Learn About Estate Planning Options
Table of Contents
- What is Estate Planning?
- Providing for Incapacity (Avoiding Guardianship)
- Four Documents Every Adult Needs
- Wills vs. Trusts: What Type of Estate Plan Do I Need?
- Avoiding Probate
- Do Pour-Over Wills Avoid Probate?
- Providing for Minor Children
- Beneficiary Designations
- When to Update Your Estate Plan
What is Estate Planning?
An Estate Plan is an act of love and one of the most important decisions you can make to provide for your family and the people you care about.
It is created by sitting down with an experienced Estate Planning Attorney at Hooper Law Office to discuss your family dynamics, present your financial picture, and set your future goals. Your Estate Plan is determined by your priorities, your situation, and the people in your family.
It is not how much you have that dictates your plan; it is the people you love, and how you can plan for their future that defines your legacy.
An Estate Plan with Hooper Law Office can involve several types of documents; however, the documents are not the plan. They are tools used to enforce the plan you create with your attorney. At our office, every client’s plan is designed for their family.
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Even though each plan is customized, all of our plans will accomplish the following:
- Maintain control of your assets
- Distribute your property to whom you want, when you want, and the way you want
- Protect your family from the possibility of bad things happening to good people
- Minimize the impact of estate taxes, capital gains taxes, and income taxes on your beneficiaries and your estate
- If it is a client priority, plan ahead for nursing home costs
Most of our clients walk in thinking a legacy is beyond their financial resources. A legacy is more than money. Here, a legacy is family, opportunity, and support.
In planning with our clients, we help them define their own legacies such as the support of a charity, preserving memories made at the family cabin, or continued ownership of the family farm down to the third or fourth generation.
In the end, your Estate Plan is about you, your decisions, and your family – not your net worth.
Providing for Incapacity and Avoiding Guardianship
If you become incapacitated, you won’t be able to manage your own finances and healthcare. Many are under the mistaken impression that their spouse or adult children can automatically take over for them in case they become incapacitated. The truth is that in order for others to be able to manage your finances or healthcare, they must petition a court to declare you legally incompetent. This process, know as Guardianship can be lengthy, costly, and stressful.
Even if the court appoints the person you would have chosen, they may have to come back to the court every year and show how they are spending and investing each and every penny. If you want your family to be able to immediately take over for you, while avoiding Guardianship, you must designate a person or persons that you trust to act on your behalf through the appropriate legal documents.
Four Documents Every Adult Needs
The four documents that every adult should have in order to provide for incapacity are a Durable Power of Attorney for Finances, Healthcare Power of Attorney, Living Will, and a HIPAA authorization.
Families should be consult an experienced Estate Planning Attorney to prepare these legal documents long before someone starts having trouble handling certain aspects of life.
Power of Attorney for Finance
A Durable Power of Attorney for Finance also called a Financial Power of Attorney, is a legal document that gives someone you choose various powers and authority to act in your place. A Durable Power of Attorney simply means that the document stays in effect if you become incapacitated and unable to handle matters on your own.
With a valid Power of Attorney, the trusted person you name, as your agent, will be legally permitted to take care of important matters for you. Some common tasks they could manage are banking transactions, managing your investments, and filing taxes.
Healthcare Power of Attorney
A Healthcare Power of Attorney is a document that appoints someone else to make decisions and advocate for you regarding your medical care. Preparing a Healthcare Power of Attorney lets you have control of the healthcare you will receive when you are unable to communicate.
The person named as your Healthcare Power of Attorney will communicate with your doctors and other health care providers.
A Living Will also called a Directive to Physicians or Advance Directive, is a document where people state their wishes for end-of-life medical care, in case they become unable to communicate their decisions to medical staff. For example, it is common to direct that things like palliative care should be utilized, but that more extraordinary measures, like artificial nutrition and hydration, should not be administered.
A Living Will gives you a voice during a time when you might not otherwise be able to communicate your wishes.
HIPAA is the acronym for the Health Insurance Portability and Accountability Act that was passed by Congress in 1996. HIPAA does the following:
- Provides a list of people you have named to inquire and receive your medical information;
- Provides the ability to transfer and continue health insurance coverage when a person changes or loses their job;
- Reduces health care fraud and abuse;
- Mandates standards for health care information on electronic billing and other processes; and
- Requires the protection and confidential handling of protected health information
Creating these four documents is necessary for anyone 18 years of age and older.
These documents will ensure that someone you trust (usually called your "agent") will be on hand to manage the many financial tasks and healthcare decisions that may arise if you become incapacitated.
Bills must be paid, bank deposits must be made, and someone will need to handle insurance and benefits paperwork. Your healthcare agent will act as an advocate on your behalf to make sure your wishes are known and carried out, and by signing a Living Will, you can be assured your end of life decisions will be honored.
Although it is hard to talk about and think about, it is important to take care of these matters for your own peace of mind and for the sake of your family.
Wills vs. Trusts: What Type of Estate Plan Do I Need?
Your life is not just a standard list of checkboxes; your Estate Planning should not be either. Using standard online documents where you simply fill your name in the blanks will not provide an Estate Plan that takes care of you and your family’s specific situation.
Do I Need a Will?
If you have minor children, it is important to have a Will as that is the only place to name guardians for your children. Wills are also a good place to list any specific instructions that you have.
A person’s passing is very hard for family and friends, which may bring out points of contention hidden during that person’s lifetime. Having direct instruction from you as to your wishes can help whoever is settling your estate. Your Estate Plan eliminates the guesswork for both your beneficiaries and those settling your estate. They can feel at ease in knowing they are following your direction. An estate plan is also helpful for beneficiaries that may not agree with a course of action. While they may disagree, knowing that the estate is being settled following your instructions reduces the risk of conflict among beneficiaries.
Do I Need a Trust?
If you would like to
- maintain control of your property during your lifetime,
- ensure that property is available to take care of you and your loved ones in the event of becoming disabled,
- protect your children and their inheritance, and/or
- save taxes and court costs
then planning with a Trust is for you.
Each person’s life is unique, and it is important that your Estate Planning is unique to you. Your plan should take into consideration your individual circumstances and wishes.
Wills vs. Trusts
One of the most common phrases that we hear from prospective clients is that they would like to come in for a Will, they don’t need anything else like a Trust because they do not have millions of dollars.
It has long been the assumption that only the rich and famous have a need for Trusts – this simply is not true.
Having these forms of planning in place allows you to maintain control even after your death. While Wisconsin does have laws of intestacy for those that die without any Estate Planning, this is not the recommended path as these laws may have your assets following lines on lineage in ways that you may not have anticipated or wanted.
The chart below shows the major differences between the main ways of Estate Planning.
Will vs. Trust Comparison Chart
NO ESTATE PLANNING
Who names someone to handle your estate after your death?
You name a Personal Representative/Executor
You name a Trustee
Who decides who receives and what they receive after your death?
You list instructions in your Will for who you want to receive what and those instructions must be followed
You list instructions in your Trust for who you want to receive what and those instructions must be followed
Who decides how assets will be received by beneficiaries after your death?
Can establish a Trust where needed
You decide depending on what is best for your beneficiaries for them to inherit outright or in an asset protected Trust
Allow for tax planning?
Grants you the ability to choose who will take care of your minor child(ren) or child(ren) with special needs after your death?
Yes, the Will is where you would list guardians
No, you can financially plan for minor children and children with special needs to protect them or their benefits but guardians can only be nominated through your Will.
Allows planning for non-traditional circumstances and blended families?
No, in Wisconsin if you die without a Will (intestate) a default Will is established for you and your estate must follow the default process through Probate
No, a Will is a set of instructions for the probate court. Having a Will you specifically designed helps to speed up the administration vs. using the laws of intestacy.
Duration of administration?
At least a year
Usually a year
Usually 6 months
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If you leave your estate to your loved ones using a Will, everything you own will pass through Probate. The process is expensive, time-consuming, and open to the public. The probate court is in control of the process until the estate has been settled and distributed.
If you are married and have children, you want to make certain that your surviving family have immediate access to cash to pay for living expenses while your estate is being settled. It is not unusual for the probate courts to freeze assets for weeks or even months while trying to determine the proper disposition of the estate. Your surviving spouse may be forced to apply to the probate court for needed cash to pay current living expenses.
You can imagine how stressful this process can be. With proper planning, your assets can pass on to your loved ones without undergoing Probate, in a manner that is quick, inexpensive, and private.
Pour-Over Wills Do Not Avoid Probate
When you choose to create a Trust for Estate Planning, you will also be creating a document called a Pour-over Will. A Pour-over Will takes care of assets that have not been transferred to your Trust. Under the terms of this type of Will, all property that passes through the Will at your death is transferred to (poured into) your Trust.
The property that passes through the Pour-over Will must go through Probate. This means that all of the property headed towards your Trust may get hung up in Probate before it can be distributed by the Trust. Fortunately, in most cases, there should not be many assets that pass through your Pour-over Will.
By creating a Trust, with the assistance of an experienced Estate Planning Attorney, you will transfer most of your assets to the Trust while you’re alive and avoid having “leftover” items that will have to pass under the terms of your Pour-over Will.
Regardless of how smart your attorney is in designing your Estate Plan, a Pour-over Will still requires Probate to transfer the assets into your Trust. Therefore, you do not want to rely on a Pour-over Will to maintain alignment of your assets within your plan.
If your Trust was properly funded, there should be no need for Probate. Hooper Law Office works with our clients and their advisors to make sure every asset is aligned with the Estate Plan.
Our office has created a Trust Funding System that tracks and verifies the placement of every asset. At the end of the process, our clients receive a full report showing how each account was designated. This funding verification report becomes an important tool in keeping your Estate Plan up to date. We encourage every client to come in to review their estate every three to five years.
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Providing for Minor Children
It is important that your Estate Plan address issues regarding the upbringing of your children. If your children are young, you may want to consider implementing a plan that will allow your surviving spouse to devote more attention to your children, without the burden of work obligations. You may also want to provide for special counseling and resources for your spouse if you believe they lack the experience or ability to handle financial and legal matters. You should also discuss with your attorney the possibility of both you and your spouse dying simultaneously, or within a short duration of time. A contingency plan should provide for persons you’d like to manage your assets as well as the guardian you’d like to nominate for the upbringing of your children. The person or Trustee in charge of the finances need not be the same person as the guardian. In fact, in many situations, you may want to purposely designate different persons to maintain a system of checks and balances. Otherwise, the decision as to who will manage your finances and raise your children will be left to a court of law. Even if you are lucky enough to have the person or persons you would have wanted selected by the court, they may have undue burdens and restrictions placed on them by the court, such as having to provide annual accounting.
What are Beneficiary Designations?
A Beneficiary Designation is a person or entity named on a financial account or insurance policy in order to receive those assets when an account holder passes away, eliminating the need for Probate for that asset only. Payable-on-Death (POD) and Transfer-on-Death (TOD) are both examples of Beneficiary Designations.
A Beneficiary Designation, POD, or TOD designation can accomplish the same purpose. The type of designation relates to the type of account it is. Two of the most common assets with Beneficiary Designations are retirement accounts and life insurance policies. Other assets you own will have other designations such as Payable on Death designations (POD) for bank accounts, Certificates of Deposit, Savings Bonds, and Transfer on Death instructions (TOD) on investments, stock accounts, and real property.
If you are the sole owner of an account and there are no Beneficiary Designations, then the asset will go through Probate. If you are a joint owner of an account, the surviving owner retains the full balance of the account at one owner’s death.
Many people believe they are doing a good thing when they name a Beneficiary Designation. Proceed with caution because a Beneficiary Designation will override your Will. There are certain circumstances when you could be doing more harm than good. Here are a few examples:
- Failing to update a Beneficiary Designation after a birth, death, marriage, or divorce
- Naming minors as direct beneficiaries
- Naming individuals with special needs as direct beneficiaries
- Naming financially irresponsible beneficiaries
- Naming direct beneficiaries on all assets other than real estate
- Naming multiple beneficiaries on a transfer on death deed
- Naming one child as the sole beneficiary
Even the best of intentions can cause complications when it comes to settling your estate. For your own peace of mind and the benefit of your heirs, consult with an experienced Estate Planning Attorney at Hooper Law Office to ensure you are providing for and protecting your family as you intend.
Dangers of Beneficiary Designations
Beneficiary Designations are useful tools in Estate Planning, but, unfortunately, they are often misunderstood and thereby misused. In general, a Beneficiary Designation is an agreement between an account holder and a financial institution to pay a death benefit to named beneficiaries. The transfer to the new owner or owners happens without Probate, but there is paperwork that must be submitted to the financial institution to trigger the Beneficiary Designation (such as a Death Certificate).
Beneficiary Designations supersede any planning done with a Will or a Trust unless specifically coordinated to follow that person’s Estate Plan.
Beneficiary Designations can be useful tools when they are carefully considered and integrated with the client’s overall Estate Plan, but they can also seriously disrupt the best Estate Plan if they are used as a shortcut. Well-meaning financial advisors, bank employees, and others may recommend naming a beneficiary for an account or asset without the overall understanding of the client’s Estate Plan. Simply filling in the name of a beneficiary on an account form could actually undermine the client’s well thought out plan.
In addition, the designation could unintentionally circumvent planning done to protect their loved ones. For example, the planning could have saved on taxes, protected the beneficiary from creditors, and avoided claims of an ex-spouse, but now the money is subject to those dangers because the Beneficiary Designation avoided the person’s plan. Even worse, naming an individual with a disability as a direct beneficiary can result in the person being removed from the benefits they need or losing services that give them a better quality of life.
Despite these adverse examples, Beneficiary Designations are useful and effective tools in creating your Estate Plan. The key is keeping the designations and your overall plan consistent.
Before naming a Beneficiary Designation on an asset, it’s best to consult with your Estate Planning Attorney to confirm that a Beneficiary Designation should be made and, if so, that the designation is worded properly to coordinate with your Estate Plan. They are powerful tools when used appropriately.
When should I update my Estate Plan?
Once an Estate Plan is complete, people tend to think there is nothing more that is needed. This cannot be further from the truth. Having an Estate Plan is like owning a car, and it needs to be maintained in the same way. You have to keep gas in the tank, do regular maintenance, and occasionally replace it with a new or updated model. If you draft legal documents and then never maintain them, it is like trying to start your car after letting it sit for 20 years. How likely is it to start and work the way you want?
When wondering if it is time to update your plan, there are six (6) major areas to consider: family, health, time, retirement, assets, and changes to the law.
Your Estate Plan should be designed around you and your family. Common changes in circumstances can include:
- Children become adults
- Birth of a grandchild
- Name changes
A change in your family situation is a cause to revisit your Estate Plan. Perhaps children, who were minors when your plan was first drafted, are now all adults, married or divorced, and have children of their own. There may come a time to incorporate your children into the roles within your plan that previously were held by your siblings and friends. As your children mature, you might choose to make them your agents and add them to your HIPAA documents.
As your family changes, your Estate Plan also needs to change in order to stay current and incorporate all of your family members that you want to include.
If you or your spouse has had a major health event, then your documents should be reviewed as soon as possible. Examples of relevant health changes can include the following:
- New diagnosis
- Chronic condition
- Sudden injury
- Decline in capacity
- Child becomes disabled
If you have had the chance to test drive your Financial Power of Attorney, Power of Attorney for Healthcare, or HIPAA documents, you may find that they didn’t work exactly how you wanted or expected them to. Are the people that you have named still the best people to help you? Did you have the copies you needed, and who had access to your medical and financial information?
A significant health event might alter your perspective regarding the people you have listed, the preferences you have discussed with your agent, and the decisions outlined in your Living Will.
This is also a good time to start discussing long-term care costs and the options that are available to you and your spouse. If you do not know your options, speaking with and getting advice from an experienced Elder Law Attorney is recommended.
Similar to a vehicle getting rusty with age, as time passes, your documents may get rusty as well. A Durable Financial Power of Attorney is a good example of a document that becomes harder to use the older it gets.
After a few years, financial institutions may even refuse to honor your Financial Power of Attorney at all.
The institutions begin to fear that the document presented is not the most current version as it ages. Therefore, it is recommended that a new document is executed about every three to five years – even if you are naming the same agents and granting the same powers. Having a recent signature date can mean the difference between getting things done easily or going to court.
In addition, your Estate Plan needs to be updated regularly to address any changes in the law. Over time, laws can change, and updating your documents will keep them current. Taxes specifically can change with some amount of frequency. To lessen the potential for paying unnecessary taxes, your plan should be reviewed on a regular basis. With laws changing, better options may become available, or new issues can arise that need to be addressed.
If you are now retired or close to retirement, then a visit to your Estate Planning Attorney is also suggested. For example, your assets may need to be realigned with your Estate Plan to address changes from accumulating to withdrawing from your retirement account. A joint meeting with your attorney, financial advisor, and tax consultant is also encouraged. Some common topics to address at this meeting are:
- Consolidate accounts
- Work with a financial advisor
- Leave assets to grandchildren instead of children
- Review life insurance policies
- Replace benefits previously available from employers
- Research Long-Term Care insurance options
The meeting with your advisors should give you a firm understanding of your assets, the tax implications, and your Estate Plan goals. When you hit retirement, there are so many options and paths that are available to you; it can be overwhelming. When and how you elect to incorporate these options is very important.
Any property purchased or inherited since executing your Estate Plan needs to be aligned with your current planning. Perhaps you have been named in someone else’s Will or Trust, so you now have an inherited IRA or share ownership in a cottage with siblings. You might be looking to sell your home in order to downsize to something smaller. Maybe you have purchased long-term care insurance or some other type of policy. These resources can vary in size and value, but each asset still needs to be coordinated with your plan.
From time to time, a review of all of your assets and how they will work together is very important. If your assets have changed, then your plan may need to change as well.
Changes to the Law
People often erroneously believe that if they establish an estate plan and their situation does not significantly change then they have no reason to update their plan. However, their plan was created under the laws at the time it was signed. Here is a partial summary of some of the significant law changes that affect a substantial number of people.
1986 Wisconsin adopts community property laws that control the classification of property for married couples.
1989 Wisconsin adopts new healthcare power of attorney laws.
1992 Wisconsin eliminates the state inheritance tax.
1993 OBRA ’93 changes Medicaid planning, trusts and nursing home laws creating a blanket 36-month look-back period to gifts and 60-month look-back period for transfers to trusts. Also established many rules pertaining to special needs trusts.
1997 Taxpayer Relief Act creates Roth IRAs.
2001 EGTRRA (Bush Tax Cut) created a substantial increase in the estate tax unified credit with the expectation of an eventual estate tax sunset.
2003 HIPAA penalties went into effect creating a need for greater compliance with healthcare disclosure restrictions.
2005 Federal Deficit Reduction Act made sweeping changes to Medicaid affecting most aspects of Medicaid planning including trusts, annuities, qualification, and look-back periods.
2008 Wisconsin eliminates the separate state estate tax.
2009 WI adopts the DRA changing much of long-term care planning in Wisconsin. All non-exempt transfers are subject to a 5-year look-back.
2010 Federal Estate Tax temporarily sunsets. Wisconsin adopts the Uniform Power of Attorney, which changes law regarding powers of attorney for finances.
2011 Portability of deceased spouse unused estate tax credit is adopted. Federal law changes the estate tax exemption amounts and estate tax rates.
2012 “Permanent” adoption of estate tax exemption (indexed for inflation) and adoption of new estate tax rates. Change in capital gains tax rates.
2013 Wisconsin passes law to “expand” estate recovery, which allows the State to recover from most non-probate assets of nursing home residents on MA. Landmark Supreme Court case allowing estate tax planning to extend to same-sex couples.
2014 Wisconsin adopts the Uniform Trust code, which completely rewrites trust law in Wisconsin. Wisconsin makes life estate deeds recoverable by the State for nursing home residents. Supreme Court changes treatment of inherited IRAs.
2015 Wisconsin begins to count promissory notes as assets for long term care recipients. Qualified charitable deductions become permanent law.
2016 Wisconsin adopts the Digital Property Act, changing the way digital assets are managed. Federal law changes to allow self-settled special needs trusts to be established by competent disabled beneficiaries.
2017 Federal law provides permanent corporate tax cut and temporary change to both income taxes and estate taxes (scheduled to revert back in 2026). This law change temporarily doubles the Federal estate tax exemption amount (to 11M+). Also creates “opportunity zones” for capital gains tax planning and changes the “kiddie tax.” Wisconsin reverses course on promissory notes.
2018 Veteran’s Administration releases sweeping regulatory changes to the Improved Pension Program including the implementation of a 3-year look-back period.
2019 IRS issues final regulations giving anti-clawback guidance to gifts during the temporary increase in unified credit.
2020 Secure Act changes ages for required minimum distributions and ends the inherited “stretch IRA” for most individuals creating a need for everyone to re-strategize their retirement savings plan. Kiddie Tax rates changed. CARES Act suspends 2020 RMDs.
At Hooper Law Office, to keep our clients’ Estate Plans current, we review them every three to five years. During a review meeting, our client communicates any changes in their lives, families, and finances. The attorney brings information regarding changes in the law and new Estate Planning techniques to consider. Together a decision is made regarding what changes, if any, will need to be incorporated into the plan.
To remain informed, we encourage our clients like us on Facebook. Hooper Law Office also holds an annual client update to discuss major changes in the law that may affect clients’ plans. Our attorneys and paralegals attend a multitude of education events every year to keep us up to date as possible on Estate Planning techniques, and we use these venues to convey to our clients any issue that may be of concern.
Please take the time to revisit your plan. Make sure you fully understand what your Estate Planning Attorney’s process is when it comes to reviews, updates, and settlement. Our attorneys are more than willing to sit down with you and review your current Estate Plan if your attorney is no longer practicing, no longer in the area, or does not offer a review process. Like a car, you always want to make sure that your Estate Plan is in the best shape and is ready to run when you need it to start. This means that you occasionally have to kick the tires and check under the hood.