Wednesday, February 29, 2012

What Is A Marital Property Agreement?

Image credit: - free image

Marital property agreements are a contract between a husband and wife that clarify how property should be treated upon death and or divorce; either as individual or marital.  The State of Wisconsin asserts that a sound marriage is a partnership of equals, a concept that provides the foundation for the Wisconsin's Marital Property Act, enacted in 1986. The law presents benefits and pitfalls.  The law is complex, and is full of exceptions.  Wisconsin’s Marital Property Law  recognizes that both spouses contribute to supporting a marriage — even if only one earns a salary, or if both draw an income but one earns more than the other. The law says that whatever the couple acquires during their marriage should belong to them equally. This translates into certain advantages. For example, a nonemployed spouse has easier access to credit, and each spouse can make individual decisions about bequeathing assets.

Marital property includes all income and possessions a couple acquires after their "determination date", however, there are certain exceptions. The determination date is the latest of: the couple's marriage day; the date when they both took up residence in Wisconsin; or Jan. 1, 1986.   There are two important related concepts.  One is survivorship marital property, which passes directly to the surviving spouse upon the other's death. It does not pass under a will. An example would be a house that has both spouses' names (and only their names) on the title. A second is deferred marital property.  This term applies to property that would have been classified as marital property except that it was acquired before the couple's determination date. Say a couple moved to Wisconsin in 1995. All the property they brought with them did not automatically become marital property just because they moved to Wisconsin. But if one spouse dies, the survivor may have rights to a certain amount of money, based on the value of what would have been marital property if the Marital Property Act had been in effect during the entire marriage. The upshot is that the surviving spouse in this situation has some economic protection, even if not the beneficiary of the other's estate.

A marital property agreement is a contract between husband and wife that classifies property (assets and liabilities) as either marital or individual, and would be reviewed by a court upon either divorce and/or death.  If property is classified as individual, then the spouse who owns the property may give it to anyone he or she wishes.  This means that the other spouse has no legal interest in the property, which is contrary to Wisconsin’s Marital Property Law.  By agreeing to classify property as individual, the spouses are forgoing his or her legal claim to the property.  Please note that marital property agreements are not always upheld in court.  Reasons for a court disregarding a couple’s stated intentions in a marital property agreement include, but are not limited to: inadequacy of counsel, no counsel, or one party did not fully disclose his or her assets.

Marital property agreements can be entered before or after marriage.  The agreements can be used three different ways:

  • state that everything brought into a marriage will be individual, and everything after will be marital;
  • state that everything brought into as well as acquired after marriage will be individual; or
  • state that everything brought into as well as acquired after marriage will be marital.
When should you consider a MPA?
  • marriage with blended families;
  • marriage when property should follow the bloodline - i.e. pass interest in lake property from mother to child(ren) and skip her husband; or
  • if a need to clarify ownership is crucial.
This brings me to the end of my month of definition posts.  Thanks for reading.  Remember, a blog post is not legal advice.  I advise you to consult with an attorney for counsel specific to your situation.

I'll be back tomorrow with more posts....specifically, a book recommendation.

Tuesday, February 28, 2012

What Is A Pet Trust?

Pet trusts are not just for the likes of Hollywood mega-stars or the super rich.  They can, and do, serve a role in planning for the regular person.  A pet trust is usually a testamentary trust, meaning it is not created until a will is admitted to probate.  If the decedent owned a pet at that time, the trust would be created.  Essentially a basket, the trust would hold both the animal(s) as well as cash.  The animals are considered property, and would be "transferred" to the trust.  A pet trust would also:

  • name a caretaker and successor;
  • nominate a trustee to manage the funds;
  • provides instruction on what should happen to remaining funds when the animal(s) die; and
  • ends upon the death of the last animal.
You may want to consider a pet trust if:
  • you have a pet with a long life span, such as a parrot or tortoise;
  • you have a pet with health needs that would be a burden on the person willing to care for the animal upon your death; or
  • if you have animals that are valuable -- horses, show dogs, etc.
Image credit: - free image

Monday, February 27, 2012

What Does Tenants in Common Mean in Estate Planning?

Tenants in Common is one of several ways in which a person can hold title to property.  Another would be joint tenants.  A key feature of Tenants in Common for estate planning purposes is that the heirs of person with a tenants in common interest will inherit (unless of course a will states otherwise) as opposed to the other tenant(s).

Image credit: - free image

For example, if Harry and Sally own a home as tenants in common, and they are not married, upon Harry's death his heirs will inherit his ownership interest, not Sally.  Of course, exceptions can and do exist.  So it is wise to consult with an attorney and not rely on a blog....this is not legal advice.

It never fails, several times a year I have clients who are amazed to read the deed to their home and discover phrasing such as tenants in common.  Even if married, the interest would have to pass through probate to go to the spouse.

Sunday, February 26, 2012

What Does Fiduciary Mean?

Fiduciary is a term in estate planning that connects a person who is acting on another's financial behalf.  Usually it is coupled with "responsibility".  When explaining it to clients who are executing powers of attorney for finance, I explain that the person they are appointing to act for them has a duty or responsibility to acting reasonably.  Essentially, if they are managing the money, they should not run off to Las Vegas with it.

Image credit: image

Saturday, February 25, 2012

What Does Per Stirpes Mean?

Per stirpes is one of those Latin phrases found in the law that people may have heard of but do not really understand. I think it is best described using the metaphor of a tree.

Image credit: - free image

Under per stirpes, each branch of a family receives an equal share.  So, if you have three children who each have two children and a child of yours predeceases you, under per stirpes distribution child 1 would inherit 1/3, child 2 would inherit 1/3, and grandchild 1 would inherit 1/6 as would grandchild 2.  Another phrase for this same concept, that is not in Latin, is "by right of representation".

When working with clients I routinely ask whom should receive an inheritance if the person they just named would predecease them.  And it is here that per stirpes or by right of representation is most commonly used.

Remember, a blog is not an attorney.  Please consult a lawyer in your area for advice on your specific situation.

Friday, February 24, 2012

What Is A Living Revocable Trust

If you are over a certain age, you most likely have received a post card in the mail inviting you to a free chicken dinner at a nearby hotel....and the meal comes with a FREE lecture on living revocable trusts.  Beware.  These trusts do serve a purpose in the world of estate planning, but they can also be a rip-off, peddled by people who are not attorneys.

A living revocable trust is a trust that a person creates during life.  Assets can be added and removed, hence the revocable in the name.  I always say that trusts are like a basket, created to hold and manage assets.  The grantor transfers an item to a trust, a trust document (essentially 30 page or more of language) dictates how the trust will be run, and at some point in time the trust will end.

Historically this type of trust was used to transfer a home outside of probate.  The idea is that the cost of creating a trust and transferring the deed to the trust would be less than the cost of probate.  That may be true in some states, but not necessarily so in others.  In Wisconsin the cost of an item going though probate is 0.2 percent, or $2 for every $1,000 in value the court is "passing" on to the heirs.  That fee can be compared to the cost of creating a trust and doing the necessary deed changes to move the property into a trust.  All too often I see people who paid $3,000 for a trust that is empty -- the people who sold it to them were not attorneys and did not change the deed.  The trust was empty, and the house was going to go through probate.

Trust can also create tax headaches if the trustee is not financially savvy.  Here are a few situations when I think a living revocable trust might be worthwhile:

  1. properties owned in several states (i.e. home in Wisconsin, cabin in Michigan, and a condo in Arizona).  A trust would avoid doing a probate in three states;
  2. when privacy is important.  Some people do not want an inventory of all their assets filed with a court upon death -- anyone can take a look; and
  3. when substantial probate assets are owned an no other non-probate mechanism is available to transfer the property.
Entire books have been written on living revocable trusts.  It is a lucrative instrument, and is often sold with that in mind more than a clients needs.  Gather information from several sources before making a decision on a LRT.

And remember, a blog is not a lawyer.  Please seek counsel from a licensed attorney in your state.

Thursday, February 23, 2012

What Is a Testamentary Trust

A testamentary trust is a trust that does not yet exist.  Instead, the recipe for its creation is embedded in your will (hence the use of the word testament).  For example, my will leaves all of my assets to my husband.  However, if he should predecease me or we die together, my will contains instructions for the court to create a trust to hold my assets, for the benefit of my children.  My will further nominates someone to manage that trust, called a trustee, and has the trust remain in existence until my youngest living child reaches age 30.  That is an age we selected, not a requirement.

Other uses of testamentary trusts include:

  • trusts for adult children who would blow through an inheritance and need a trustee to guide them;
  • trusts for aging parents who are not able to manage assets on his / her own;
  • trusts for four-legged members of the family (aka pet trusts); and
  • trusts to minimize potential estate taxes upon the death of the surviving spouse.
Testamentary trusts are commonly overlooked.  Most people are more familiar with living revocable trusts.  Check out my blog tomorrow for more on living trusts, and when I  think they are useful.

Thanks for reading, and remember a blog is not an attorney -- please consult with a lawyer for advice specific to your situation.

Wednesday, February 22, 2012

What Is An Estate Plan?

It happens weekly.  I sit down with a  new client and the first thing he or she says is "I don't need an estate plan, I just need a will."  How wrong they are!  Anyone over 18 needs an estate plan.  People wrongly associated "estate plan" with the likes of the Kennedys or Rockefellers.  Granted, your documents may not look like a Kennedy's estate plan, but you still need one.  What is an estate plan?  I always say it is three things, planning for: illness, death and taxes.

Planning for illness involves creating powers of attorney for health care as well as finance that state who is in charge of decision making if you are not able.  Some states, including Wisconsin, are NOT next-of-kin states.  That means there is no automatic assumption that your spouse, parent, adult child, etc. can make those decisions for you.

Planning for death involves creating documents that state what should happen to your "stuff" upon your death.  A will distributes your probate property, nominates a guardian for minor children, and nominates a personal representative.  Earlier this month I posted extensively on each of these topics.  Planning for death may also include creating and or funding a trust, which is a form of non-probate property.  Finally, death planning should include a review of beneficiary forms on assets such as life insurance and retirement accounts -- do they say what you think they say?

Planning for taxes is an item most people can skip over.  However, one should do a quick review to see if he or she is in danger of triggering the federal estate tax upon death.  Also, determine if your state has its own state estate tax.

And there you have it, an estate plan for the middle class.  Remember, a blog is not legal advice.  Please consult with an attorney licensed in your state for advice specific to your situation.

Tuesday, February 21, 2012

What Is A Living Will?

"Living Will" -- I could not think of a worse name for this instrument if I tried.  Declaration to Physician is what it is less commonly known as, and is just what it is.  In Wisconsin it is a document that allows you to speak directly to your medical team about your wishes if you are in an end-of-life state.  Here that is defined as a permanent loss of consciousness or a terminal illness with no hope of recovery.  Two treating physicians determine if you are in this state, and if you are, you can record your wishes about the use of equipment to keep you alive.  Ventilator?  Feeding tube?  CPR?

Photo credit: - free image

Unlike a power of attorney for health care, a declaration to physicians does not empower someone to speak for you.  Rather, it captures your wishes in a form that doctors can turn to if you are not able to speak.  Completing one is one of the easiest things you can do to take control of your life and express your wishes.

Please remember, a blog is not an attorney.  This post is not legal advice.  Please consult an attorney in your area.  And thank you for reading.

Monday, February 20, 2012

What Is a Trustee?

There are a lot of words specific to estate plan that are tossed around a lighting speed, which can confuse a great many people.  One of them is "trustee".  Time and time again I have clients say, "wait, what is the trustee again?"

A trustee is a person or organization that someone appoints to manage assets in a trust.  That may be a trust created during live (called a living trust) or one created at death (testamentary trust).  The trustee handles investment of the assets, coordinates tax forms, and writes checks to the beneficiaries.  The trustee can be a trusted relative or friend, or it can be an organization, usually the trust department of a large bank or financial institution.

Photo credit: - free image

A trustee is not the same as the personal representative.  See my earlier post about that role.  They can be the same person, but they are different job functions in the world of estate planning.

Sunday, February 19, 2012

What Is An Inheritance Tax?

"Will I have to pay an inheritance tax?" -- it is a question that I hear at least once a week.  And most people let out a huge sigh of relief when I say no.  But that is followed with an explanation of why.

Here in Wisconsin there is no "inheritance" tax.  When a person receives a lump sum amount (either in cash or an item), that transfer of property is not taxed.  However, if that property, once transferred, generates income, the income would be taxed at the person's tax rate.  For example, is Sue inherits $300,000 from a life insurance policy on her mother, Sue will not pay a tax on the  $300,000.  If Sue invests that money in a CD or the stock market, and it earns money, then those earnings will be included in Sue's income tax for that year.

When people use the phrase "inheritance tax" I think they really mean, estate tax.  That is a tax the estate pays, prior to distribution to the heirs, if the estate exceeds federal and or state exemption levels.  If it is below the level, it is exempt and no tax is paid.  If it exceeds, taxes are owed.  The estate pays the tax, not the heirs.

Photo credit: - free image

And if you are trying to maximize the bang of a dollar on an inheritance, you might want to consider taking a lump sum cash payout and using it to pay down debt.  The move will avoid any generation of income tax, and save you the interest that you would otherwise be guaranteed to pay.  My parents used this strategy and paid off the remainder of their mortgage.

Remember, a blog post is not legal advice.  It is wise for you to consult with an attorney in your state.  Thanks for reading.

Saturday, February 18, 2012

What Is Non-Probate Property

In the world of estate planning and probate, there is a very important term -- non-probate property.  Non-probate property is any asset you own that has a label on it that states what should happen to the asset upon your death.  Because it has this label, its distribution at your death is not controlled by your will.

Common examples of non-probate property include:

  • retirement accounts with completed beneficiary forms;
  • life insurance with completed beneficiary forms;
  • Pay on death cards associated with bank accounts;
  • Transfer on death cards associated with brokerage accounts;
  • Trusts; and
  • Transfer on Death Deeds for real property.
Photo credit: - free image

When I work with clients it is crucial that we identify what non-probate assets they own, and make sure the beneficiary forms are up-to-date, complete, and recorded properly.  More and more, people have a greater percentage of their net worth in non-probate assets.  When doing an estate plan, do not neglect the beneficiary forms.

Please remember that a blog post is not legal advice.  It is best that you consult with an attorney in your area for advice specific to your situation.

Friday, February 17, 2012

What is a Power of Attorney for Finance?

A power of attorney for finance is a form that you can complete that states who you want to handle your financial life if you are too sick to do so yourself.  Similar to a power of attorney for health care, it allows you to control who handles the financial matters of your life if you are in a coma, have dementia, are in long-term care, etc..  Upon your death the authority of the power of attorney ends, and the personal representative who take over financial duties.

Image credit: - free image

When selecting who to appoint, give thought to what people in your life are good with financial matters, have the time to take over your financial matters, and can function well if you are very ill.  Often times I hear people say "I don't need a POA for finance because I am married" or "because my daughter is listed on my bank account".  In my opinion those statements could not be farther from the truth.

Wisconsin, as are many other states, is not a next-of-kin state.  That means your spouse, partner, adult children, have no automatic authority to make financial decisions for you if you become incapacitated.  And your financial life spans much broader than the few accounts you have at the bank.  It includes, but its not limited to:

  • signing state and federal tax forms;
  • retirement accounts;
  • employer human resource issues; 
  • Social Security Administration;
  • filing a personal injury law suit; and
  • contacting life insurance and other carriers.
Without a POA for finance in place, should you loose capacity, someone from your circle of loved ones will need to go to court and seek guardianship over your financial life.  That will take time, cost thousands of dollars, and add to the stress of an already stressful time.  Taking action now will save money, reduce stress, and allow you to control who acts if you are not able to.

Thursday, February 16, 2012

What is the Gift Tax?

The gift tax is a tax owed by the person making a gift, if the gift is not exempt.  What makes it exempt?  In 2012 any gift that is less than $13,000 avoids the gift tax.  In other words, you can give any one person $13,000 this calendar year and you, the giftor, are not responsible for the tax.  However, problems crop up when people make a gift without realizing they made a gift.  Adding a child or partner's name to a deed or bank account is most likely considered a gift.  And in most cases, that gift exceeds the annual exemption.  Also, if a person dies and names only one of their children on the life insurance beneficiary form, and that one child does as mom or dad asked, and splits the money with his or her siblings, if each share is more than $13,000, a gift has likely occurred.

Image credit: - free image

I always joke that it is cheaper to hire a lawyer for advice before taking action, than hiring one to clean up a mess.  Before slapping people's names on deeds and accounts or filling out forms, it is wise to seek a professionals advice.  Otherwise, the IRS may come knocking.

Wednesday, February 15, 2012

What Is Intestacy?

Intestacy is one of those estate planning words that people know they have heard before, but cannot really give a definition when asked.  Simply put, intestacy means you have died without a will.  As a result, state statute will control the disposition of your probate property (property that does not have a beneficiary form).  The rules for distribution in Wisconsin are visually displayed in this chart.  Some people are fine with the State's assumptions, some are fine up to a certain point, and others disagree completely.  Take control of the situation by doing a will, avoid the intestate estate.

Photo credit: - free image

Tuesday, February 14, 2012

What Is Tangible Personal Property

Tangible Personal Property, or simply TPP, consists of the personal items in a persons estate.  Examples include:

  • jewelry;
  • art work;
  • collectibles;
  • the family Bible;
  • grandpa's hunting rifle;
  • photographs;
  • furniture; and
  • the list goes on.
Often times this items are worth more in emotional value than financial value.  However, they can cause huge disputes during the time following a loved one's death.  Mom's engagement ring cannot be divided into three pieces.  A new owner must be selected.  By doing a will you can take control over the situation. 

Usually an attorney will insert a paragraph into a will that says "I may leave another document, signed and dated by me, that lists my TPP and whom it should to go upon my death".  If created, the personal representative should distribute accordingly.  It is the legally enforceable alternative to putting a post-it note on items saying "to Sue upon my death."

The nice thing about these types of forms is that they can be updated without the assistance of an attorney.  That saves money and makes it more likely that they'll be kept up to-date.  So, if a person inherits an item, makes a purchase while traveling, or downsizes and gives things away....the list can be current without paying legal fees.

Thanks for reading.  As a reminder, February is being devoted to posts defining basic estate planning and probate concepts.  

Monday, February 13, 2012

What Is A Transfer on Death Deed?

Regular readers of my blog know that I am devoting the entire month of February to translating legalese into English.  Today's phrase is "transfer on death deed".  It is a deed for real property (home, cottage, vacant lot) that states who should receive the property upon the owner's death.  In plain English that means when the owner dies, it gets transferred to the person(s) listed, and that transfer occurs outside of probate.  It will cost less and occur much faster.

What is the drawback of a TOD Deed?  First, Transfer on Death Deeds are not available in all 50 states.  They came to Wisconsin in 2006, and exist in about a dozen other states (see a previous post for a listing).  TOD Deeds do not allow for contingent planning.  Essentially you cannot say I leave this to Sue, and if Sue predecease me then to Tim.  Finally, TOD Deeds require you to list people.  You cannot list a class of people, such as "my children".

TOD Deeds offer a nice alternative to the traditional living revocable trust, which historically was used to transfer homes outside of probate.  However, TOD Deeds are far less expensive and cumbersome to use.

If this sounds appealing, contact a lawyer in your area to see if the option is a good one for you.  Remember, a blog is just a is not legal advice.

Photo credit: - free image

Sunday, February 12, 2012

What is a TOD?

TOD, yet another three letter acronym that bounces around in estate planning and probate discussion.  It stands for Transfer on Death.  Essentially it is a beneficiary form put on brokerage accounts. This is slightly different than POD (pay on death) labels that can be put on accounts at banks and or credit unions.  However, the accomplish the same goal - transferring the asset outside of probate.

In the past few years I have heard that brokerage houses are now charging fees of $75 to $250 to create, change, or execute TODs on accounts.  This was NOT the case more than five years ago.  It seems that the new fees cropped up following the financial meltdown.  Ever the frugal person, I'd tell my brokerage house to either wave the fee or I will be searching for an institution that isn't nickle and diming me.

Photo Credit: - free image

Saturday, February 11, 2012

What Is A POD?

The law is cluttered with three letter acronyms.  And one of the most common is POD. It stands for Pay On Death, and is commonly associated with accounts held at a bank or credit union.  By placing a POD on your accounts you are creating a label that tells the institution what to do with those assets when you die.  You are NOT transferring an ownership interest during your lifetime.  Rather, you are saying "upon my death, please give this asset to X".

Why do a POD?  The most common reason is to avoid probate.  This allows the transfer to occur very quickly (usually a matter of weeks if not days) and avoids fees associated with probate.

I do see clients who go overboard on PODS, creating so many that there are no assets in the estate when they die.  Yes, that means they avoid probate.  But they've also created a situation where the question is raised - who is going to pay the final medical bill, credit card statements, etc.  Sometimes it is a good idea of have a small amount of money left in the probate estate to take care of those final expenses.

Photo credit: - free image

Friday, February 10, 2012

What is the Estate Tax?

If there is on tax out there that bothers far more people than it ever touches, it is the estate tax.  What is it and when should you be concerned?

The estate tax is a tax that is owed, by the estate of a deceased person, to either the federal and or state government if the person had a net worth over a certain amount.  That amount is referred to as the exemption level; if the net worth is below the amount, the estate is exempt.

The current federal exemption level is $5 million for an individual.  However, unless Congress takes action before the end of the year, it will revert back to $1 million per individual on January 1, 2013.  Net worth means assets, minus liabilities.  Probate and non-probate assets are included in the review.  As are many life insurance policies -- something that surprises quite a few clients.

Given the exemption levels, most Americans will live and die without the tax ever effecting them directly.  Yet, many people experience stress and worry.  Some states do have their own version of an estate tax.  At the time of this blog post Wisconsin, where I live, does not have an estate tax.

If your assets, minus liabilities, including life insurance are bumping the $1 million mark AND Congress does not take action to raise the exemption, you may want to learn more about ways to minimize and tax liability.  An attorney, CPA, or fee-based financial professional are all excellent resources.

Thursday, February 9, 2012

What is Residue in Estate Planning

Residue -- the word can take on various meanings depending on the subject area it is being used in.  In the world of estate planning it means the probate property that has not already been specifically given away.  For example, a person may draft a will that says "I leave my house to my church.  And I leave the residue of my estate to my children, in equal shares".  Residue is a quick way of saying all of my other, unspecified, probate property should go to my children.

Photo credit: - free image

And there you have it, residue defined in the context of estate planning.  Absent of any mention of soap.

Wednesday, February 8, 2012

What is Probate

Probate -- a word that strikes fear in nearly everyone.  In reality, depending on where you live, probate may not be nearly as bad as you might imagine.  Your fears are often used to sell you cumbersome, overpriced trusts so that you will avoid probate.  Before turning over thousands of dollars, understand the basics so that you can make an informed decision.

Probate is the legal process by which assets of the decedent are transferred to new owners.  If the decedent had a will, the will tells the court what to do with the probate property.  If there was no will, then state statue controls the distribution of assets.  In Wisconsin those rules are set out in Chapter 852 of the Wisconsin Statutes.

Also, it is important to note that the probate process only casts a net over probate property.  That is defined as property that does not have a label on it stating where it should go upon the owner's death.  Common examples include tangible personal property (jewelry, clothes, furnishings, etc.), vehicles, bank accounts, and homes. Excluded from probate are assets that have a beneficiary form, such as those on life insurance and or retirement accounts.

At the time of a person's death, the personal representative nominated in a will is supposed to file the will with the court.  The court will issue a letter (domiciliary letter) stating that the personal representative is authorized to handle matters related to the decedent's estate.  That means they can close accounts, shut off cell phones, talk with accountants, sell property, etc.  During the initial phase of probate the personal representative is required to give notice to all known and unknown creditors of the decedent.  In Wisconsin those creditors have 90 days to file a claim against the estate.  Using an "estate of checking" account opened by the PR, final bills are paid, proceeds from assets being sold are deposited, and if there is a positive balance at the end, the remainder is given out according to the terms of the will or if no will, by statute.

Fees associated with probate vary greatly from state to state.  In Wisconsin the current fee is 0.2 percent.  That means $2 for every $1,000 (liquid and ill-liquid) are owed to the court at the time the inventory is filed. However, in some states, the fee can go as high as 10% or 15% of the probate value.

Probate also takes time, or at least more time that non-probate transfers.  The court is involved, creditors have to be notified.  Selling real estate and reaching resolution on final medical bills commonly slow down the process so that 18 months from start to finish is considered timely.

If you are considering taking measures to avoid probate in your state, I urge you to slow down, gather information, and make an informed decision.  What is a true cost of probate (the fee plus a few thousand for attorney fees) and compare it to the cost of a trust -- often the vehicle sold with the promise it will avoid the hassles of probate.  Beware, trusts avoid probate, but often create an entirely new set of expensive problems.

Tuesday, February 7, 2012

Small Estates and Transfer by Affidavits

Last week I met with a women who was handling the affairs of her mother who had died just over a year ago. I could tell that she dreaded the p-word, probate.  The smile that enveloped her face when I told her that no probate was needed was the perfect way to end my day.  Sometimes I actually get to deliver good news!

In Wisconsin, if a person dies with a probate estate of less than $50,000, probate can be avoided.  Instead an obscure form known as the Transfer by Affidavit can be used.  The forms tells a financial institution to close out the account and send the money to the person filing the affidavit.

Photo credit: - free image

The idea behind this process is that it does not make economical sense for a probate to be open when the probate assets are small.  Hence, in some states it is called a Small Estate Process.  The key is to know whether the probate estate is less than $50,000.  To answer this you need an inventory of probate property and their value upon the date of death.

Probate property is anything that does not have a label on it stating where it should go upon the owner's death. If there is a label, then it is considered non-probate property, and avoids the probate process.  In theory, person could have several hundred thousand dollars, even millions, and still file a "small estate" transfer by affidavit if the probate estate was less than $50,000 (that is the current threshold, it was increased from $20,000 several years ago).

Please keep in mind that laws regarding probate and estate planning vary from state to state, and that a blog is not legal advice.  Please consult an attorney in your state about your specific situation.  But, before loosing sleep over the dreaded p-word, first rule out that a small estate transfer won't work.

Monday, February 6, 2012

What Is A Guardian?

The word guardian in the context of estate planning can mean one of two things.  The most common is the person you nominate in your will to take over the day-to-day activities of raising your child(ren) if both parents die.  The guardian functions as the parent until the child reaches age 18.  Deciding on who should be the guardian seems to be the main reason parents of young children do NOT complete an estate plan because they cannot reach a decision.  Do not let this choice throw you off.  The last thing a child needs who has lost both parents it ambiguity or a fight over who will step in to raise them.  If you need guidance on how to reach a decision, check out a previous blog entry I wrote.

Guardian can also refer to a court appointed person who is in charge of an individual's health and or financial matters.  This person would be appointed by a judge as part of a guardianship proceeding, which occurs when there is no power of attorney for health care and or finance for the individual.  To be concise, guardianship is avoided when a person creates a power of attorney stating who should handle health and or financial matters if they are too sick to do so.

Thanks for reading, a remember, a blog is not a substitute for legal advice.  It is always wise to consult an attorney in your state about your situation.

Sunday, February 5, 2012

What Is A Codicil?

Codicil is a fancy word for an amendment to your will.  It is useful when you have minor edits to make to an existing will.  Examples would include changing the name of your personal representative or guardian for your child or hanging the dollar amount of a gift to charity.  If you have broader, more structural changes, a codicil is probably not a good idea.  This would mean if you need to build in a trust for minor children or to plan for federal estate taxes.

If changes to your will are needed, consult with an attorney in your state.  It is not recommended to simply cross items out and write them in.  Here in Wisconsin a codicil needs to be executed, or signed, in the same manner as a will -- signed and dated in the presence of two witnesses who also sign.

Photo credit: - free image

Remember - a blog is not legal advice, it is just a blog post.  Thanks for reading.

Saturday, February 4, 2012

What Is a Power of Attorney for Health Care?

Welcome to a special weekend post on Illness, Death and Taxes for the Middle Class!  I am devoting the month of February to defining basic terms associated with estate planning.  All 28 days will feature a post with a definition and discussion.

Today I am looking at a Power of Attorney for Health Care.  Depending on what state you live in the name will be different.  Some are advance directives, some are proxies, etc.  Here in Wisconsin a Power of Attorney for Health care is a document that allows you to appoint someone to make health care decisions if you are not able to.  Without one, loved ones will need to hire an attorney to go to court and get guardianship.  The court will appoint an attorney to represent the interests of the sick individual.  Two attorneys, court hearings, it take time and the costs add up.  It can all be avoided by executing a power of attorney for health care.

Executing the document can be quite painless.  Wisconsin has forms for free on-line (they offer bare bones protection in my opinion, but are better than nothing).  What I think is far more important is deciding who should be your agent.

Photo credit: - free image

Sadly, I have had the unfortunate pleasure of acting as power of attorney for my father when we has dying as well as for my mother as she has battled heart disease and other serious conditions.  From that experience, I offer the following insight:

  1. do not pick someone based on order of birth or your knee jerk reaction.  Give it some thought -- who is right for the job?  It does not need to be a relative;
  2. who is comfortable speaking with doctors and medical personnel?
  3. who can handle seeing you in a very compromised state?
  4. who has the time to be with you?  My dad spent an entire month in the hospital as he was dying.  It was just down the road from me, but I had a 14 month old son and a legal practice.  Being there was hard, but doable.
Once you've decided who to nominate, it is a good idea to ask the person if they agree to serve in the role.  Share with them your thoughts on care, etc.  They need to know what you think so that they can effectively speak for you if you cannot.

Once the document is signed, give copies to your agent and back-up(s), doctor, specialist, and hospital.  The papers do you no good if that can't be found if a sudden illness or accident occurs.

Friday, February 3, 2012

What Does "Issue" Mean in the Context of Estate Planning

The word "issue" plays a key role in estate planning.  However, a Google search will turn up the non-legal definitions:  - the act of sending out or putting forth; -something that is printed and distributed; and so on.  That is of little use to those attempting to create a will.

I often begin seminars with the statement that one of my primary functions as an estate planning attorney is to translate legalese into English, and the I point out that word "issue".  In estate planning parlance it means a person's offspring -- their children, grandchildren, and down the line.

Image credit: - free image

An example of "issue" in an estate plan would be "the remainder of my estate to my spouse, if my spouse has predeceased, then equally to my issue, by right of representation."  This is legalese for "give my property to my spouse, and if they died before me, then to my kids in equal shares."  A side note, the phrase "right of representation" is also known as per stirpes.  This indicates that if a child had predeceased, then his or her share would go to his or her children instead of his or her surviving siblings.

It can get complicated.  Flow charts are a great way to capture some of these concepts.

Remember, a blog is not legal advice.  Please consult with an attorney in your state for advice specific to your situation.

Thanks for reading!  I'll be back tomorrow with another definition.

Thursday, February 2, 2012

What Is A Personal Reprsentative

Personal Representative is a rather clunky phrase, but it is the legal name of what is more commonly referred to as the "executor" of someones will.  That said, what does he or she do?  The role of the personal representative is to usher an estate through probate.  In more common language, he or she files a person's will with the probate court.  That begins a process during which:

  • creditors are notified of the decedent's death; 
  • the court issues a letter empowering the personal representative (called the domiciliary letter here in Wisconsin) to handle all matters related to the estate (close accounts, sell property, etc.);
  • liabilities are paid (funeral, medical, cell phone, credit card, taxes, etc.);
  • remaining probate assets are distributed according to the terms of the will if there is one or by according to statutory guidelines if there was no will; and
  • the estate is closed.
Often times the PR will hire an attorney to assist with this process, which can take from 12 months to over 2 years.  The attorney's fees are a cost of the estate, meaning the estate plays the attorney's bills not the PR.

When drafting a will it is very important to give thought to who would be a good PR.  I recommend someone that is good with finances, legal matters, is organized, will not be emotionally crippled by your death, and if possible, local.

Photo credit: - free image

The only legal way to nominate a PR is to draft a will, otherwise you are leaving it up to chance as to who will step forward and ask the court to appoint him or her.  Drafting a will is never easy, but keep in mind it allows you to take control in a matter that you probably know best compared to the court.

Blogger note: I am devoting the month of February to definitions of terms common to estate planning.  Enjoy.

Wednesday, February 1, 2012

What Is A Will

It's February and I declare that Definition Month here on Illness, Death and Taxes for the Middle Class.  For the next 28 days I will be devoting my posts to the definition of terms common to estate planning.  Enjoy.

All too often I hear the question "Probate?  Why do  I need probate when there is a will?"  And with that, my role as an educator begins.

Photo Credit: - free image

A will is a document that tells the probate court what you want to happen if you die.  A will does NOT avoid probate.  A basic will allows you to:

  • nominate a personal representative (commonly colloquially called the "executor);
  • nominate a guardian for minor children; and
  • distribute your probate property.
Wills need not be elaborate, and requirements for its validity depend on the state in which you live.  Here in Wisconsin it should be signed and dated by the testator in the presence on two witnesses.  If you have the resources, it is highly advisable to work with an attorney to draft a will.  Blended families, inheritances, marital property, predeceased relatives can quickly complicate matters.

Safekeeping of a will is also highly important.  Gone are the days when lawyers will keep it in their vault, or at least those days should be gone. Doing so gives that lawyer an unfair advantage if changes are needed or a probate commenced.  When I work with clients I had them the originals and advise them to keep it in a fire proof box at home.  I do NOT recommend it be kept in a safe deposit box.  Upon death, the document that allows someone to get into the box is IN the box.  And then you have a mess.  If you are not comfortable keeping it at home, check with your local courthouse.  Here in Wisconsin you can put your will on file for a nominal fee.  Just be certain to leave a record of where you put it.  Whether stored at home or the courthouse, it does no good if no one can find it.