Common Estate Planning Documents

By Attorney Kevin Connelly © 2018

Reasons to avoid probate court

 

Using a will as your primary governing instrument will require a probate court proceeding to settle your estate-unless your estate is under $50,000 in Wisconsin (2019). The probate process typically lasts a year or longer and incurs substantial attorney fees and costs. And most documents filed at the probate court--your will, inventory of assets, and final account--become public records. Many alternatives are available for transferring property at death that bypass the probate court which you might want to consider.

Avoid probate using a revocable living trust

 

A revocable living trust is sometimes called a "will substitute" because its primary purpose is to enable a decedent's estate to be settled privately and quickly without probate court supervision. "Revocable" means the person who creates the trust (the "settlor" or "grantor") may change its terms or revoke it at any time during his or her life. (In Wisconsin, married couples can execute a joint revocable trust.) Typically the settlor names himself as trustee to manage the trust assets for his own benefit during his life; no loss of use or control of assets results when creating this kind of trust. If the settlor becomes incapacitated, an appointed successor trustee steps in to manage the trust property and finances which helps avoid guardianship another undesirable court process. Upon the settlor's death, the successor trustee settles the estate according to the instructions contained in the trust (pays final bills, expenses, taxes, and distributes trust property to designated beneficiaries). In summary, the delays, fees and expenses of probate court are avoided making estate settlement less onerous for the surviving family.

Protect assets from nursing home costs using an irrevocable trust

 

This trust protects assets, such as one's primary residence, from having to be liquidated to pay for long term care costs. A stay at a nursing home in Wisconsin costs about $8,000 a month. Many nursing home residents, after depleting most of their assets, must apply for Medicaid to pay for their continuing long term care. As a welfare program Medicaid has strict financial eligibility requirements-assets must be spent down to qualify--and exempt assets, such as a personal residence, are vulnerable at the resident's death to a Medicaid lien or Estate Recovery claim to reimburse Medicaid for all the benefits received. An irrevocable trust can protect assets, allowing the nursing home resident to give the assets to his or her designated beneficiaries. Under current law (2019), assets must be placed in the trust at least five years before the person applies for Medicaid or there will be a penalty.

Transfer real estate nonprobate using a transfer on death deed

 

A common estate planning tool for transferring real estate upon death is the Transfer on Death Deed. By signing and recording this deed (it must be recorded before your death) at the Register of Deeds office in the county where your real estate is located, you can leave your house, or other real estate in Wisconsin, to designated beneficiaries without probate court involvement. How this estate planning tool can be used by married couples and joint owners of land depends on how your joint ownership is designated in the deed when you acquired ownership.

Financial (Durable) Power of Attorney

 

This legal instrument authorizes an agent to manage a person's finances and property on their behalf. It can be made effective immediately or triggered upon incapacity (called a "springing" power of attorney). It is "durable" because the agent's authority is not affected by the principal's subsequent disability or incapacity. Routine powers are often included (paying bills, cashing checks, signing tax returns) while "dangerous" powers (gifting, changing estate plan beneficiaries) require caution. Special powers for nursing home planning should be included if appropriate. Also, a person may nominate their own guardian if guardianship ever becomes necessary although one purpose of both the durable power of attorney and health care power of attorney is to avoid guardianship.

Health Care Advance Directives

 

A person may state in a written instrument their instructions, preferences and desires regarding future health care, including the refusal of certain treatments, if they ever become unable to communicate such wishes to their medical providers. The Health Care Power of Attorney appoints an agent to make health care decisions on one's behalf if one becomes incapacitated. The Declaration to Physicians, often called a "living will," instructs a physician to discontinue the use of artificial life-sustaining procedures if a person has a terminal condition or is in a persistent vegetative state.

Special Needs Trust

 

This trust holds assets for the benefit of a disabled person in such a way that the assets do not jeopardize needs-based government benefits being received by the person. A cash payment or gift made outright to a disabled person will often result in ineligibility for certain government benefits such as SSI and Medicaid. If, instead, the gift is paid to a special needs trust (also called a supplemental needs trust), the penalty is prevented. The trustee has discretion to purchase goods or services that supplement or enhance the person's quality of life such as uninsured medical expenses, household goods and furnishings, transportation, and recreational activities. Another use of such trusts is when one spouse is in a nursing home and receiving Medicaid; the other spouse can create a testamentary special needs trust in their will instead leaving everything outright to the other spouse.

Will

 

A will names a personal representative who gathers up the decedent's assets, pays debts, valid claims and taxes, and distributes the remaining property pursuant to the instructions in the will. A will can nominate a guardian for minors. In Wisconsin, a will can be made by anyone of sound mind at least 18 years old. It must be signed in front of two witnesses. (It is preferable to have two disinterested witnesses, not beneficiaries named in the will.) Out-of-state wills are recognized in Wisconsin but should be reviewed by a Wisconsin lawyer to be sure. A will can be amended or revoked at any time with limited exceptions (e.g. spousal contract not to change a will). Wills range from simple to complex. For example, many spouses sign simple wills leaving everything to the other spouse and, upon the surviving spouse's death, to the children in equal shares. Testamentary trusts can be included in a will as discussed below.

Memorandum Disposing of Tangible Personal Property

 

It can be cumbersome and invite unexpected problems to list numerous tangible property gifts in a will-items might subsequently be lost, sold, given away, or thrown out. Instead, Wisconsin law permits a person to use a written memorandum separate from their will to make gifts of such items. It can be prepared at one's convenience and must be signed and dated. To be legally effective, one's will must expressly mention that this memorandum might exist. The benefit of using this memorandum is that it may be changed or revoked without having to amend the will.

Contingent Trusts

 

A will or revocable trust may also include subtrusts for the benefit of minor children or grandchildren. For example, young parents should have a contingent trust providing that if both parents die a trustee will manage assets for the benefit of their minor children until they reach an appropriate age of maturity. The trustee might be a trusted relative, friend, or professional corporate trustee. If the trust is contained in a will it is called a testamentary trust and is supervised by the probate court. If the trust is contained in a revocable trust there is no court supervision. Other examples of testamentary trusts include credit shelter trusts for estate tax avoidance, charitable trusts, and special needs trusts.

Marital Property Agreement

Wisconsin is a marital property state which means all property owned by a married couple is presumed marital property-owned 50/50--unless otherwise classified. One way to classify property is with a marital property agreement. There are a wide variety of uses for such agreements. A couple can choose to "opt out" of the marital property law entirely and allow the name on property titles, or who purchased the item, to govern management and control of the property. Or they can choose to expressly "opt in" by agreeing that all of their property is marital property which has the tax benefit of getting a "double step-up in basis" for federal capital gains tax purposes. Or they may have a hybrid agreement that classifies some items as individual property and others as marital. Spouses in second marriages often use an agreement to classify property they bring to the marriage as their individual property so that they are free to leave such property to their children of a prior marriage without worry of a spousal ownership claim being asserted against that property. Where estate taxes are a concern, an agreement can balance the estate so that it does not matter who dies first. Lastly, marital agreements can be used to avoid probate.

Caregiver Contract

This formalizes in writing an arrangement whereby a relative is providing care or services to an older relative for compensation. If the elder is later admitted to a nursing home those payments are not penalized as divestments.

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