Posts Tagged ‘estate planning’

Revocable living trust and pour over will. Why do I need both?

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The Question. Why do we have a pour over will when we already have a revocable living trust in our estate plan? Isn’t that repetitive?

Let’s try to answer this age old question.

Quick clarification. Your Trust is the Boss. Your trust is your featured estate planning tool for moving your assets to the next generation. Your Pour over will (Called pour over because it names the trust as beneficiary) should be a smaller player in the whole scheme of things, but it is a necessary role player.

For those folks with one, after you develop your trust document …you add your assets into your trust. This is accomplished by changing the title of the property into the name of the trust or by setting the trust in as the beneficiary of a certain asset. (IE: life insurance). Then, when you die, the assets stay in the trust avoiding the need for a probate of the assets it holds on your behalf.

Here are a three reasons why a pour over will is still necessary….

  1. Guardians. A pour over will can do an important things that a living trust document cannot do. If you have minor children and want to name a guardian for them — someone to raise them if you and the other parent die before they reach adulthood — you must use a will to do that.

 

  1. Human Error. Lets face it. We all make mistakes. One big reason to write a pour over will is that a living trust covers only property you have transferred, in writing, to the trust. Almost no one transfers everything to a trust. And even if you do scrupulously try to transfer everything, there’s always the chance that you’ll acquire property shortly before you die and not have time to put it into your trust. If you don’t think to (or aren’t able to) transfer ownership of an asset to your living trust, it won’t pass under the terms of the trust document. Anything not transferred into your trust prior to your death could instead be subject to probate and distributed under your pour over will. In short, a pour over will acts as a safety net and sends a “forgotten asset” back into your trust.

 

  1. Satisfying the rules for paying a decedent’s last bills. The law says that an estate pays the last bills. The pour over will contains language that passes that statutory obligation from the Personal Representative of an empty estate to the trustee under the trust. This language, coupled with special language accepting the responsibility under the trust, make the bill paying process seamless.

 

Of course, there is more to all of this. The key for anyone with a trust is to seek counsel. Get your questions answered. Also know that a trust is a beautiful thing, but it never acts alone. It always needs the reliable sidekick called a pour over will in order to accomplish its mission.


News Flash: Beneficiary designations are a Big Deal

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Grove Thoughts

Use Care: Beneficiary Designations Trump Your Will or Trust.

Always a good thing to meet with your investment adviser and have your insurance coverage and investments properly aligned to meet your needs.   However… Some times …  after all that planning … the act of filling out your beneficiary designation forms might seem like an afterthought.

As mundane as the beneficiary designation process may seem, it is important to keep in mind that the beneficiary designation form on file with the company will control ownership and distribution of the life insurance policy/individual retirement plan after you die: Not your will or your trust.

Example: If you have a life insurance policy for $100,000.00 and you name your son Mickey under the beneficiary form, Mickey gets the cash on your death. If you also named Minnie to receive your assets under your will, she sees none of that money.

Knowing that the designation trumps the Will or Trust, great care should be used when filling the beneficiary designation form out.

The Change Forms the Companies offer are not always understandable or helpful.

The insurance companies and IRA custodians have pre-printed beneficiary designation forms that they make you use. Keeps them out of hot water because they are a consistent element of their operations, which leads to fewer mistakes when the time comes to process them.   They are (for the most part) constructed to fit the company’s processing needs but can sometimes fall short when they are being used to meet your goals. This is because sometimes the company’s processing needs are not lined up with your wishes.

Ask yourself some questions when filling out these forms.

What happens if one of my beneficiaries dies before I do?

One of the biggest surprises for unwary clients is that so many of the forms default to the “survivorship rule”. These forms with the survivorship rule in them divide a predeceased beneficiary’s share equally among the surviving beneficiaries. This “survivor takes all” result works for some people, but not most people. For example, some folks would like to see a grandchild take a predeceased child’s share rather than leave the grandchild out by having the proceeds split only between the children lucky enough to survive them.

If the survivorship rule is not what I am looking for, what are some alternates available?

So now we enter into the world of Latin phrases. But … do not worry. These are not as hard to grasp as it might seem. There are two main phrases to remember: “by right of representation, per stirpes” and “by right of representation, per capita”. The term “per stirpes” means by root or branch, while the term “per capita” means by head.

Per stirpes: Per stirpes is the most popular of these two alternatives. Per stirpes boils down to meaning that the percentage planned for one beneficiary that predeceases goes to the deceased beneficiary’s heirs by blood: Often their children or grandchildren.

Example: If your son Mickey was entitled to 50%, but died before you did, his two surviving kids (your grandkids), Tammy and Timmy would each take 25 %. Your surviving daughter, Minnie is entitled to the other 50%.

Per capita:  Per capita is the rarest of these two alternatives. Per capita boils down to meaning that the percentage planned for one beneficiary that predeceases is ignored. Instead the deceased beneficiary’s heirs by blood: Often the decease beneficiary’s children, step up onto the same level as you children.

Example: Your son Mickey was entitled to 50%, but died before you did and your surviving daughter, Minnie was entitled to the other 50%. Mickey had the two kids Tammy and Timmy. Tammy and Timmy step up on the same level as Minnie. That means Minnie, Tammy and Timmy would each receive 33 1/3%.

What most people want is a per stirpes distribution at death vs. the survivorship rule or a Per capita distribution.

What happens if I run out of listed beneficiaries?

The answer here can be found on the form but also may be in the policy or contract itself. Some companies default to have the proceeds paid to your estate, while some set your spouse, children and/or parents as beneficiaries if you run out or fail to name any beneficiaries.  Definitely get this question answered.

What to do.

Be sure to read the default provisions in your beneficiary designation forms. You need to know what they say so that you can make any appropriate changes to them.  Customize your designation if you have to do so. In many cases, the beneficiary designation forms can be customized to meet your wishes by adding and addendum (attachment) to it spelling out your intended desires.

Know that is ok to seek help too. A qualified estate planner can help you spot issues and help you to modify the beneficiary designation form so that it aligns with your wishes.


Conservation Easement: A Beautiful Thing

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A conservation easement is an interest in real property. It is established by agreement between a landowner and a qualified private land conservation organization (often called a “land trust”) or a government organization (often the DNR). It is put in place to restrict the exercise of rights otherwise held by a landowner in order to achieve stated conservation purposes.

The most recent Conservation Easement project underway here at our office presents a great story. Our Clients are both nature buffs. They truly love the outdoors and they want to make a difference in society.

After thinking it through, they decided that the best way to accomplish that goal was by donating 75 acres to a local nonprofit Audubon society. They also made the land subject to a conservation easement to be held by a Madison area land trust.

The Property contains areas of prairie grassland and oak woods/oak savanna. The public will have access to the property for bird-watching, hiking and other educational and recreational activities.

The preservation of this slice of heaven for the scenic enjoyment by and the outdoor education of the public is very important to the Landowner. What a terrific thing for the people of Wisconsin and beyond.


News Flash: Few People Actually Plan for Death or Incapacity

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Estate Planning Note:

AARP shared an article that reminds us how few of our neighbors have done Estate Planning.

See: http://www.aarp.org/…/info-2017/half-of-adults-do-not-have-…

The failure to plan for your death or incapacity can be painful for the family members left behind. This really rings true if you have underage kids or an asset like a family farm or other type of business that needs to be thoughtfully passed on to the next generation. The family assets can sometimes be tied up for years with fees and cost racking up.

With this in mind, this just might be the year to finally get this particular project done.

Have a great day.


What if Prince has a “Love Child”? Then What?

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We hear it over and over. A famous person does not have a will or trust in place. According to the news reports after his death, Prince was no exception.

This is never really a surprise to estate planners. A very low percentage of folks actually do estate planning. Could it be that we are all still partying like it is 1999?

As an iconic performer that toured the world, Prince leaves us with an interesting hypothetical. What if … Prince had a love child? What right would such a kiddo have in Prince’s substantial wealth now that he has passed?

Love Child.

First … what the heck is a “love child” anyway?

Merriam-Webster’s simple definition of love child: A child whose father and mother are not married to each other when the child of their creation is born.

The test for whether someone is an heir to a decedent’s estate without a will or trust is whether there is a blood connection between the decedent and the individual. Certainly, a love child fits that test. Knowing this, we all know the blood testing battle would certainly commence if a Prince love child does step forward.

Assuming the proof is positive…  then what? Does a Prince love child receive a share of Prince’s substantial wealth?

Here is an overview…

Named Beneficiaries.

Beneficiaries on various items still rule even if no trust or will was in place. So, if there was a beneficiary on any of Prince’s assets, those go to whomever he named to receive them.  For instance, if he named his sisters and brothers there, then they still take those assets. The main example you think of is life insurance. However, folks can place beneficiaries on real estate, investments, bank accounts and more. If that is the case, the love child would not have a piece of these assets.

Jointly held assets.

Assets held jointly with rights going to the survivor, the joint owner still takes the asset even if no trust or will was in place. So, if there was a joint owner on any of Prince’s assets, those may very well go to whomever he named as joint owner upon his death.  For instance, if he named his sisters and brothers as co-owner, then they may still take those assets. The main example one would think of is real estate. However, the joint and survivor rule also could apply to investments, bank accounts and more. If that is the case, the love child would not have a piece of these assets.

No named beneficiaries.

These are everything that is not jointly held and without a stated beneficiary. These are the assets normally distributed by the will or trust. The experts do not believe Prince had a will or trust set to distribute these non-beneficiary assets. It is also very likely that the bulk of Prince’s estate includes non-beneficiary assets.

The legal rules used for distributing assets for a decedent without a will is called “intestate succession”. Intestate succession tells us which unnamed beneficiaries are to receive these assets.

The “intestate succession” rules work in sequential order based on your degree of relation to the person who passed away. Under the rules, you stop at the first level in which living heirs are found.  You then distribute the decedent’s assets to the living heirs within that level and, if one of the heirs on that level predeceased (died before) the decedent (Prince), then you see if that predeceased person had any issue. If so, that predeceased person’s issue takes that share. For example, in Prince’s case, Prince had a brother die before he did. The predeceased brother’s issue (i.e. the brother’s kids or grandkids) would step up to take his share.

Here is a step by step look at intestate succession applied to Prince.

  1. You first look next to the decedent to see if a spouse is in the picture. Current spouse?

Nope. Prince was divorced at the time of his death, so he had no spouse at the time of death. His ex-spouse might have a claim for some assets. The divorce decree might have required a life policy or some other assets in Prince’s estate to go to the ex-spouse. Beneficiaries on various items still rule even if no trust or will was in place.

  1. You then look down for issue… any kids (adopted, natural … living or predeceased), or issue of those kids?

Nope.

  1. You then look up for parents. Any surviving?

Nope.

  1. Then you look sideways to brothers and sisters and their heirs (if one predeceases). Any here?

Yes. He has survivors here. His full sister, some half siblings and a great niece (taking a deceased brother’s share). According to the latest news reports, this group could inherit a net amount* of anywhere from 20 – 35 million dollars of non-beneficiary assets.

*We say “net amount” here because we know that Federal Estate taxes (and any Minnesota estate or inheritance taxes, if any) and costs of administration will have to be paid first. Another thing some estate planning could have reduced for Prince.

Love Child’s Rights.

Well … put simply, a Prince love child trumps all of the individuals that are lower on the list under the intestate succession rule.

Prince’s natural born child would be in the second level group under the “intestate succession” rules … considered only after a spouse. With no spouse, Prince’s child would have rights superior to the other levels after that. Prince’s Parents and Prince’s brothers and sisters (and their issue) would not be considered to have any rights to Prince’s non-beneficiary assets.

If there is one love child out there, he or she would take 100% of the net amount of the non-beneficiary assets.  Prince’s siblings and their issue would be out of luck regarding the non-beneficiary assets.  That being said, Prince’s brothers, sisters, and their heirs (along with Prince’s ex-spouse) still might be scheduled to receive other assets as a named beneficiary. If that is the case, the love child is out of luck on those assets.

Time will tell if a legitimate love child appears. If one is alive and comes forward, I think the chances are good that this young lad or lass will be singing in the purple rain.


Got Will?

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What happens to my assets when I pass away with no will, no trust, no beneficiary planning?

It is well understood in our industry that there are many more folks out there without wills than folks with wills. The truth is that only a small percentage of individuals actually plan their estates. Very few people have done what they need to do to have their assets avoid probate when they pass away.

Knowing this, the law in Wisconsin offers a solution when a person passes away with probate assets and without a will. That solution is found in the statutory rules set forth in Wisconsin Statutes Chapter 852. The legal phrase for the rules used to determine who takes property in the absence of a will is called “Intestate Succession”. When you die without a will, this is where the court will go to make the decisions regarding who takes your assets.

Here is a rundown of the statute (warning… it can get a little funky to follow):

Basic rules for intestate succession

Step 1. Spouse/ Domestic Partner Take First. May have to split with kids of the decedent.

Per Chapter 852.01 (a): Any part of the net estate of a decedent that is not disposed of by will passes to the decedent’s surviving heirs as follows:

(a) To the spouse or domestic partner:

  1. If there are no surviving issue of the decedent, or if the surviving issue are all issue of the surviving spouse or surviving domestic partner and the decedent, the entire estate.
  2. If there are surviving issue one or more of whom are not issue of the surviving spouse or surviving domestic partner, one−half of decedent’s property other than the following property:
  3. The decedent’s interest in marital property.
  4. The decedent’s interest in property held equally and exclusively with the surviving spouse or surviving domestic partner as tenants in common.

Step 2. If no Spouse/ Domestic Partner; then we look downward in the lineage to children, grandchildren and so on. They are called “issue” in the statute. It goes “Per Stirpes” to the issue … which means that if your parent were to take a share but is not able to do so due to death before the decedent or disclaimer of the inheritance, then you and all of your living brothers and sisters step up to share equally in your parent’s share. See Chapter 852.01 (b):

(b) To the issue, per stirpes, the share of the estate not passing to the spouse or surviving domestic partner, under par. (a), or the entire estate if there is no surviving spouse or surviving domestic partner.

Step 3. Parents take if no Spouse/ Domestic Partner and no issue. See Chapter 852.01 (c):

(c) If there is no surviving spouse, surviving domestic partner, or issue, to the parents.

Step 4. Brothers and sisters and the issue of any deceased brother or sister per stirpes take the inheritance if there is no surviving spouse, surviving domestic partner, issue, or parent available. See Chapter 852.01 (d):

(d) If there is no surviving spouse, surviving domestic partner, issue, or parent, to the brothers and sisters and the issue of any deceased brother or sister per stirpes.

Step 5. It is rare it gets to this point, but the grandparents take the inheritance if there is no surviving spouse, surviving domestic partner, issue, parent, or issue of a parent. If not the Grandparents, then the Grandparents’ issue take under a 50/50 split mentioned in the statute. However, if one side or the other does not have heirs, then 100 percent goes to the side that does have heirs. See Chapter 852.01 (f) Note: yes… if you are wondering … the statute does skip a letter… do not ask.  … :

(f) If there is no surviving spouse, surviving domestic partner, issue, parent, or issue of a parent, to the grandparents and their issue as follows:

  1. One−half to the maternal grandparents equally if both survive, or to the surviving maternal grandparent; if both maternal grandparents are deceased, to the issue of the maternal grandparents or either of them, per stirpes.
  2. One−half to the paternal relations in the same manner as to the maternal relations under subd. 1.
  3. If either the maternal side or the paternal side has no surviving grandparent or issue of a grandparent, the entire estate to the decedent’s relatives on the other side.

The good news here is that even if you do nothing, there is a plan in place for the distribution of your hard-earned assets after you die. The bad news is that the intestate succession plan may not be a plan you would approve of if you realized it was the plan in force for you.

There is no doubt that planning your estate is important. However, momentum against doing it is very strong. It is very hard to set aside the time and funds needed to do so. Most of our clients who do an estate plan tell us they are doing their plan for their heirs’ benefit or to make sure they are distributing their assets the way they want them to go, and not what the state sets up for them.

Whatever the reason, you should not hesitate to seize the moment and get this done. If only for the peace of mind in knowing the assets that you have worked so hard to accumulate will be distributed in the fashion you choose.


Revocable Living Trusts: Are We Funded Yet?

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The Review

We recently had a new client present us with her revocable living trust so that we could review it for her. We took a good look.

The trust had a beautiful binder cover on it. It was drafted by a reputable attorney. It was carefully worded. It contained special language in it so that the trustee could take care of her if she became disabled. It contained language delaying large payments to minors until, one would hope, they reach an age when they are able to grasp money management. It also had a provision in it that would pay a residual distribution to a nice local non-profit group.

The trust looked great so far.

The Surprise

We then asked our client a critical two-part question that is a standard part of our trust review process.  What assets had she put into the trust so far and how is the trust to be funded upon her death?  She could not recall.

We then took a look at a few of her assets to see whether she changed titles and beneficiary designations into the name of the trust.

  • Life insurance? No. Still had her deceased spouse named as beneficiary.
  • Bank accounts? No. Still in her name, no trust as the owner or beneficiary.
  • Her vintage car? No.
  • Her farmette? Not a chance. It was still in her name.

We quickly realized that a very important step in trust planning was not accomplished. She had no assets in her trust.  No assets were set up to go into her trust outside of the probate process.  In short: She failed to properly fund the well-crafted trust she paid for.

Why It Matters

A revocable living trust can only control the assets that are put into it. Think of a revocable living trust as a legal container. The container is filled and then, at certain points along a timeline, its contents (some or all) can be distributed.

How Do I Fund These Things?

Trusts can be filled in various ways and at various points in time after they are drafted for a client. One way to accomplish this funding is through non-probate methods. Some examples of non-probate funding include taking actions, such as:

  • Deeding your house from you to the trust.
  • Transferring other assets outright to the trust using a bill of sale.
  • Placing the trust in as your beneficiary on accounts, policies and contracts.

These transfers all occur without the need for probate. The trust then administers the assets under its terms outside of probate. In short, the trust can help to avoid the delays and expenses of the probate process.

Finally, as a safety valve, the funding can occur after death and through probate via a last will that names the trust as beneficiary. This kind of will is commonly called a pour-over will. This is a probate method of funding. While it does cause the asset to make their way into the trust, it is only after the assets (if above $50,000 in Wisconsin) are probated.

The Fix

In our case, our client had a good trust prepared and a pour-over will. The trust was not filled with the assets in a manner that avoids probate. It appeared to be destined to remain empty until after a probate filled it. If the goal of her living trust is to avoid probate at death and court intervention at incapacity, then she should fund it now, while she is able to do so. If she fails to do so, the wording in the trust and the trust itself could be irrelevant when she becomes disabled or dies. If she relies on the pour-over will for the asset transfer, the money may not go to her minor grandchildren in the way intended under the trust, but instead to lawyers, court fees and other places that were unintended. The charity could have been out of luck if the residuary money was spent in the probate process.

If you have signed your living trust document but haven’t changed titles and beneficiary designations, you should get to it. Luckily, we caught the issue in our case. We made sure our client’s trust was properly funded.

Be sure and ask your attorney how to fund your revocable living trust. There is no doubt that you and your heirs will be glad you finished what was started.


Why Use an Attorney for Your Will When You Can Download One for Free?

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There are certainly forms out there on the internet or on a book store shelf that just might work for you. However, there is a chance that they will not work for you.  Your heirs can really get burned when these do-it-yourself wills fail to work as intended.

Some time ago, two wonderful new clients came into our office with a homemade trust for us to review. The trust form had many blanks the form’s provider had incorporated into it. Many of the blanks were left unanswered. Unfortunately, when it comes to money mixed with the emotion of losing a loved one, it is very easy to disagree. Those open blanks made the trust so vague that a court would have been required to sort out the language if the trustee and beneficiaries disagreed on what to do. As anyone can tell you, the cost of airing issues in court can consume your assets in no time.

It also became clear that our new clients had no one to assist them with how to use the homemade trust after they bought it from the vendor.  In fact, the vendor made it clear it could not offer legal advice with its form. As a result, the homemade trust was not properly funded.

“Funding” is a term used to describe the process of transferring your property into your trust. Because they had no one to assist them with this, they failed to fund the trust with assets that should have been placed into it while funding the trust with other assets that might have been better off going directly to a plan beneficiary rather than to the trust. These innocent missteps could have spelled trouble and cost a great deal of money after they passed. Luckily we were able to get them on track.

An attorney brings you the experienced advice that only he or she can provide after working in the law area for a number of years. A good quality estate planning attorney spends the time it takes to get to know you and find out what your goals are. Then, after that is determined, the attorney carefully drafts the documents needed for you to achieve those goals. Once the documents are drafted, he or she explains them to you and then assists you with the execution of your plan.

While it is very important to have your estate plan documents drafted correctly, you do not hire an attorney for the documents alone. It is very difficult to assure your plan will take care of you and your loved ones without an attorney’s advice and guidance. In short, the money you use to work with a qualified estate planning attorney is money well spent.


Transfer-On-Death Deed: The Best Thing Since Sliced Bread

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A transfer-on-death deed, or TOD deed has proven to be a simple, inexpensive, and effective tool to transfer a real property interest at the death of the owner, and has become very popular with attorneys, property owners, and beneficiaries alike. The reason TOD deeds have become so popular is that the transfer of the land under a TOD deed can work to avoid both the after death expenses of probate, and the upfront planning expenses of a trust.

The TOD deed has been available in Wisconsin since 2005 and in Minnesota since 2008. If a landowner in these jurisdictions properly completes and files a TOD deed with the register of deeds, title to the real estate passes directly to the beneficiary or beneficiaries named in the TOD Deed when the landowner dies. This is similar to how title passes in a joint tenancy deed or a pay-on-death designation for a bank account.  The beneficiary takes ownership of the property upon the death of the present owner without the need to probate the property.

A landowner can change her mind with a TOD deed designation too. If circumstances change after a landowner designates someone to receive the real estate using a TOD deed, the landowner can revoke her TOD deed or simply replace it with another one naming someone else. If the property is sold by the landowner to a third party, the TOD deed terminates at that time.

The TOD deed can also reduce some risks from third parties. This is because even though individuals are named as beneficiaries under a TOD deed, they have no ownership rights until after the death of the landowner. This lack of ownership rights in the real estate helps avoid problems. For example, if a landowner adds her son, her grandson, or her daughter as beneficiary under a TOD deed, the real estate cannot end up as a divisible asset in her son’s divorce, a liquidated asset in her grandson’s bankruptcy, or with liens on it from her daughter’s creditors.

The TOD deed may be the most effective way for a landowner to pass real estate to desired beneficiaries. However, careful consideration should always be given to determine if the TOD deed is appropriate for your particular circumstances.