Certainly, estate planning is not a “one size fits all” endeavor – the components and content of your estate plan should be tailored to your unique situation and priorities. In general, however, a good estate plan should address two broad areas – planning for your lifetime and planning for after your death.
The primary purpose of planning for your lifetime is to allow you to appoint someone to act in your place in the event that you become physically or mentally incapable of making financial or healthcare decisions on your own behalf. The principal documents used to achieve this purpose are the general durable and health care powers of attorney, which you can read more about in the powers of attorney and guardianship section of our website.
Planning for after your death is primarily concerned with selecting the manner and mechanism of the management and distribution of your assets after you are gone. The two most common vehicles for achieving this purpose are the Will and the Revocable Living Trust.
In the absence of any estate planning, your assets will pass according to Wisconsin’s law of intestate succession, and, with few exceptions, will require a probate proceeding. Therefore, by failing to put an estate plan in place, you forgo the ability to decide who shall benefit from your estate and who shall be responsible for the probate administration of your estate.
Both Wills and Trusts provide you with the opportunity to decide who, and in what amount, will receive your assets following your death. Both documents also allow you to appoint someone to be responsible for handling your affairs. However, Wills and Trusts achieve these objectives in different fashions, and each have advantages and disadvantages.
In Wisconsin, the rules governing the form and execution of Wills are found in Chapter 853 of the Wisconsin Statutes. Wills which do not meet these requirements are not valid under Wisconsin law. It is important to recognize that, by choosing a will as your primary estate planning vehicle, you will ensure that your estate will be administered through a probate proceeding. You can read more about the probate process in the probate and trust administration section of our website.
A Will allows you to specify to whom, and in what amounts, your assets will be distributed upon your death. You can bequeath specific items or dollar amounts, or percentages of your total assets at the time of your death. You can give your assets to one or more of your family members, charities, other institutions, or combinations thereof.
Through your Will, you can appoint the person you would like to be in charge of administering your estate. In Wisconsin, this person is known as the “personal representative” of the estate (“PR”). The person who serves as your PR will be responsible for collecting the estate’s assets and distributing them to their intended recipients. The PR will also be responsible for making sure all of the required documents are filed with the probate court, and for making sure that all applicable time deadlines are observed.
Typically, Wills have the advantage of being easier and less expensive to put in place than a living trust instrument, and therefore, provide an attractive option for people looking for an effective but less time and cost intensive way by which to make a simple and outright distribution of their assets to their beneficiaries.
Like a Will, a Living Trust (“LT”) allows you to specify to whom, and in what amounts, your assets will be distributed upon your death.
When you set up a LT, you appoint someone to serve as the Trustee. During your lifetime, you will name yourself to serve as Trustee, which means that you retain complete control over your assets. In the eyes of the IRS and State taxing authorities, a revocable LT is transparent, which allows you to buy, sell, trade, mortgage, liquidate, gift or otherwise treat LT property as your personal property while having no impact on your personal income taxes.
In addition to appointing yourself as Trustee during your lifetime, you appoint someone to serve as successor Trustee in the event of your incapacity or death. The successor Trustee can be a family member, attorney, or other trusted individual. This person will be responsible for managing and distributing your assets in the manner dictated by the LT instrument.
Although a LT can provide for the distribution of your assets in the same manner as a Will (for example, according to percentage of total assets, dollar amounts, etc.), LTs also offer the opportunity for long-term property management. In other words, your trust instrument can direct that your trustee hold and manage the assets for the benefit of one or more individuals or institutions, either for a specified period of time, or until a specified event occurs.
For example, many parents set up a LT which provides that, if they both die, the successor Trustee shall hold and manage the parents’ assets for the benefit of their children (rather than giving the children complete and immediate access to their share of the assets). The parents may further specify ages (e.g., 18, 25, 30, etc.) or events (e.g., graduation from high school, college, full-time employment, etc.) at which the children will receive outright some or all of their share of the assets. Until then, the successor Trustee is often given the authority to use the assets for the benefit of the children (e.g., school tuition / expenses, medical bills, living expenses, etc.).
When executed properly, LTs also offer the advantage of avoiding probate. However, for a LT to effectively avoid probate, all of your personal assets must be re-titled in the name of your LT. Any assets not so titled will require a probate proceeding, and may pass to individuals to whom you did not intend them to pass. Therefore, setting up and maintaining an effective LT is more expensive and time consuming than a Will – both initially and throughout the course of your life.
The converse benefit of the effort and expense of setting up and maintaining a LT is that trust administrations are typically less expensive and time consuming than are probate administrations. Married couples may also realize an estate tax benefit by selecting a living trust as their primary estate planning vehicle.
“Pour-Over” Wills and Testamentary Trusts
It is important to note that Wills and LTs are not mutually exclusive, and that many estate plans will employ both.
A LT should always be accompanied by a “Pour-Over Will.” If all of your assets are properly titled in the name of your LT, the Pour-Over Will (“POW”) will serve no function. However, in the event you own any assets at your death not titled in the name of your LT, the POW directs that such assets pass to your LT. While this will unfortunately implicate the probate process, it has the advantage of making sure that all of your assets (even ones not properly titled) will be distributed according to the terms of your LT, and not accordingly to the laws of intestate succession.
For individuals who do not want to invest the time and resources necessary to execute, fund, and maintain a LT but may at least potentially have a need for some of the long-term asset management offered by a LT, it is possible to execute a Will which contains what is called a “Testamentary Trust” (“TT”).
For instance, parents who have minor children who wish to restrict access to inheritance until the children reach a certain age may choose to set up a Will with a TT; the TT will only come into existence if the parents die before their children reach the desired age.
Like any Will, a Will with a TT has the disadvantage of requiring a probate proceeding, regardless of whether the TT is ultimately used. If it is used, the Trustee of the TT will need to pay certain court fees and satisfy other court requirements throughout the life of the TT.
So, Wills, LT, and Wills with TT provisions each have advantages and disadvantages, costs and benefits. The type of document appropriate for your estate plan will depend on your situation, goals and objectives. For this reason, it is important to speak with an estate planning attorney who will take the time to listen to and understand your circumstances and goals, and then help you tailor an estate plan that is right for you.