Tuesday, December 17, 2013

Staying Out of Probate in Wisconsin

The Badger State (aka Wisconsin) is known for many things: die hard Packer fans; cheese; cows, just to name a few.  Low taxes are not something Wisconsinites associate with this verdant state in the heart of our country -- especially at the moment when property tax bills arrive in mail boxes.  But in the area of probate, we rank towards the bottom.

Here in Wisconsin the fee (or tax) assessed on a probate is 0.2 percent. That is zero point two!  In other states it is as high as 8 or 10 percent.  The fee is assessed on the total inventory of a probate estate, things outside of probate are not subject to the fee.  Even though it is quite low when compared with other venues, routinely I receive calls on "how to avoid probate".  There are options:

  • Give it away during life.  If you do not own it at death, the tax does not apply.  This can be tricky on several levels.  One, you do not know how long you will live and cannot be certain how much you can afford to give away.  Two, the giftor is responsible for paying the gift tax if the gift exceeds the limit set by the IRS (currently $14,000 per person per year, some exceptions allowed).  And third, if you give it, you cannot control what someone else does with it.  This last one is hard for people to accpet, once it is gone, it is gone;
  • Fill out Direct Transfer forms. If the asset has a label that says "it goes to my daughter upon my death" it goes to her, outside of probate, no matter what a will might say.  The transfer is direct, avoids the probate fee, and is usually faster than probate (which can take up to a year or more to be complete). These labels can be placed on: life insurance, retirement accounts, bank accounts, real estate (via a transfer on death deed); and brokerage accounts.
  • Create a Trust.  The granddaddy of avoiding probate is the living revocable trust.  Essentially a wicker basket designed to hold assets during your life, and then distribute them to beneficiaries sometime after you have died.  This direction avoids the probate process, but requires the creation of a trust, accomplished through writing a trust agreement which addresses who is in charge, what they can do, etc.  And it requires the title to the asset be changed to the name of the trust.  If not, the asset is not in the trust. More clients than not find this process too daunting, and opt for probate and its fee instead.
The creation or update of a will, trust or other end-of-life documents can become complex quickly.  And it is not always a large net worth that creates complexity.  Second marriages, cabins, and family members with special needs create challenges.  A blog post is not intended to be legal advice, and should not be relied upon.  Please use this as educational material, and seek legal advice from a licensed attorney in your state. Thanks for reading!

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