How to Prepare for Your Estate Planning Meeting

How to Prepare for Your Estate Planning Meeting

The thought of preparing an estate plan can be overwhelming. This is especially true if you are completing the estate planning process for the first time. You may have a long list of questions or perhaps you may not know where to begin. An experienced estate planning attorney can help guide you through the process. There are several things you can do to help ensure your first meeting with that attorney is as productive as possible.

Compile a List of your Assets and Liabilities.
There is no one-size-fits-all solution in estate planning. Your individual family, assets and goals should guide your plan. When preparing for your initial meeting to discuss your estate plan, it is very helpful to bring a list of your current assets and liabilities. Some examples of assets are: funds in savings accounts, owned vehicles and retirement accounts. Some examples of liabilities are: taxes owed, credit card debt and mortgage debt. In addition to current values, it is also important to provide the attorney with information regarding how the assets are titled and whether you have any existing beneficiary designations. This information will help the attorney recommend the most appropriate plan for you and discuss estate tax and probate avoidance concerns.

Consider Who You Want to Play a Role in Your Estate Plan.
To have a comprehensive estate plan, you must nominate people and/or entities to act in certain capacities on your behalf. Below is a list of some of the different roles they may play in your estate plan as well as some considerations to think about before your initial appointment.

  1. Personal Representative. Your personal representative, also known as your executor, will handle the settlement of your estate upon your death. In most instances, the personal representative selects an attorney for the estate and works with that attorney throughout the process.
  2. Guardian. Perhaps the biggest decision for people with minor children is the selection of a guardian. This is the person who will be responsible for the care and custody of your minor children upon your death. The guardian of the estate oversees the child’s property, while the guardian of the child is responsible for the child’s day-to-day care.
  3. Trustee. Depending on the size and complexity of your estate, there are several trusts that may be appropriate for your circumstances. Some trusts are created in a separate document, while some are integrated right into your will. When there are minor children, we always recommend some form of trust for their protection. The trustee will be responsible for managing the assets of the trust, employing advisors to help with the trust, generally tracking the beneficiary’s needs and ensuring the trust is administered according to its terms.
  4. Durable General Power of Attorney. A Durable General Power of Attorney nominates an agent and alternate agent to act on your behalf regarding the management of your property and other financial issues. You may establish your Durable General Power of Attorney to be effective immediately or to become effective at a later time when you voluntarily activate it or when a physician certifies that you are incapacitated.
  5. Health Care Power of Attorney. A Health Care Power of Attorney allows you to name an agent and an alternate agent to make health care decisions on your behalf if appropriate medical personnel certify that you are incapacitated, including end of life decision-making.

Decide on Your Beneficiaries.
Perhaps it goes without saying but an essential part of any estate plan is designating who you wish to leave your assets to upon your death. Prior to your initial meeting, you should consider who you want to name as the primary and contingent beneficiaries in your estate plan. Also, you can leave a bequest (property given to someone through a will) to a beneficiary in a variety of ways. You may leave a beneficiary a specific asset or dollar amount.  Alternatively, you may name beneficiaries to receive a percentage of your overall estate. Finally, you should consider whether you want your beneficiaries to receive their bequests outright, or if you want to place certain restrictions on the bequests to help ensure the funds are managed appropriately for minor beneficiaries or those with special needs. This can often be accomplished by using a variety of different trusts that fit your situation.

When you have completed the above steps and you have your documents in order, please reach out to one of our experienced estate planning attorneys, they would be happy to assist you.

Protecting Retirement Accounts for Spouses Who Need Long Term Care

Protecting Retirement Accounts for Spouses Who Need Long Term Care

Given the rapidly increasing cost of long-term care in a nursing home or assisted living facility, many couples inquire about how to protect their assets from being consumed by such costs, particularly their retirement accounts which often account for the majority of their wealth. While the Medicaid program is designed to provide payment for long term care costs for those who cannot afford the monthly cost, it is only available to those who qualify financially. A major determining factor for Medicaid eligibility is the amount of resources (assets) that are available to pay for care. An applicant for Medicaid cannot qualify for assistance if they possess excess assets, including the value of their retirement accounts. The Medicaid program also looks at the assets of the spouse in determining whether the applicant qualifies for assistance.

For married couples, the spouse who needs long term care (the “institutionalized spouse”) can only have $2,000. The spouse who does not need long-term care (the “community spouse”) can have the residence, vehicle, personal property and their own retirement accounts. They can also have a community spouse resource allowance that is based on the total countable assets that the couple has at the time of applying for Medicaid (between a minimum of $50,000 and a maximum of $130,380). Although the community spouse’s retirement accounts are not counted, all retirement accounts of the institutionalized spouse are counted in determining the asset limit. This can be very problematic when the institutionalized spouse has larger retirement accounts than the community spouse. Normally, the institutionalized spouse cannot just transfer their retirement accounts to their spouse without triggering income tax on the entire amount transferred.

The exception is a transfer of a “qualified” retirement asset that is divided by a Qualified Domestic Relations Order (QDRO). Qualified plans include: 401(k) plans, profit sharing plans, pensions, 403(B) plans and some forms of Simplified Employee Pension (SEP) IRAs. QDRO’s are typically thought of as a mechanism to divide assets when a couple divorces; however, if the retirement account is held in a “qualified plan” it can be divided by a QDRO without having to go through a divorce. Although a court order is required, it can be obtained in an action in family court for property division of a married couple, or through a guardianship action for transfer of the ward’s assets to a spouse, and no divorce action is required. Whether to bring the action in family action or a guardianship action will vary depending upon the circumstances, but either will accomplish obtaining the necessary court order.  Importantly, if the retirement account is an IRA, then a legal separation action must be filed in family court. Federal law provides that non-qualified retirement assets that are transferred from one spouse to another are not taxed if “transferred under a divorce or legal separation instrument.”

The benefits of the transfer of retirement accounts are numerous. Once a retirement account is transferred, the community spouse will become the owner of the qualified plan, without triggering any tax. The account will be considered an exempt retirement asset of the community spouse and will not interfere with the institutionalized spouse’s eligibility for Medicaid. Furthermore, any income received from the retirement account will not be considered available to pay the institutionalized spouse’s care costs and will not be available for estate recovery.

Although the transfer of a retirement account can be accomplished at the time one spouse needs care, it is important to think about advanced planning so that if retirement accounts need to be transferred pursuant to legal action, you have given each other the authority to do so under your durable general powers of attorney or other documents in case the institutionalized spouse is unable to sign the documents necessary to participate in the planning. Consult with a qualified elder law attorney who can be sure that you have the necessary documents in place for this important advanced planning.

 

Wisconsin Expands Ability to Activate Powers of Attorney for Health Care

Wisconsin Expands Ability to Activate Powers of Attorney for Health Care

Wisconsin is facing a shortage of primary care doctors, particularly in rural areas. According to a report by the Wisconsin Council on Medical Education and Workforce, there is expected to be a shortfall of 745 primary care doctors by 2035, in large part due to upcoming retirements. While the medical field may seem separate and distinct from the legal field, this looming shortage is already impacting certain laws.

The Wisconsin legislature enacted 2019 Wisconsin Act 90 on February 5, 2020. The Act expands the provider types that can determine whether a person is incapacitated for purposes of activating a power of attorney for health care, declare that a patient has a terminal illness or is in a persistent vegetative state for purposes of invoking a living will.

Under prior law, an incapacity determination could only be made by two physicians, or by one physician and one licensed psychologist. Under the new law, an incapacity determination may be made by two physicians, or by one physician and one of the following individuals: i) a licensed psychologist; ii) a registered nurse who is currently certified as a nurse practitioner by a national certifying body approved by the Board of Nursing; or iii) a licensed physician assistant (PA) who a physician responsible for overseeing the PA’s practice affirms is competent to conduct evaluations of the capacity of patients to manage health care decisions. The new law does not affect the other applicable criteria for determining that a person is incapacitated, including that the providers must still personally examine the patient and cannot be a relative or have a claim to a portion of the person’s estate.

According to State Representative Patrick Snyder, who helped introduce the legislation, several communities in Wisconsin depend solely on advanced practice clinicians, like PAs and registered nurses, for their care because the closest physicians are many miles away and, for these communities, and others that rely heavily on advanced practice clinicians, the Act will allow for a continuity of care that was prohibited under prior law.

If you previously signed a power of attorney for health care or living will under the prior law, you may consider having your document reviewed and potentially updated if you wish to take advantage of this recent law change.

 

The Purpose of a Tax ID Number for an Estate

The Purpose of a Tax ID Number for an Estate

For those who are unfamiliar with estate and probate administration, the need for a separate tax identification number can be confusing. Most people are familiar with the idea that when you file your individual tax returns each year, you need to include your social security number (SSN). Your SSN functions as your “Tax Identification Number” for the Internal Revenue Service (IRS). When an individual passes away however, their SSN can no longer be used to report income earned after their date of death.  Therefore, one of the first tasks of a Personal Representative (or Executor) should be obtaining the federal tax identification number for the estate.

There are many scenarios where the estate continues to earn income after the decedent’s death. It often takes many months to complete the administration of the estate. During that time, the Personal Representative will need to open a bank account to collect the estate’s assets and pay ongoing administration expenses. The Personal Representative will need the tax identification number for the estate in order to open the bank account. The Personal Representative will also need to request that any investment accounts registered under the decedent’s social security number be re-registered in the name of the estate and the estate’s tax identification number. The estate will be earning income, such as interest accruing on the estate’s bank accounts, dividends paid on stocks or other investments, or rental income from tenants, until the assets are fully liquidated or transferred to the beneficiaries.

Under current federal law, if an estate generates more than $600.00 in income, the Personal Representative must file a separate tax return known as a Form 1041. This is a separate return from the decedent’s final individual tax returns, which also must be filed (under the decedent’s individual SSN) to report the income earned in the calendar year prior to the decedent’s date of death. The estate’s income tax return will report only the income earned after date of death.

Applying for a federal tax identification number, also known as an Employer Identification Number (EIN), is a free service offered by the IRS. If you are working with an attorney to settle the estate, you can provide the attorney with an authorization to obtain the number on your behalf. If you obtain the number without the assistance of an attorney, beware of websites on the Internet that charge for this free service. If you are uncertain about obtaining the tax identification number, use caution and seek the advice of a probate attorney.

 

Transfer on Death Deeds

Transfer on Death Deeds

As you begin to think about the best structure for your estate plan, you are likely guided by one thought, which is how do I avoid probate? The consensus about probate is that it can be costly and time consuming. For that reason, many people structure their estate plan with the hope that probate can be avoided. One way to do this is to create a trust and place your assets, that would typically need to go through probate, into the trust. However, sometimes the cost of implementing a trust can be impractical for the size of your estate. Therefore, another solution for some estates is to utilize a transfer on death deed to avoid probate.

A transfer on death deed is a document that is recorded with the register of deeds in the county where the property is located and designates a beneficiary to take title to the property upon the death of the sole owner or the last to die of multiple owners. This document can be cancelled or changed at any time by the owners of the property simply by executing and recording another deed that designates a different beneficiary or no beneficiary. Moreover, the owner of the property does not need any consent or permission by the beneficiary in order to make these types of changes.

The clear advantage to using a transfer on death deed is that it will bypass probate and as a matter of law the property will pass to the designated beneficiary. Furthermore, there is the added benefit that the owner of the property maintains full and complete control in their interest in the property during their lifetime. This document does not grant any type of current interest in the property to the beneficiary. It is only upon the death of the owner(s) that the beneficiary obtains the interest in the property. Therefore, it allows for the owner of the property to continue to use their property as they see fit, with the benefit that upon their death the property shall avoid probate and pass directly to the beneficiary.

Despite the advantages to the transfer on death deed, there are still some disadvantages to executing this type of document. For example, the transfer on death deed must be publicly recorded in order to be effective. Therefore, the identity of the beneficiaries will be available in the public record during the property owner’s lifetime. This can be problematic if the beneficiary is not a family member or if there is tension among the beneficiaries of the owner’s estate. Depending on the individual and their circumstances, it may be preferable to keep this type of information private and thus utilize a different strategy to avoid probate.

In light of the possible advantages and disadvantages, it will be important to seek the advice of an estate planning attorney before executing a transfer on death deed. An estate planning attorney will be able to analyze your situation and advise you on the best course of action to take in structuring your estate plan to avoid probate, which may include executing a transfer on death deed.

 

What Happens if a Minor Inherits Money in Wisconsin?

What Happens if a Minor Inherits Money in Wisconsin?

When an individual dies, their assets are distributed to their beneficiaries through a variety of procedures depending on their estate planning choices. The most common beneficiaries of an estate are either a surviving spouse or the adult children of older parents. However, occasionally a minor becomes the beneficiary of some or all of the assets from a deceased individual. This typically happens if a grandparent dies and leaves assets to a minor grandchild or if the parents of young children both die before their children become adults. Because a minor lacks the legal authority to manage their own assets, they cannot take direct control of the inheritance. Instead, an adult or other third-party needs to take control of the assets until they are old enough to take over. There are three main ways a minor can inherit property: (1) directly, (2) by trust, or (3) under either a Uniform Transfers to Minors Act (UTMA) account or a Uniform Gift to Minors Act (UGMA) account. Each option creates different outcomes for how the assets are managed and when the beneficiary ultimately takes control.

Before exploring what happens to assets left to a minor, it makes sense to first define “minor.” Legally, a minor is an individual who, by reason of their age, is considered legally incapacitated and thus prevented from making certain decisions that someone with full legal capacity would be entitled to make for themselves. While sometimes restrictive, the laws are intended to be for the minor’s own good – to protect them from their own bad decisions or from third parties seeking to take advantage of their inexperience. For the same reason we would not allow a child to accrue credit card debt in their name or get a tattoo, we do not allow children to take full control over large sums of inherited money. Depending on the state, the “age of majority,” or the age where an individual ceases to be considered a minor, is between 18 and 21. Some states grant certain rights at 18 while reserving others until later ages. In Wisconsin, the age of majority is 18 for almost all purposes, but age 21 for purposes of UTMA and UGMA accounts.

Anyone 18 years of age or older who is a direct recipient of inherited property will receive it outright and have full control to spend, save, or invest it as they wish. Examples of direct bequests are being named in a will or beneficiary designation, or by the default inheritance rules created by Wisconsin law if the deceased died without a will. If the beneficiary is instead under 18 years old, they will not be entitled to take control over that property until they reach the age of majority. Instead, a guardian is appointed by a court to control that property on their behalf. This person is often the same as the guardian named to look after the minor, but the legal roles are distinct. The “guardian of the estate/property” looks after the money the minor is entitled to, and the “guardian of the person” is empowered to make the decisions relating more directly to the minor’s life, such as educational and healthcare choices. If the deceased had a will and the recipient is their minor child, they hopefully named the individual(s) they wanted to serve in these roles. If not, the court will appoint someone in its discretion. If the minor beneficiary is living with their parents, the parents will almost always be named as guardian unless the court has a good reason not to. If the parents are divorced, typically the parent with primary custody will be given the guardianship. The guardian of the estate has control of the money and can access it to use for the minor’s care until they turn 18. Once the beneficiary ceases to be a minor, they gain full control over the remaining funds – if any are left.

Certain reporting requirements and oversight procedures are in place, but this role is still rife with the opportunity for abuse. While some cases of guardians misusing the minor’s funds are clear, things are often more nuanced – especially if the guardian of the estate and the person are the same. It is important that the guardian appointed be an honest and competent individual who will carefully guard the minor’s assets against neglect, poor investment choices or abuse (from themselves or third-parties). For their own protection, guardians should carefully document their management of the money as lawsuits for mismanagement or misuse are not uncommon when a beneficiary turns 18 and discovers their inheritance has already been spent. In some cases, it may be beneficial to arrange for the guardian of the estate and of the person to be separate people. While this can complicate things and can lead to conflict between the two guardians, the extra level of oversight and separation often results in a more conservative use of the funds, making them more likely to be retained for the minor once they turn 18.

Many consider 18 too young to be given free reign over large amounts of assets. Even middle-class people can pass on substantial sums after life insurance policies are paid out and their material assets, like their home, are sold. Receiving several hundred thousand dollars, let alone millions, can provide benefits that last a lifetime if managed properly. Unfortunately, most inheritances are completely spent within a few years with minimal lasting benefit. Developmental and behavioral scientists largely agree that decision making abilities are not fully matured until at least age 25, a full seven years later than when a minor recipient of a direct bequest will receive and be able to spend an inheritance.

The solution to this problem lies in not making a “direct” bequest. Instead, a trust, created for the benefit of the individual, is named as the beneficiary. Trusts are extremely flexible tools that can be used to meet a variety of estate planning objectives, but among the most common use for them is to delay the time when a beneficiary will receive control over inherited assets. In short, a trust is a legal arrangement, made either during life or as part of a will, which creates a separate legal entity, the trust, to hold assets. The person in charge of managing the trust is the “trustee,” and the trustee manages the assets on behalf of the “beneficiary.”

Because trusts are so flexible, trying to answer: “What happens if a minor inherits money under trust?” can only really be answered with “Whatever the trust says happens.” However, in a typical trust for a young beneficiary, the trust will hold onto the money until a set age reached by the beneficiary, often 25 or 30 or pay out fractions of the trust funds every few years until all funds are paid out. At that age, the beneficiary is given the funds and the trust, now empty, terminates. However, many trusts also contain provisions that if the beneficiary is suffering from drug, alcohol or gambling addictions or if the money is likely to go to a creditor if distributed, the trustee can hold onto the funds until it is safe to distribute them.

During the term of the trust, the trustee is usually instructed to make the money available to take care of the beneficiary’s “health, education, maintenance and support.” Much like a guardianship or custodial account for a minor, these funds will be available to pay for medical bills, room and board, tuition etc. If drafted properly, keeping the money in trust can help keep the inheritance safe from the beneficiary’s own recklessness, as well as from creditors or divorcing spouses, until they are hopefully old and wise enough to avoid these mistakes and manage the money on their own. When large sums of money are at play, some people view the creditor protections offered by trusts as so beneficial that the payout age is either much later in life or write their trusts to exist for the entire length of the beneficiary’s life, with a variety of options for how the remainder is paid out after their death.

The final type of inheritance a minor may receive are funds under UTMA or UGMA designations. The two types of accounts have some differences, mainly relating to investment options and tax implications, but for the broad overview offered here, they can be used interchangeably. Under these Acts, someone writing a will can specify the minor as the beneficiary of the assets to be managed under UTMA and name a custodian to manage the inheritance up until a listed age or age 21 in Wisconsin, whichever is sooner. For example, a will might state “To my nephew John Doe, I leave a specific bequest of $10,000 to his mother, Jane Doe, as custodian for John Doe, under Wisconsin Uniform Transfers to Minors Act to age 21.” While not offering all of the flexibility and options for longer retention periods available using trust funds, using these types of accounts are a simple and cheap way to address the control of funds intended for minor beneficiaries. If assets are left to a minor and the deceased did not name a custodian in the estate plan, in Wisconsin, the person handling the estate (either the executor of the will or the trustee of the trust) can create a UTMA account but it must end at age 18 and if the assets exceed $10,000, then the supervising court must approve it.

When choosing which of these methods are appropriate for your estate planning, there are a number of factors to consider, including: the likelihood of assets passing to a minor, the amount of money involved, and the character and maturity of the potential beneficiary, as well as their parents or guardians who may take control over the money. An estate planning attorney can help you determine the best option for your situation and to correctly implement those choices as part of your estate plan.

 

Pin It on Pinterest