Many people come into our office and say, “I need a Will.” A Will is certainly the most well-known estate planning document. However, in many cases it helps very little. For example, consider what happens when you don’t have a Will.
When you die without a Will, you die “intestate”. That is just a legal term that means your property will get distributed subject to Chapter 852 of the Wisconsin Statutes. Under this statute, your property will get passed 1) 100% to your spouse if you have one, and it is your first marriage or 2) your children equally if there is no spouse or 3) your parents if you have no spouse or children or 4) your brothers and sisters if you have no spouse, no children, and no parents. My point? Many people use their Will to do what the law will already do for them, and, truthfully, they can live without a Will. You can use a Will to name who you prefer to be a guardian for your minor children if you die, but a court is not bound by it.
Perhaps most important of all, a Will does not avoid probate, and it won’t govern anything that has a beneficiary designation. For example, if you got divorced, and you changed your Will to remove your former spouse, but your former spouse is still a beneficiary on your 401k, your former spouse could get the 401k money upon your death! Thus, for many people, a Will adds little value. Perhaps a Will Substitute would be a better fit.
A Will Substitute, also known as a “Washington Will”, was introduced via the Wisconsin Marital Property Act. It is a document used to avoid probate. Probate is the process where assets are retitled following the death of the owner. Probate is slow, expensive, and the information about the estate becomes public knowledge. Generally, a Washington Will is a provision inside of a Marital Property Agreement (MPA), though it can be a stand-alone document.
MPAs can be used in a number of situations, like as a prenup prior to marriage. Of course, those MPAs usually have nothing to do with estate planning. With respect to estate planning, MPAs can be used to get a double step-up in your tax basis and reduce potential tax liability after the death of the first spouse. MPAs can also be helpful for Medicaid and nursing home planning as well.
Trusts are still one of the most common tools in both estate planning and asset protection planning. They are routinely used by the wealthy for estate tax planning. As of 2023, unless you have over $12.92 million in your taxable estate (double that for a married couple), you won’t have a federal estate tax bill, and Wisconsin doesn’t have an estate tax unless you also have a federal estate tax. For the majority of Americans, an estate tax is a non-issue.
Many people are familiar with revocable trusts. They serve many functions, but two are the most common reasons for use: 1) to avoid probate and 2) to hold money for heirs until they are mature enough to handle the money. Revocable trusts do not offer asset protection.
Irrevocable trusts, if drafted properly, do offer asset protection, but the protection is not immediate. To get protection from nursing home costs, the trust and the assets transferred into it must be done five years in advance. The word “irrevocable” tends to scare people, but you can in fact make changes to this type of trust; it is not a prison for your assets. But, unlike a revocable trust that is treated like an extension of yourself, an irrevocable trust is a separate legal entity, and it often has a separate tax identification number. In many ways it is similar to a corporation, but unlike a corporation, it is not designed for seeking profits or coordinating production. Instead, it is generally designed to manage gifts and property between family members and/or charities. A good asset protection trust should not only protect against families losing everything to nursing homes, but it should also have tax planning built into it so homeowners can keep their property tax deductions, keep their capital gains tax exemption, and give the beneficiaries a step-up in basis upon the death of the creators.
Confused? Don’t worry. Estate planning and asset protection gets complicated. For now, just know a Will may not be enough, and there are attorneys who specialize in estate planning and asset protection who can help.
To schedule a Free Consult, call us at (920) 261-1630.
We serve the following counties Dane, Dodge, Jefferson, Milwaukee, and Waukesha, with offices in Watertown and Lake Mills.
