Revocable and Irrevocable Trusts – What is the Difference?

A trust is “revocable” if the terms of the governing instrument allow the trust settlor to amend the trust’s terms, or cancel (revoke) the trust or remove property from the trust without the approval or consent of a third party (e.g., trust beneficiary, a court).  Conversely, a trust is “irrevocable” if the terms of the governing instrument DO NOT allow the trust settlor to amend the trust’s terms, or cancel (revoke) the trust or remove property from the trust without the approval or consent of a third party.

If the terms of the trust instrument do not specify whether the trust is revocable or irrevocable, the law of the jurisdiction governing the creation / administration of the trust may specify a “default.”  Note that trusts can often be revocable for a period of time and then become irrevocable upon the occurrence of a particular event (such as the death of the settlor).

Revocable trusts can achieve some goals (such as a flexible alternative to Will-based estate planning), but not others.  Likewise, irrevocable trusts can achieve some goals (such as Medicaid planning), but not others.  Therefore, if you are considering setting up a trust, make sure you are working with an attorney familiar with not only your goals and objectives but also the purposes and functions of revocable vs. irrevocable trusts so that the trust you create is appropriate to your circumstances.

Attorney Stephen A. Lasky

Communication and Planning

Even the best of families have problems.  Also, the best planning can fail when the family fails.  So what do you do?

Recently, I was called to the home of a lady who wanted to change her estate planning documents.  Two of her children lived with her and one did not.  The one that did not was the financial agent and felt that the children living with mom were manipulating her.  Financial agent daughter sued for guardianship.  Mom proved her competence.  Now she is understandably angry at the financial agent daughter.  But, from my perspective, there is some manipulation going on by the children living at home.  In mom’s case, her trust document does not allow for many changes.  She does not want any of her children as the financial agent any longer.  So what are her choices?

I had another situation recently where a caregiver child just couldn’t do it anymore.  She brought mom to a memory facility.  Another sibling was angry that caregiver child “gave up.”  This sibling took mom out of the facility and into his own home.  Three days later, he brought mom back to the facility.  But, the damage to the family relationship was already done.  Now that guardianship is necessary due to a defective financial power of attorney, these children are already at odds.  What can be done?

Although it won’t solve everything, good communication at the start of estate planning is necessary.  I often encourage my clients to talk with their family about their wishes.  I ask them to write letters to children, if necessary, regarding why they chose to do something in a plan that could cause problems later.  I ask them to make sure there are enough backups to cover situations where the first agents cannot act.

When communication fails, the law begins.  For the first lady, she is competent.  We are able to change some of her documents.  We can change agents and change trustees.  She needs a third party.  Some attorneys will act in this capacity.  Some banks, with the right deposit amount, will act in this capacity.  There are also agencies such as Fiduciary Partners that will act as an independent agent.  For the second lady, she does not have capacity.  But, I have a good guardian ad litem.  This means we can construct a guardianship solution to best protect mom and make sure the children feel heard.  We can get the authority we are missing in the power of attorney through the guardianship and remove some of the financial difficulties that had been exacerbating the situation.

The bottom line is communication and having an expert attorney available.  Plans that have included communication fail far less and the individuals involved have higher satisfaction with the process.  Beware the attorney who practices a different kind of law but says he or she can draft a will.  A “simple” will cannot cover the health care issues, the financial power of attorney issues, the elder law or guardianship issues, the tax issues, etc.  Each person’s situation needs to be examined carefully.  Hopefully, with good planning and a good attorney at one’s side, if the family fails, the plan will not.

Attorney Elizabeth Ruthmansdorfer

Tax Reporting at Death

When a family member passes away, grieving relatives do not typically contemplate the decedent’s basic tax reporting obligations. Personal representatives of estates, trustees of trusts, and anyone assisting with the finances of a deceased should be aware of various returns that need to be filed with the IRS and the Wisconsin Department of Revenue (assuming the decedent was a resident at the time of passing) for taxation of income generated before and after death.

First, a final individual income tax return must be filed for the calendar or fiscal year of death; all income up to the date of death must be reported and all credits and deductions to which the decedent is entitled may be claimed. The decedent also remains liable for prior years that which the decedent failed to report.

Second, a fiduciary return, namely the federal Form 1041 and Wisconsin Form 2 for estates and trusts, may be required to report a decedent’s taxable income generated after the date of death. Generally, a fiduciary return is required when an estate or trust (1) exists by court order, (2) generates gross income exceeding $600 for any tax year following the year in which the decedent passed, or (3) has a non-resident alien as a beneficiary. The decedent and the estate are separate taxable entities; thus, before filing Form 1041, the preparer will need to obtain a tax ID number specifically for the estate. Further, income distributions from an estate or trust to any beneficiary must be reported on a Schedule K-1 return, which will be included on each beneficiary’s personal income tax return.

To close a Wisconsin probate estate, the court will require that the personal representative provide a Closing Certificate from the Wisconsin Department of Revenue, which can be obtained only after filing a Form 2.

Attorney Justin M. Prince

The Small Stuff

My mother-in-law passed away in October.  She lived with us so all of her mail comes to our address.  In the last few weeks there have been two small refund checks (less than $200) mailed to our house and made payable to my mother-in-law.

My wife is upset and does not understand how an insurance company which knows she is deceased can issue a check to her mother.  Although not comforting, I have tried to explain to her that even though it makes little sense, this is routine procedure.  “How do we cash them?” she asks, since there is no probate for her mother.  Now there is the rub.  This can be a pain in the . . . for a relatively small amount of money and this frustrates our clients on a regular basis.

Since there is no probate there is no appointed representative.  Two common solutions are as follows:

  1. My wife can return the check with a small estate affidavit and ask the check be reissued in her name, or
  2. If an account is still open in my mother-in-law’s name (that is payable on death to my wife) she could just deposit the check in that account (which usually works).

You should expect this to occur for any refund issued after death, i.e., for a medical bill paid but covered by insurance, or a health insurance premium refund.

Attorney Terry L. Campbell

What is Probate?

Almost everyone has heard the term, but not many are familiar with what it means.  For many people, the only thing they feel that they know for sure about probate is that it should be avoided if possible.  So, what exactly is probate?

Probate is the court supervised process of administering a decedent’s estate.  In brief, the purpose of probate is to appoint someone to handle the decedent’s affairs, ensure that the decedent’s final expenses and debts get paid, and transfer the assets comprising the decedent’s “probate estate” to those individuals or institutions entitled to receive them.

A decedent’s “probate estate” generally includes all property owned by the decedent except assets: (a) owned jointly with another person; (b) properly titled to or held by a trust; or (c) that pass directly to an intended recipient by operation of a beneficiary designation, transfer on death designation or “payable on death designation.”

The steps, time and expenses involved in a given probate proceeding will depend on a number of factors, including the decedent’s county of residence, the size of the estate, whether the decedent left a valid Will.  However, the probate process usually begins by filing the decedent’s Will (if there is one) and other required paperwork with the probate court in the county in which the decedent lived.

Once the court receives all of the paperwork and documentation needed to begin the probate, the court must appoint a personal representative of the estate (sometimes referred to as an “executor”).  Typically, the court will appoint the person nominated in the decedent’s Will.  If there is no Will or the nominated personal representative cannot or will not serve, someone else (often a family member or an attorney) must be appointed.  The person who will serve as personal representative may be required to attend a court hearing.

The person ultimately appointed to serve as personal representative is responsible for:

(1)          Notifying the decedent’s family, beneficiaries, and creditors;

(2)          Identifying, collecting, and filing with the court an inventory of all property comprising the probate estate;

(3)          Resolving any claims against the estate;

(4)          Filing the decedent’s final individual income tax returns, the fiduciary income tax returns for the estate, and the estate tax return (if necessary);

(5)          Distributing the probate assets to the individual(s) or institution(s) named in the Will as beneficiaries of the estate, or if there is no Will, according to Wisconsin’s laws of intestate succession;

(6)          Preparing and providing the court with a detailed account of all assets and income received by the estate, all debts, claims, and taxes paid by the estate, and all assets distributed from the estate.

When the personal representative completes these and any other required tasks, the probate proceeding terminates.  This usually takes between eight and eighteen months from the date the probate began.  However, extremely complex or contested probates can last much longer.

The amount of time required to probate an estate is one of the factors that contribute to the belief that the process should be avoided if possible; the costs associated with probate are another such factor.  Examples of the types costs typically involved with probate are: (a) court fees; (b) attorney and/or tax preparer fees; and (c) expenses associated with maintaining or selling estate assets (for example, the decedent’s home) during the course of the probate process.

For these and other reasons, it is often desirable to take advantage of estate planning techniques (e.g., creating and funding a revocable living trust) that allow one’s estate to pass outside of probate.  Please keep in mind, however, that the estate planning process presents complicated and individualized issues about which you should consult your legal and tax advisors to ensure that your plan is appropriate for your circumstances.  This probate summary is not intended to replace or offer legal advice applicable to your situation and should be used for informational purposes only.

Attorney Stephen A. Lasky

Deadline for Creditor Claims Against a Probate Estate

 

Attorneys often advise their clients to avoid probate court – citing that it is unnecessarily expensive (court and attorney’s fees), time consuming (8-12 months), and public. However, there is a frequently ignored benefit of opening a probate estate: a fixed and shorter statute of limitations for creditors of the decedent.

When a probate estate is opened, the personal representative must publish notice of the estate in a county newspaper of general circulation to alert any unknown, existing creditors of the decedent. Once notice is published, creditors have only 3 to 4 months to file a claim against the estate. Depending on the type of claim and when the debt was incurred, publication may reduce the amount of time that creditors, including credit card companies, medical facilities, and various unsecured lenders, have to collect on their debt by months or even years.

The Daily Reporter is a recognized source for probate publication notices in Milwaukee County. While the Daily Reporter may not be your first choice for local news, please be aware that creditors do pay attention.

Additionally, if the personal representative has knowledge of creditors with interests in the probate proceedings and can reasonably ascertain their names and addresses, those creditors are entitled to mail notice.

In effect, all claims given proper notice are barred against the estate, its personal representative, heirs and beneficiaries – unless the claim is filed with the court on or before the deadline.

There are however classes of claims NOT barred by the deadline, including claims that the personal representative failed to provide notice and claims based on tort actions, marital properties, Wisconsin state income tax, franchises or sales, withholdings or gifts, death taxes, any unemployment insurance contributions which are due or benefits that were overpaid, funeral expenses, administration expenses, and claims made by the State or Federal Government.

Attorney Justin M. Prince

What is Elder Law?

I get asked the question, “What is Elder Law?” frequently.  Elder Law is a broad umbrella that covers estate planning, including the preparation of wills, trusts, powers of attorney, and health care or medical directives.  It also includes the appointment of guardians and conservators as well as probate and trust litigation.   Elder Law also includes Medicaid and long-term care planning including asset preservation or proper spending down.

Elder Law is a specialty.  It is not an area of law many attorneys practice because of its complexity.  First, the law is always changing.  For example, Wisconsin had a major change in its rules in 2014.  The rules had changed in 2008.  In addition small changes occur in between the big changes to tighten the already tough rules.  Second, Medicaid law requires that attorneys have a knowledge base in other law, such as taxation, real estate, veteran’s benefits and social security.  Without knowledge of these other areas, proper advice cannot be provided.

Finding a competent elder law attorney does not have to be difficult. The National Academy of Elder Law Attorneys (“NAELA”) provides an online resource for finding members of that organization.  NAELA is the only national organization of elder law attorneys.  It has over 3,000 members from every state.  Wisconsin has an active chapter with NAELA.  Attorney Terry Campbell, Attorney Elizabeth Ruthmansdorfer and Attorney Stephen Lasky with Moertl, Wilkins & Campbell are all members of NAELA.  In addition, Attorney Campbell and Attorney Ruthmansdorfer are certified with the VA to answer questions regarding Veterans benefits for long term care.

Attorney Elizabeth Ruthmansdorfer

Powers of Attorney and the Appointment of Agents

The television show, “School House Rock!,” was a series of shorts using songs to teach multiplication tables, grammar, science, etc.  A version of this classic show could apply to the appointment of agents on powers of attorney – “Function, function, what’s your dysfunction.”

The best well-drafted power of attorney can be thwarted by the wrong choice of agents and/or a lack of communication with the intended agent about your expectations.  All families have a certain amount of baggage.  There can be jealousies, resentments and greed.  If you are old enough to remember the Smothers Brothers, you remember the debate, “Mom liked you best.”  The same accusations surface as children react to a parent’s estate planning decisions.  Children don’t always like each other.  Children do not always speak to one another.  Do not ignore the realities of these relationships when you choose an agent to act for you on a health care power of attorney or a financial power of attorney.

Our office recently encountered a case where a son was appointed financial power of attorney by Mom.  Son and daughter had not spoken in over 30 years.  When Mom became incapacitated, the daughter asked her brother to share basic financial information regarding their mother.  The son’s answer was that he had been appointed the financial agent and he didn’t have to give his sister any information whatsoever.  Take a hike!  Was this the intent?  While one child may be appointed a financial agent, it is generally an expectation that basic information will be shared with siblings.  In this particular case, it may not have been a good idea to appoint either child to act as an agent.  However, in making the decision to appoint a child as agent, there should have been some further instruction within the document as to what information, if any, should be shared with a sibling.

The role of agent comes with a lot of responsibility.  This person may be in charge of health care and how health care is managed.  This person will have complete access to all of your financial information, be responsible for paying bills and managing investments.  In many cases, a child will be an excellent choice to serve in this capacity.  It is important that you understand and seriously consider the responsibilities that come with the appointment of an agent.  If the appointment of a child is the recipe for a disaster, carefully review with your advisor other available options.

Attorney Terry L. Campbell

What is the Wisconsin Long Term Care Insurance Partnership (LTCIP) Program?

The Wisconsin Long Term Care Insurance Partnership (LTCIP) Program is a joint effort between the federal Medicaid Program, long-term care insurers and producers (e.g., agents and brokers), and the state of Wisconsin Department of Health Services and Office of the Commissioner of Insurance.

The purpose of the Wisconsin LTCIP program is to incentive self-funding of future long-term care needs through the purchasing of qualifying long term care insurance policies.

Under the Wisconsin LTCIP program, an amount equal to the amount of benefits that an individual receives under a qualifying LTCIP insurance policy is excluded when determining:

  • The individual’s resources for purposes of determining Wisconsin Medicaid eligibility and
  • The amount to be recovered from the individual’s estate if the individual receives Wisconsin Medicaid benefits.

In other words, purchasing a qualifying LTC insurance product may eliminate the need for you to apply for Medicaid benefits to pay for your long term care needs.   However, if you do ultimately require Medicaid benefits (i.e., if you exhaust the entire LTC benefit of your policy), you will be allowed to keep assets and still qualify for Medicaid that you would not otherwise be allowed to keep.

LTC insurance products can be expensive and are not for everyone.  However, if you do qualify for coverage and are willing and able to pay the premiums, a qualifying LTC insurance product can play a role in planning for your long term care needs.

Attorney Stephen A. Lasky

Personal Property Memorandum

Estate planning typically focuses on the efficient administration and transfer of real estate, retirement accounts, bank accounts, brokerage accounts, insurance policies and other property that likely comprise the bulk of your wealth. However, quite often, your most cherished and sentimental assets are personal property items, including family jewelry, art work, furniture, and antiques. Unlike cash equivalent transfers, frequently motivated by tax implications and long term care planning, the gifting or distribution of a family heirloom is a commonly recognized as a tremendous display of affection to a loved one, beyond monetary value.

Writing each item and its corresponding beneficiary directly into your will can prove cumbersome. If you merely change your mind about the distribution of a single item or choose to add an item, you will need to execute a witnessed codicil or amendment.

Wisconsin, along with 29 other states, permits individuals to list possessions and the specific people to inherit them in a document, separate from a will, called a “personal property memorandum.”

Preparing the memorandum and incorporating it into your will is remarkably informal relative to other estate planning documents. All you have to do is make a list of personal items and the individuals you want to inherit them, sign and date the document, make reference to a personal property memorandum in your will—and voila, the memorandum is ready. Please note that the reference in your will should not point to a particularly dated memorandum or outline any specific personal property distribution pattern – such would defeat its very purpose.

You are not required to sign the memorandum in front of witnesses and your signature need not be notarized. If there are multiple memoranda, the last dated and signed document will control.

It is vital to keep your updated memorandum with your will, where your personal representative or trustee can easily find it.

Illinois, among other states, does not allow personal property memoranda, meaning, personal property as a class or each item individually must have a transfer directive within the will.

Attorney Justin M. Prince