Month: April 2013

Many Wisconsin Estate Plans Can Benefit from Using Both a Will and a Trust

If you look around the Internet, you may see several sources that discuss the question, “Should I create a will or a living trust?” In a significant variety of circumstances, the answer is, “Use both.” Whether your estate plan includes a living trust or what’s called a “testamentary trust,” a will is an integral part of your Wisconsin estate plan.

Regardless of what document serves as the primary asset-distribution direction upon your death, everyone should have a will. Even if you have a living trust, you still need a will. In estate plans with a living trust, a “pour over” will serves an essential role. Your pour-over will is your estate planning “insurance policy,” in a manner of speaking. Much like how you maintain an insurance policy to assist when something unexpected happens to your home or vehicle, even though it is possible you may never need it, your pour-over will steps in to help by directing any assets that you did not transfer into your living trust. You may never need your pour-over will, if you place all your assets into your living trust or accounts with death beneficiary designations, but the pour-over will operates as a vital “back-up” to your living trust.

Chances are, if you have a living trust, the asset-distribution plan you laid out in that document constitutes an accurate and current representation of your estate planning objectives. The concept of the pour-over recognizes this and, rather than creating another set of distribution instructions, or duplicating the instructions from your living trust, the pour-over will simply directs that all assets under its control go to your living trust. These assets do not avoid probate, but the pour-over will does ensure they become part of your trust’s assets, where the carefully laid-out instructions you spelled out there can control.

Some estate plans use a trust that is created in a will; that trust is not a living trust and the will is not a pour-over will. This is a testamentary trust. These types of trusts do not avoid probate, and are matters of public record because they are part of your will, but they may still serve an important need. Often, people use testamentary trusts as a way to provide financially for their minor or relatively young children. In the case of famed singer Whitney Houston, she left her wealth, of approximately $20 million, to her daughter, Bobbi Kristina. The singer’s will, however, did not distribute the huge estate directly to the 19-year-old daughter. Instead, Houston’s will placed the assets in a testamentary trust, directing her daughter to receive payouts upon her 21st, 25th, and 30th birthdays.

Handling the Task of Being a Personal Representative

Having someone select you as the personal representative of his or her estate can elicit both positive and negative reactions. You may be honored, but at the same time, you may feel intimidated by the responsibility that comes along with it. Before you agree to take on this role, you should understand exactly the wide variety of responsibilities involved.

One of the first duties a personal representative (which is also called the “executor” in some other states) is tasked with is to submit the deceased’s will to probate. According to Wisconsin law, once you learn that you are the personal representative, you must file the deceased’s original will the Register in Probate for the appropriate county within 30 days. This filing is required even if the deceased estate does not require an actual probate process.

Your role as personal representative also makes you responsible for protecting the estate’s assets. This often involves changing legal ownership of assets from the deceased to the estate, and continuing to pay the bills. This usually involves opening a separate bank account in the name of the estate from which the bills are paid.

The personal representative must also determine exactly what is contained in the estate. This means creating an inventory of assets, including the deceased’s real estate, bank accounts, investment accounts and personal property. For some of these assets, including real estate and some others, you may need to obtain an appraised value of the item. The Internal Revenue Service requires appraisals for individual items with a value of $3,000 or more or, if you are dealing with a group of similar items, the number is $10,000. This means that, if you think the value of an asset is above, or even close to, that dollar amount, you should get the appraisal.

Paying the estate’s debts is another key element. A personal representative must also locate, and then pay, all of the estate’s creditors. The court will set a deadline by which everyone to whom the deceased owed money must present their claims. This period for creditor claims is between three and four months. The personal representative must publish a newspaper advertisement notifying creditors to submit their claims before the deadline.

Of course, one of the most essential tasks is distributing the estate’s assets and disposing of estate property. This may require retaining professionals to locate some beneficiaries named in the will. It may also necessitate working with real estate agents to sell property, or holding an auction or “estate sale” to dispose some assets.

Powers of Attorney Serve as an Indispensible Part of Your Estate Plan

While your living trust or will is a very important document, a comprehensive estate plan goes beyond just a plan for distributing your assets upon your death. Another essential component of a complete estate plan is power of attorney, which ensures that you have a person of your choosing to make decisions for you in the event you become incapacitated.

A power of attorney is the legal document where you, as the “principal”, designate another person, or group of people, as the “agent(s)” authorized to make decisions or take action on your behalf. Powers of attorney may be extremely narrow or broad. In the estate planning context, powers of attorney are typically quite broad. That’s because these powers are the most necessary once you’ve lost the capacity to make decisions for yourself and, if that happens, they are equipped to make sure that the person you desire is empowered to make virtually any decision on your behalf.

These powers may govern financial and other property matters, or may pertain to health care decisions. In the context of estate planning powers of attorney, these powers are almost always “durable”. A durable power of attorney remains effective even after you become incapacitated. This is essential since, in most cases, the occasion of your incapacity is exactly the point at which you’ll need your powers of attorney.

The law creates a degree of flexibility regarding how you structure your powers of attorney. You can have powers of attorney that become effective as soon as you sign them, or that only take legal effect once you become incapacitated. You can designate the same agent, or agents, to make your financial decisions and health care decisions, or you can name completely separate people to serve in each capacity. You may assign one person as your agent, or you can designate a group of people to serve. If you designate a group, your power of attorney can require all of them to agree before they may act, dictate that a majority of them must agree, or state that any one of your co-agents can act on your behalf.

Pay-on-Death Designations: Benefits Come With Risks

If you’ve gone to the effort of creating an estate plan, chances are you have a specific sets of goals you want to accomplish with your assets after you die, whether that involves benefiting your family, friends or charity. One way to thwart this entire well-laid set of objectives, though, is to leave behind a plan that is open to defeat in the courts. A careful structure to your plan may be the key to avoiding this trap.

A recent article in the Wisconsin Bar Association’s monthly journal highlights the benefits and drawbacks of one tool for avoiding probate: the pay-on-death (POD) designation. POD designations can be a helpful and important element to an estate plan geared toward an objective of avoiding probate.

POD designations are convenient and inexpensive, but are not without risks. Sometimes, POD designations are especially vulnerable to a court challenge after you die. For example, say you have a friend who provides daily care for you in your later years and you decide to place a POD designation on your investment account leaving the entirety of it to your friend. Your will (or trust) leaves all of the rest of your assets equally to your children.

In this case, an unhappy child might decide to sue, claiming that your POD designation was the result of your friend’s undue influence over you. If this happens, Wisconsin law says that your friend cannot testify regarding what you told him/her about why you made the POD designation. With that impediment, it may become more difficult for the court to see your true intent, and easier to conclude (erroneously) that your friend exerted undue influence over you.

There are a variety of ways to avoid this. One is to leave a clear trail of evidence about your decisions, and the reasons for them. Talk to impartial friends or relatives about what you’re doing and why you’re doing it. Write down your decisions and the specific reasons for them. This helps avoid a situation where the court, as evidence before it, has only the testimony of a disgruntled relative about a suspicious figure who spent time with you before your death and walked away with a sizable portion of your assets.

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