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Avoiding Probate: The Revocable Living Trust

4/25/2016

Revocable living trusts have been a hotly debated estate planning tool. Some estate planners refuse to consider revocable living trusts for their clients’ estate plans, while others consider it essential to a complete estate plan. This brief article will look at both sides, and explain the advantages and disadvantages of revocable living trusts.

Why are revocable living trusts used?
A revocable trust allows you to avoid probate. This saves both the three to nine month wait for completion of the probate process and the following cash savings:

Probate fees of $200 per every $100,000 of property you own.
Attorney fees of approximately $1500 to $4000 for handling an uncontested probate.
Double the above costs in the event that you have property in more than one state. Approximately an additional $1500 to $5000

A revocable trust allows you to choose a person to manage your finances.

In the event that you are unable to manage your finances, a revocable trust sets up a method for you to pass control to a person you choose.

A revocable trust has no tax impact while you manage the trust.

The revocable trust is set up as what is called a grantor trust. This means that you do not have to concern yourself with any additional tax documentation. You can take your tax credits or deductions just as you always have. In this way, the trust is simple to manage.

After you die, your revocable trust can be used to shelter your children’s inheritance from their creditors and spouse.

Often revocable trusts are set up to distribute all of your property and terminate after you die. However, you may also set up the trust to continue to hold money for your children under a spendthrift provision, which protects your child’s inheritance against his or her creditors.

What is a Revocable Living Trust?
What is a Trust?--A trust is a written agreement that names one person, the trustee, to be responsible for managing property for the benefit of others (the beneficiaries.) In general, a revocable living trust allows you to manage your money as trustee, and receive income and principal (those assets that you placed in the trust) for life. The remainder then passes to your beneficiaries.

What is a “revocable” Trust?--A revocable trust allows the creator (the grantor) to change or end the trust at any time and for any reason.

What is a “living” Trust?--A living trust is a trust created and funded during your lifetime. You may also create a trust in your will, to be funded after your death. This is known as a testamentary trust.

What differs between “living” and “testamentary” trusts?--The main difference between a living trust and a testamentary trust is whether the assets go through probate. The primary purpose of a living trust is probate avoidance.

Probate:
What is probate?--Probate is a court-supervised process transferring ownership of a deceased individual’s (decedent’s) assets.

What are the advantages of probate?--Probate has two main advantages:

Probate ends creditors’ claims. If a creditor fails to make a claim against the property within the allotted three to four months after receiving notice, they waive the right to any claim against the property. (This result may also be achieved by providing notice with the trust, but you will not be forced to do so.)
Probate creates proof of the value of property at date of death. Inherited property has a tax basis equal to the value of the property the day the decedent died. Therefore, when inherited property is sold, taxes are only due on the sales price above the value that the property had on the date of death. Probate serves as a means to prove the value of the property as of the date of death for this tax purpose.

What are the disadvantages of probate?--Probate has two main disadvantages:

Cost— Probate costs include a filing fee of 0.2% of the value of the total probate property, attorney fees (which can run in the $4000 range,) and personal representative fees (if your personal representative chooses to ask for a fee.)
Time—Distributions may only be made from the probate estate after the three to four month waiting period for creditor claims has elapsed. The family may only receive money before this time by court order.

Revocable Trust Disadvantages:
Are there any disadvantages to a revocable trust?—A revocable trust has several disadvantages:

If you ever appoint someone other than yourself or your spouse as trustee of the trust, the trust will be required to file a yearly informational report to the IRS.
A revocable trust needs maintenance. If you receive assets at a future date, you will have to be sure to put the assets in the revocable trust, otherwise you will not avoid probate. This can be accomplished on your own, or with simple guidance from an attorney. It may include assuring that any deeds for property are properly assigned to the trust and not to yourselves.

Should I have a revocable trust?--To determine whether you should have a revocable trust, you should consider both the advantages and disadvantages as they apply to your own scenario. For assistance with determining whether a revocable living trust is right for you, contact Attorney Derrick Heller-Neal via phone at (262)902-0595 or by email [email protected] to schedule a consultation.

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As you Will: What is a Will?

4/16/2016

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Wills
The most commonly-known type of document used in estate planning, the will may seem straightforward, but it has a complex interaction with the various other tools used in estate planning. Read on to learn more about the will and how it works.

What is a will?: A will is a document that instructs the Probate court on the following:

Your personal representative, who will be responsible for managing and distributing your estate.
What and who will receive assets that pass through probate. (Including both individuals and charities)
Who will raise your children if they are still minors and your spouse is not available to raise them.
How individuals will receive their share of assets. (Either outright, or in trust)

What does a will not do?: A will does not do the following:

Deal with assets that do not pass through probate. It does not select how they should be managed or to whom they should go. Such assets commonly include: life insurance, bank accounts held in certain forms of title, real estate held in certain forms of title, retirement accounts, stock portfolios, bonds, and other forms of property with beneficiary designations.
Deal with your healthcare decision-making. (This is handled by either a healthcare power of attorney or what is known as a living will)
Help you to avoid probate. (This is mainly accomplished through use of a revocable trust)

What happens if I don’t have a will?: Lack of a will is covered by Wisconsin’s intestacy law, which has the following impact:

Your property will be distributed to your spouse or domestic partner, unless you have children from outside of the current marriage, in which case your spouse or domestic partner would get half of the property and all of your children would receive the other half. If your spouse predeceases you, your children will receive your property. If you do not have a spouse or descendants, your property would go to your parents, then siblings, then cousins, then grandparents and your grandparent’s descendants.
Any share of property given to a child will likely be held in a Uniform Transfers to Minors Account, to be used for that child’s benefit. It is not possible to keep a single account to be given to the children as their needs arise.
The court will choose your child’s guardian. This makes it more likely that such guardianship will be supervised by the court, including requiring that the guardian make annual accountings to the court.
The court will also choose a personal representative for you, and make them responsible for the management and distribution of your estate.

While a will may not be necessary for everyone, it is drastically important if you have children or if you want to have control over to whom and how your assets are distributed.
For the most up-to-date information about wills and estate planning, contact Elder Law Attorney Derrick Heller-Neal at (262) 902-0595 or email: [email protected] to set up a free consultation.

Derrick Heller-Neal is an Estate Planning and Elder Law lawyer located in Racine, Wisconsin.

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What’s ours is ours: Ensuring that your spouse can manage and sell your property if you are incapacitated.

4/15/2016

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Ask most married couples and they will tell you that they hold all of their property together. Surely, if one of them was injured, there would be no issue, because their spouse could just manage the property… right?

In Wisconsin there are situations where a spouse cannot manage or sell a piece of property for the other spouse without a power of attorney for finances or a guardianship over their spouse. These situations include:

Selling homestead property—Wisconsin Statute 706.02(f) requires that a conveyance of homestead property, no matter how it is titled, be signed by both spouses or on behalf of either spouse by a representative, such as their agent under a power of attorney or a guardian.
Selling other real estate titled in both spouses’ names--Wisconsin Statute 706.02 also requires that any real estate titled in the names of both spouses be signed by both spouses or by each spouse’s representative.
Selling a vehicle—If your vehicle is titled using the word “and” rather than “or,” both spouses must sign off on any sale of the vehicle.
Filing taxes—Both spouses, or each spouse’s representative, must sign their tax forms if they file them jointly.
Managing and taking distributions from your IRA/401k/retirement account—Without appropriate authorization, your spouse may not manage or request distributions from your retirement account.
Managing any accounts listed in your name only—If you have any accounts listed in your sole name, your spouse has no right to access the account, unless you have authorized them to do so through a power of attorney.
Unilaterally executing a Marital Property Agreement—If you ever need Medicaid to help pay for your long-term care, Wisconsin allows the state to recover expenses it paid to you for your care from your spouse’s estate. A Marital Property Agreement can help to avoid this treatment; however, a Marital Property Agreement requires the signatures of both spouses, unless the spouse is given explicit authority to do such planning under a power of attorney for finances.
Managing solely-owned business accounts—If your spouse owns their own business you may not manage their business assets unless you are given authority through a power of attorney form. This may be more complicated if your spouse owns a business with others. Please seek advice in this scenario.

A power of attorney for finances is the best, and easiest, way to assure that your spouse will have the ability to make all necessary financial decisions for your family. Lawyers can provide a stand-alone power of attorney for finances. Heller-Neal Law Offices considers a thorough power of attorney to be an essential part of a basic estate plan.

What is a power of attorney for finances?: A Power of Attorney for Finances and Property is a document in which you (the “principal”) name another individual (the "agent") to manage your finances and property. You determine the money and property you want the agent to have authority over, as well as the authority you want the agent to have.
The authority can be broad or specific, depending on your preference. A power of attorney for finances may be “durable,” meaning that your agent may manage your finances in the event of incapacity or incompetence.

Why have a power of attorney for finances?: A Durable Power of Attorney for finances allows your agent to manage your finances even if you become incapacitated or incompetent.

Without a Durable Power of Attorney, your family may need to seek a guardianship in order to manage your money; apply for work-related disability, Social Security disability, or other benefits; access or change your retirement plan; file insurance claims or appeal denials; sign your tax forms; sell your home and help you move somewhere else; or hire accountants, lawyers, or other professionals on your behalf. Appointing a guardian is time consuming and expensive. The family must hire a lawyer who will arrange for a court hearing. A physician must provide evidence that you cannot handle your own affairs. And, if you are physically able, you must go to the courthouse to hear the testimony that you are incompetent.

When does the agent’s authority begin?: You may choose whether your agent begins managing your property immediately or at some later date or event, such as when you become incapacitated.

What is “incapacity?”: Whether you are incapacitated is determined in the following manner:

A physician or psychologist’s finding that you have an impairment in the ability to receive and evaluate information or make or communicate decisions even with the use of technological assistance, such that you are unable to manage your property or finances.
A judge, attorney, or appropriate government official’s finding that you are missing, detained, or are outside of the United States and unable to return.
You may provide your own method by choosing a different individual who will decide whether you are incapacitated, and by creating your own definition of incapacity.

Does this prevent me from controlling my money?: The power of attorney document takes away none of your rights to control your property and finances. Your money is still your money. The document merely gives the agent permission to help manage your finances in a way that is consistent with your best interest.

When does the Power of Attorney end?: If at any time you are dissatisfied with your agent’s performance of their duties, you may revoke the power of attorney document. To revoke you must sign and date a document expressing your intent to revoke your power of attorney for finances. This document must then be given to your agent and your financial institutions to let them know that you have revoked your power of attorney.

There are many more decisions relating to the power of attorney for finances than are written here. If you have any questions about whether to create a power of attorney for finances, the agent’s duties, or your rights, please do not hesitate to call Attorney Heller-Neal at (262)902-0595, or via email: [email protected].

For more basic information about the power of attorney for finances in Wisconsin, please see the Wisconsin Bar’s Q and A.

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ESTATE PLANNING: PLANNING FOR THE CHILD WITH A DISABILITY - WisPACT TRUSTS

4/5/2016

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If you have a child who has a disability, you have to be very careful when doing estate planning. Giving to the child outright may cause issues with any governmental assistance the child may receive. To that end, it is important to consider how to pass assets to your child that will be available to use for any of your child's extra needs, but will not cause disqualification from public assistance. In my experience, the best way to do this is with either a WisPACT trust or a specially-created special needs trust.

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What is a WisPACT trust?: WisPACT is a private nonprofit organization that administers pooled and community Special Needs Trusts for people with disabilities. They are responsible for assuring that any money given to your child from the trust will not disqualify them from public assistance. The fees for managing this trust can be found here.

What is needed to set up a WisPACT trust?: A WisPACT trust requires an attorney be involved to help apply for the trust. The attorney may charge a fee for helping to set up the trust and another fee will be charged by WisPACT itself. (Fee Schedule)

Where does a WisPACT trust fit in an estate plan?: A WisPACT trust can either be created and funded while you are still alive, or the trust may be created and left unfunded until after you pass away. This flexibility makes creating a WisPACT trust an advantageous part of an estate plan, if you have a child who has a disability.

Who gets the money in the trust if my child doesn’t spend it all?: When you create a WisPACT trust for a disabled child, you will be able to choose who should receive the money in the event that your child passes away. This can be your other children, a relative, a charity, or someone else entirely.

When is it best to have a specially-drafted trust, rather than a WisPACT trust?: The only reason to have a trust specially-drafted is to avoid some of the management fees. However, it is important to understand that management of these trusts is complex and time-consuming. It requires keeping up to date on exactly what types of distributions are allowed and which ones aren’t. Failing to make the correct distributions can result in loss of benefits for the individual you set up the trust to protect. Therefore, I generally suggest against individuals managing their own specially-drafted special needs trusts.

For more information about setting up a special-needs trust for a disabled individual, contact Heller-Neal Law Offices for a free consultation by calling (262) 902-0595 or emailing [email protected]. Or for more information about WisPACT, check out http://www.wispact.org/

Derrick Heller-Neal is a solo lawyer located in Racine, Wisconsin.

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Avoiding Probate: The Revocable Living Trust

As you Will: What is a Will?

What’s ours is ours: Ensuring that your spouse can manage and sell your property if you are incapacitated.

ESTATE PLANNING: PLANNING FOR THE CHILD WITH A DISABILITY - WisPACT TRUSTS

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Avoiding Probate: The Revocable Living Trust

As you Will: What is a Will?

What’s ours is ours: Ensuring that your spouse can manage and sell your property if you are incapacitated.

ESTATE PLANNING: PLANNING FOR THE CHILD WITH A DISABILITY - WisPACT TRUSTS﻿

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Archives

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ESTATE PLANNING: PLANNING FOR THE CHILD WITH A DISABILITY - WisPACT TRUSTS