funding mechanism so that the person in charge can pay for funeral and burial, medical bills, debts, and administration expenses.

2. If you have relied on TOD and POD beneficiary designations to transfer all of your assets on death, there is no legal method for handling the disposition of tangible personal property, such as household furniture and furnishings, personal effects of sentimental value, motor vehicles, RVs, and watercraft.

3. While using TOD and POD beneficiary designations avoids the need to have an executor or personal representative appointed, this means that there is no one with the legal authority to file final income tax returns for the decedent. A trustee of a revocable trust has this authority, and so does the executor or personal representative named in a Will. The personal representative named in a Will has no legal authority unless there is a probate proceeding which admits the Will to probate.

In addition to the potential complications above, there are unique complications with respect to Transfer on Death (TOD) deeds for the purpose of transferring real estate without probate.

1. A TOD deed designating multiple children will effectively transfer title of the real estate directly to those children without probate proceedings. While the ease of transfer is convenient, none of the children have a greater say in the maintenance and disposition of the real estate. This can leave children in an untenable situation if they disagree about the disposition of the property, such as whether to sell the property or whether to make improvements to the property to prepare it for sale; not to mention the expenses in maintaining the property in the interim. The TOD transfer of title would even make it legal for one of the children to move into the residence and live there, while refusing to sell the residence.

2. A TOD beneficiary designation often does not cover contingencies. What happens if the named beneficiary predeceases the owner? We might expect that a parent will change their TOD beneficiary designations if a child predeceases them; however, what if the parent is mentally incapacitated, or simply does not take care of it? There is no simple procedure for determining who the successor beneficiaries are for purposes of providing clear title to the real estate. In the event a predeceased beneficiary’s minor children become the successor beneficiaries, real estate cannot be transferred to them without cumbersome court proceedings, such as a guardianship. Going forward, the court would be involved in all transactions involving the real estate, including sale. Furthermore, there is no ability to hold assets for the minor beneficiaries once they become the age of 18.

3. If a TOD beneficiary is in a nursing home and receiving Medical Assistance (Medicaid) benefits, the automatic transfer of real estate to them will affect their Medicaid eligibility and, in all likelihood, cause a loss of benefits. Their proceeds from the sale of the property will likely have to be used to pay nursing home expenses.

Consideration of whether or not to use direct beneficiary designations is crucial to your estate plan. While it may work well in some situations, it is important to consider both the advantages and disadvantages and work closely with your estate planning attorney to avoid common pitfalls. When in doubt, seek proper legal advice before completing direct beneficiary forms to make sure your designations are consistent with your overall estate planning goals.

Taking Control of Your Estate Plan

Have you ever considered making a will or a revocable trust? Did you ultimately find a reason not to do so? If so, according to a recent survey by Caring.com, you are not alone. The survey indicates that only 42 percent of U.S. adults have estate planning documents such as a will or revocable trust. When the survey results are divided into age groups, it is apparent that people often delay getting these important documents until later stages in life.

The survey also notes that people have a variety of reasons for not preparing an estate plan. Forty-seven percent of respondents without an estate plan stated that they “just haven’t gotten around to it.” On the other hand, 29 percent of respondents indicated that they “don’t have enough assets to leave anyone.” While these reasons are not surprising, they do overlook the crucial importance of having these documents in place at any stage of life. Thinking about your own mortality is not fun at any age, but there are many reasons why everyone over age 18 should have an estate plan in place.

Be in Control of Who Receives Your Assets

First, preparing a will or revocable trust allows you to control the distribution of your assets upon your death, even if such assets are modest. You are able to name the beneficiaries who inherit your assets. If a person dies without a will or other estate planning, most states, including Wisconsin, have a default statute which controls who then inherits his or her assets. The people named to inherit as heirs under the statute may not be the same people who the decedent would have otherwise chosen if he or she prepared a will or revocable trust.

Be in Control of How your Estate is Handled

Second, if an estate needs to go through probate to be settled, having a will can often make the process simpler and less expensive for your loved ones. Probate is the court process used to settle a person’s estate if they have over $50,000 in solely-titled assets at the time of their death. If a person has a will, their estate is often eligible to be administered informally, which avoids the need for court hearings. Also, you are able to name in a will who you want to be in control of handling your estate. This person is called your “personal representative.” A will allows you to name a person you trust to serve in this role who has the necessary skill and time to do the job well. Finally, when meeting with an attorney to prepare your estate plan, you can also discuss various planning options to avoid probate all together, such as using a revocable trust.

Be in Control of Who Takes Care of Your Children

Third, if you have minor children, having a will is critical. It allows you to name a guardian to take care of your children in the event of your death. You can also incorporate trust planning into your estate plan so that the assets your children inherit are preserved for their benefit until they reach an age at which you feel comfortable having them manage such assets on their own.

Be in Control of Who Takes Care of You

Finally, when people think of putting together an estate plan, they often first think of preparing a will or revocable trust and planning for the event of their death. However, planning for the event of your incapacity through the use of a durable general power of attorney and health care power of attorney is equally important. These documents allow you to control who makes decisions for you if you become incapacitated and can no longer make such decisions on your own.

Despite the perception that only the elderly or the rich need estate plans, having an estate plan in place is crucial at any age to ensure you control important decisions regarding your life and your assets. Such proactive planning also allows you to make the process of settling your estate as simple as possible for your loved ones and ensures that your wishes will be carried out. These important decisions should not be left up to chance.

Life Estates – No Estate Recovery If Created Before August 1, 2014

If you are considering transferring your property to your children and retaining a life estate, you may want to act now to avoid the adverse effects of Wisconsin Act 20, which changed the law to allow estate recovery from certain non-probate assets, including life estates. (See Changes To Life Estates and Jointly-Held Property detailing the change in the law.) The Wisconsin Department of Health Services (DHS) has announced that it will not pursue recovery from life estates created before August 1, 2014. It will only pursue recovery from life estates created on or after that date. It is important to note that the actual law itself remains unchanged, and the DHS could change its position on recovery from life estates in the future. At this time, however, if you created a life estate in property prior to August 1, 2014 and subsequently receive Medicaid benefits, the DHS will not pursue estate recovery against the property and remainder owners for the value of your life estate interest.

A life estate is created when a property holder (life tenant) transfers ownership of the property to someone else (remainder owner) but retains the right to reside in and benefit from the real estate. Prior to the implementation of Wisconsin Act 20, the DHS could not pursue a claim against the remainder owner in the property after the death of the life tenant for Medicaid benefits paid on behalf of the life tenant while they were alive. However, Wisconsin Act 20 now provides that any property of a decedent (including life estates) that is transferred by a person who has possession of the property at the time of the decedent’s death is subject to the right of the Department of Health Services to recover the value of the decedent’s interest in the property. The interest that is subject to recovery is determined using Medicaid life expectancy tables and represents the fair market value of the decedent’s fractional interest in the property immediately prior to death.

The imposition of estate recovery against life estates is a wide expansion of the estate recovery rules. Of particular concern was the fact that the new law, as it is written, appears to apply to all life estates currently in existence, not just to those created after the effective date of the new law. In other words, life estates created prior to the enactment of the law were not exempt from its provisions.

The announcement from the DHS that it will only pursue recovery from life estates created on or after August 1, 2014 means that those who have previously created life estates remain unaffected by the new estate recovery law. It also presents an opportunity for individuals who are thinking of creating a life estate to do so before the new law will affect the property, as long as the creation takes place before August 1, 2014.

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