Wisconsin Estate Planning

The Key Estate Planning Documents, aka the “Big Three”

These key documents are at the heart of any estate plan. Understanding what they can do to protect you and those you love will make it easy to see how important they are.

Estate planning is so important, and it’s not as complicated as people think. According to a post on NJ 101.5, titled “Here are the important estate planning documents you should have,” all estate plans should include these three documents: a will, a general durable power of attorney and a health care proxy. Here’s what each document is for, and why they matter:

A will lets you give away your assets at your death in the way you want and in a way that’s appropriate for your beneficiaries. In addition, it allows you to name an executor to handle the administration of your estate. If you don’t name one in your will, an administrator will be appointed to settle your affairs. The process goes a lot more easily when you name an executor in your will.

A general durable power of attorney is a document in which you designate a trusted individual as your agent to act on your behalf on financial and property issues in the event you’re unable to do so. If the power of attorney is durable, its effectiveness continues after your incapacity. This will allow someone to act on your behalf if you become incapacitated in the future. Giving this power to an agent—along with the designation of a health care agent in a health care proxy—may eliminate an expensive guardianship proceeding if you become disabled or incapacitated down the road.

A health care proxy lets you designate an individual to act on your behalf for medical decisions if you are unable to make those yourself. A health care proxy is usually coupled with a living will. A living will stipulates your wishes on your continuing care under certain circumstances.

You should review all of your beneficiary designations to be certain they’re current and reflect your wishes on the disposition of each asset. An asset with a beneficiary designation generally deems it a non-probate asset, so it won’t be distributed under your will. Changes to your will do not change the distribution of that property. Retirement accounts and life insurance policies are the most common assets that pass by beneficiary designation, as well as POD (payable on death) and TOD (transfer on death) accounts.

The “Big Three” are the starting point. In some instances, the creation of a revocable living trust that holds property during your lifetime may have a role in your estate plan. Another type of trust is an irrevocable trust. And an irrevocable life insurance trust (ILIT) is used to eliminate the value of the insurance policy proceeds, also known as death benefits, from your taxable estate when you pass.

Every family’s estate planning needs are different, but an experienced estate planning attorney will be able to explain what you need and create the necessary documents.

Reference: NJ 101.5 (September 13, 2016) “Here are the important estate planning documents you should have”

Five Top Blunders Americans Make with Estate Plans

It is said that the biggest mistake of all is to do nothing at all, and that is especially true when it comes to estate planning. A huge percentage of Americans have chosen to do nothing, perhaps because they do not understand how easy it is to fix this error.

For most Americans, preparing an estate is not that complicated. The process starts with a meeting with an estate planning attorney who will determine what the family needs and prepare the documents. According to a post on CNBC.com, “Don't drop the ball when planning your estate,” people who have cared for their families for decades often forget this important step.

1. No will. A 2016 survey found that 64% of American adults don't have a will, and about half of these people either said they didn't need one or just haven't gotten around to it. Depending on the state in which you live and your personal situation, not having a will can result in assets going to people other than those you intend. A will is the document that states your wishes.
2. No updated will. The good news is that you have a will; the bad news is that you haven’t reviewed it in a decade. You’re not alone. Many folks think their wills are “set-it-and-forget-it” documents that never need to be changed. However, our lives change. We marry, divorce, adopt children, have grandkids…the list is endless. You should review your will every two years.
3. Unrealistic ideas about your heirs. When you draft your will, you should consider if your heirs are financially and emotionally able to handle the responsibility of money. They may not have the appropriate maturity and financial knowledge or may even have an addiction issue—any of which may be a serious problem when giving them a large sum of money. You should talk to an attorney about adding provisions in your will to protect them from their own issues.
4. No trust documents. Wills help with the division of assets upon death, but trusts will live for a set period of time to regulate the distribution of assets. A trust can restrict the timing of asset distribution and add conditions for heirs to receive bequests—like the supervision of a pre-appointed trustee until a minor heir turns 18.
5. Not naming the right executor or trustee. Many people will opt for a relative or old friend in their wills as their trustee. However, they may be your contemporaries and may not outlive you. They also may not have the time or inclination to take on the responsibilities of an executorship. Plus, appointing a relative or family friend can increase the odds of friction between heirs. Instead, you might think about naming a professional executor or trustee.

One last note: estate planning attorneys are now hearing from families where a loved one has used an online “do-it-yourself” will. A DIY will may create an unintended legacy of stress and expenses for your loved ones. Speak with an experienced estate planning attorney so that your family is properly protected.

Reference: CNBC (September 13, 2016) “Don't drop the ball when planning your estate”

Protecting Your Retirement Plan From a Gray Divorce

There is no good time in life for a divorce, but late life divorces have a larger impact, especially on those who were otherwise prepared for retirement.

With divorce rates from adults aged 50+ doubling from 1990 to 2010, the face of retirement is changing. Out of every four divorces today, one or more participants is over age 50. The data through 2014 shows that the rates have remained the same in subsequent years, according to a study from Bowling Green State University. This may be seen as a result of a generation that is willing to take a big risk.

ABC News’ article, “Keeping Some Green in Gray Divorce,” says the reasons for the rise include longer lifespans, more women in the workforce, changing notions about marriage and higher rates of remarriage, which boost your odds of splitting.

Here are some things to consider when divorce suddenly becomes part of your retirement plan. The issues involved in a "gray divorce" are much like those of a divorce at any age, but things like limited working years ahead, complicated assets and adult children may make the process much tougher.

Be sure you have a team of professionals to guide you through the process. This should include an attorney, mediator, financial planner, accountant and a therapist. In a gray divorce, a financial expert is important because you have a lifetime of assets built up. Retirement finances are critical and complex and you should seek the advice of professionals.

A big issue with an older couple is who gets to keep the family house. You should be receptive to alternatives that will leave you in a better position. Selling a home or choosing other assets in the settlement may give you the income you’ll need in the future. Plus, downsizing can significantly help manage your expenses.

The biggest challenge for individuals going through a gray divorce is making certain that there's enough money to provide a comfortable retirement. Consider and reexamine your options based on the settlement. You might need to delay retirement, return to work, downsize or make other adjustments.

One factor often overlooked in retirement planning: healthcare costs. For couples who had been married for ten years or more, remember that you may qualify to receive spousal Social Security benefits. This may help soften the financial blow of a gray divorce.

Be sure to update your will, estate documents, beneficiary designations and other key documents after a divorce. If you want to take care of your ex’s retirement, that is generous and kind, but make sure this happens deliberately and is not the result of an oversight.

Reference: ABC News (September 7, 2016) “Keeping Some Green in Gray Divorce”

Know When to Hold and When to Walk Away

There are times when it makes more sense to turn down an inheritance than to welcome it.

It’s the thing movies are made of: a distant relative who you met only once has made you the heir to his or her entire estate. You’ve got money and other assets coming your way—minus the emotional turmoil of losing a loved one. Still, you need to take a closer look, warns The Street in its article, “Why You Might Want to Refuse That Inheritance.” You may realize that sometimes it’s best that this scenario remains a fantasy.

There are several reasons for an heir to disclaim or say “no” to an inheritance. In many cases, it’s to redirect the money within the family to a more tax-efficient recipient. For instance, a gift might bump your own estate over the federal estate tax limit of $5.45 million for an individual or $10.9 million for a couple. When you reach this threshold, estates are hit with a 40% tax. If a named beneficiary would expect to incur estate taxes on his or her death, a smart move would be to save on taxes and disclaim an inheritance to a child with a smaller estate.

Another use of disclaiming is to redirect assets to a member of the family who needs the money more than the original beneficiary. Children who are financially secure may want to disclaim assets they were to receive in a parent’s will to allow those assets to help support a surviving parent. When a person passes away without a will in many states, half the estate goes to the surviving spouse and half to children—but that may leave the surviving spouse short on funds. As a result, when it is time to settle the estate, a child can use a disclaimer to return a portion to the surviving parent.

In addition to disclaiming by wealthy families to reduce estate taxes, less-affluent families may also see its application when a beneficiary has creditors who might try to claim inherited assets. It may be smart to direct those assets elsewhere.

A few final details: you have nine months after the person’s date of death to disclaim an inheritance, but it is best not to delay. Why? IRA custodians may cash out IRA accounts on their own initiative and mail checks to beneficiaries. If you cash one of those checks, it could make it difficult for you to disclaim. To disclaim, you may not benefit from the assets. Also, you must notify the estate executor about your intent to disclaim in writing and using registered or certified mail. Disclaiming an inheritance is one of those things that cannot be reversed, so think carefully and be sure this is really what you want to do.

Reference: The Street (August 30, 2016) “Why You Might Want to Refuse That Inheritance”

Fearing Loss of Control is One Reason People try to Hide Alzheimer’s

Planning for life with Alzheimer’s includes selecting trusted family members or friends who can assist with legal and financial matters.

It was at least three years after his diagnosis that comedic actor Gene Wilder revealed he was suffering from Alzheimer’s disease. This is not unusual, according to experts discussing his situation in the Investment News article, “Hiding Alzheimer's, like Gene Wilder did, is natural, so prepare for it with all clients.” Wilder, star of Blazing Saddles, Willy Wonka and the Chocolate Factory and many other classic comedies, died at age 83 from complications of Alzheimer's disease. He wanted to leave his audiences laughing, rather than being sad that he was suffering from this dreaded disease.

Most Alzheimer's patients will hide their symptoms as long as they can because they fear losing control of their lives if family or friends are under the impression they can’t take care of things on their own.

The first thing to recognize is that cognitive impairment is a significant risk. Financial advisers and elder law attorneys should take steps to protect these clients' finances from the impact of debilitating conditions like Alzheimer's. This is best accomplished before they notice any changes in the individual’s behavior. With dementia and Alzheimer's so common in the elderly, criminals frequently target older individuals because they can more easily be swayed into releasing money or disclosing personal information.

The first thing elder law attorneys will do is have their clients execute a legal document that lists the family members or friends whom the attorney can contact to discuss private information if he or she believes the client is starting to have cognitive problems. Clients may need some time to consider this difficult issue. However, if they refuse to provide this information, financial planners will often require them to sign a different document that releases the adviser from liability if the client is harmed because of his or her cognitive decline.

Get the complete legal picture from an experienced elder law attorney.

Advisers may also have a checklist to complete each year about their clients to monitor changes and document them over time. When they see “red flags,” like a client with memory loss or difficulty understanding the consequences of decisions, advisers may ask that a trusted contact start attending planning meetings.

There is no way to make a diagnosis of Alzheimer’s pleasant. But once this has occurred, the family needs to address the medical, legal and financial matters that will be faced in the future. An elder law attorney with experience in this area will be able to help.

Reference: Investment News (September 1, 2016) “Hiding Alzheimer's, like Gene Wilder did, is natural, so prepare for it with all clients”

Social Security’s Less Known Customer Services

Certain organizations are known for providing amazing customer service. Social Security is not usually one of them. However, there are some services that Social Security does offer that are not well known and that could make life easier for many.

Good news is hard to find when it comes to dealing with large government bureaucracies, including Social Security. That makes this information provided by AARP’s article, “Discover Little-Known Social Security Benefits,” especially welcome.

Some years ago, Social Security officials saw that the long waiting time for decisions on disability applications was resulting in severe hardship for the seriously ill. As a consequence, the agency established the Compassionate Allowances List.

This program’s goal is to swiftly grant disability status to those who suffer from any of the 225 serious medical conditions on the list. They include rare diseases, cancers, traumatic brain injury, stroke, early onset Alzheimer's disease and related dementias, schizophrenia, cardiovascular disease, multiple organ transplants and autoimmune diseases.

The Social Security Administration says that folks who can show they suffer from any of these afflictions will receive approval in weeks rather than months or years.

If you see that a loved one isn’t good at managing money, Social Security can help with its Representative Payee Program. It matches people who require assistance managing their finances with people who are willing and able to help them.

Social Security will typically look to family members or friends to serve as representative payees. If no one is available, they work with social service agencies to locate people to serve as representative payees.

Social Security also provides free interpretation services for people who do not speak English. The agency can translate a surprisingly large number of languages—from Arabic and Armenian to Tagalog and Vietnamese. They also provide interpretation for more common languages like Spanish, French and Italian. These services are offered by phone and at local Social Security offices.

Reference: AARP (August 2016) “Discover Little-Known Social Security Benefits”

Collecting Death Benefits from Life Insurance Policies

If you are the beneficiary of someone’s life insurance policy, you should know that there are options as to how the policy funds, known as death benefits, can be distributed.

In most situations, the beneficiary of a life insurance policy does not have to pay income taxes on death benefits, according to an article in Forbes, “Are Life Insurance Proceeds Subject to Taxes?”

But depending on your situation, you might want to consider different options for that money that may be more productive in the long term. The insurance company can cut a check, but you can also have the insurer hold on to all or some of the funds and distribute them at a later date or in periodic distributions. If the money is held by the insurer, it will continue to earn interest—and that interest is taxable.

Another option is to transfer those funds to a trust that could control the proceeds of the policy based on the stipulations you set when creating it. However, remember that trust planning can get complicated if you establish “incidents of ownership” in the policy, in other words, if you are controlling the policy in some way. For example, such “incidents” include borrowing against it, using it as collateral or assigning it in a contract. If that happens, the proceeds of the policy might be considered a part of your estate and be subject to estate taxes when you die. Those estate taxes may be delayed if your spouse is the beneficiary, but taxes may be due when he or she passes away.

Also, remember that while you can state in your will that the proceeds of a life insurance policy should go to one of your beneficiaries, only the named beneficiary of the policy gets the funds. When your intentions change, you must contact the life insurance company to update your beneficiary designation. You should also update any 401(k)s or IRAs.

To avoid any expensive mistakes, including creating taxable events, speak with an estate planning attorney to make sure that all of your life insurance policies are aligned with the overall goals of your estate plan. These can be complex financial instruments, and the help of an experienced professional will ensure that you reach your ultimate goal: protecting your loved ones.

Reference: Forbes (August 30, 2016) “Are Life Insurance Proceeds Subject to Taxes?”

401(k)s Have Built in Protection for Spouses

You have to really make an effort to not have your spouse receive your 401(k) assets when you die. It’s the law!

If a working spouse who participates in a company retirement plan passes, the surviving spouse receives 100% of the 401(k)—unless that partner has specifically waived the right to inherit the asset and that waiver is properly documented. This is the result of a federal law designed to protect spouses.

When a worker takes a retirement plan payout as an annuity, he or she must select a plan that will continue lifetime payments to the surviving spouse equal to at least 50% of the original benefit amount. A spouse can also waive that right, but again, this must be in writing.

Kiplinger’s August 2016 article, “What Happens to Your 401(k) When You Die–Like It or Not,” reports that when President Reagan signed that rule into law back in 1984, he proudly said, “no longer will one member of a married couple be able to sign away survivor benefits for the other.”

The protection for a surviving spouse is so powerful that it’s superior to properly named beneficiaries. Further, this rule can’t be unset by a pre- or post-nuptial agreement where a spouse waives the death benefit. A pre-nup doesn’t do it since a spouse and not an engaged individual must waive the benefit, and a post-nup has no authority—unless the spouse actually signs a written waiver. Note that singles can designate whomever they choose as beneficiary.

While there are clear rules for the protection for a survivor’s rights, it’s a bit cloudier while the 401(k) owner is alive. There’s actually a loophole to the tune of $1 million in a lump-sum distribution. When a married worker leaves a job, most 401(k) plans permit the employee to roll over the balance to an IRA without notifying the spouse.

Once the money is in the IRA, the death benefit protection is gone.

In most states, the IRA owner can name anyone as beneficiary of the account. However, in community property states, you may need spousal consent to name someone other than your spouse as beneficiary of more than 50% of the account.

There are, however, some plans that require spousal consent for a distribution, such as when the default benefit under the plan is a joint annuity with the participant’s spouse. Otherwise, to claim benefits, such as a lump-sum distribution to be rolled into an IRA, the spouse must agree—it’s pretty rare among 401(k) plans. Plans that require a 100% death benefit for a spouse typically don’t demand spousal consent for a lump-sum payout.

It is just as important that you understand the rules of your retirement plan and your spouse’s retirement plan. You don’t want either one of you to find out what the rules are when it’s too late to make a change. Also, make sure you know what the requirements are for a waiver. Does the document need to be notarized to be enforceable, or is a particular form required? Details can make or break your 401(k) distribution.

Reference: Kiplinger’s (August 2016) “What Happens to Your 401(k) When You Die – Like It or Not”

The Role of an Elder Law Attorney

Seniors faced with unfamiliar care costs often panic because they don’t know what their options are. That’s where an elder law attorney can help.

When a sudden need for a nursing home care occurs, couples are often faced with a dizzying array of things they have to do, costs that mount rapidly and fear. Options are limited, and the first thought is to sell the family home and use the proceeds to pay the nursing home. Instead, the couple or the spouse who is not disabled needs to sit down with an elder law attorney to find out what can be done.

The Boston Globe, in its article, “Seniors have more options than selling their home,” says that an experienced elder law attorney can be the key to protecting your family’s health and financial well-being. This includes such assets as the family home.

An elder law attorney can show the senior couple that they have options—in most cases, they don’t have to sell their home to pay for emergency long-term care.

A couple’s money is often tied up in their house, so to fund the long-term care, they go ahead and sell it. When they sell it to qualify for Medicaid, which will cover the cost of long-term care, they exhaust the proceeds of the sale—in addition to the rest of their money. This leaves the healthy spouse—who can still live independently—with little in the way of financial security. This outlook can potentially compromise that individual’s health as well.

Before taking any action, talk with an elder law attorney and explore the options that would best meet the family’s needs. It’s critical to plan ahead. An elder law attorney will help you plan for the future to ensure your wishes on housing and health care can be satisfied.

Planning in advance of a health crisis will make it more likely that the couple’s wishes will be defined and fulfilled. Proactive planning means that the family will have far more choices than if they wait until a health crisis occurs. Speak with an elder law attorney to explore options for your future.

Reference: Boston Globe (August 19, 2016) “Seniors have more options than selling their home”

Why Everyone Needs an Estate Plan

The biggest reason to have an estate plan is your family. Without one, they will be put through all kinds of troubles and costs. With one, they will be protected. It is really that simple.

The list of famous people who die without estate plans grows every year. If we look back, we can find some unlikely examples—Pablo Picasso, former NFL quarterback Steve McNair and, more recently, musical icon Prince. Because of their failure to have an estate plan created, their families got to clean up the mess. And the bigger the estate, the bigger the mess.

Can you imagine it took 19 attorneys several years to settle Picasso's assets among his heirs? Also, McNair had a $20 million estate with no game plan for how it would be allocated. And we’ve all heard about Prince’s lack of estate planning.

While you may not have celebrity wealth, these stars’ complicated finances should remind you of the importance of an estate plan. With proper planning and the expertise of an estate planning attorney, a Picasso-sized estate disaster can be avoided.

Kiplinger’s article, “5 Reasons You Need an Estate Plan,” asks you to consider the following reasons why estate plans are important:

1. Control. With your estate plan, you can feel confident that your final wishes will be carried out because you can direct exactly how and when your heirs receive their inheritance, who gets the Steve McNair autographed jersey or which art museum will display your Picasso.
2. Business. A small business owner can know that his or her business won’t be negatively affected by his or her unforeseen death. An estate plan drafted by an experienced attorney can make certain that the business will continue uninterrupted. Business owners can detail what should happen to the operations if they die, which can reduce the taxes their businesses will owe.
3. Privacy. Without an estate plan, the probate process will let everyone know a person's assets at his or her passing because this is a matter of public record. An estate plan may eliminate the need for probate.
4. Protection. Many Americans will suffer from an illness or disability before they die. If you’re proactive with an estate plan, you can arrange exactly how such a scenario would be handled with a power of attorney. An individual you select will be in control of your personal assets. If you fail to do this, your property may be appointed to a legal guardian who may mishandle your assets.
5. Organization. When you take inventory for your estate plan, you can consider how to expand the worth of all of your assets. This process is necessary for your estate plan and your retirement plan. This will help you accurately gauge whether or not you have the resources in place to retire.

Bottom line: protect your loved ones and create a legacy of caring, not carelessness, by meeting with an estate planning attorney.

Reference: Kiplinger’s (August 2016) “5 Reasons You Need an Estate Plan”