Estate Planning Awareness Week

The third week in October has been designated as “National Estate Planning Awareness Week“.  It is estimated that 70% of American’s do not have an estate plan.  Many believe that estate planning is only for the wealthy.  However, this couldn’t be further from the truth!  In fact, no one is too young or too poor for basic health care documents.

Some of the many reasons that you may need a more comprehensive estate plan are:

1) You own a home.
2) You have minor beneficiaries or beneficiaries with special needs.
3) You do not want your beneficiaries to receive their inheritance in one lump sum.
4) You have a blended family.
5) You want to make sure the inheritance you leave does not end up in the hands of a beneficiary’s ex-spouse.
6) You wish to avoid a public court proceeding in the event of your death or incapacity.

If you are concerned about your own plan, the FREE Six-Step Checklist Toward Successful Estate Planning is a great place to start!

Also, at Horn & Johnsen, we provide initial consultation at no charge.  This is an excellent opportunity to sit down with one of our estate planning attorneys to discuss the options that make the most sense in your particular situation.  Please free to call us at (608) 829-2525 to set up yours today!  Weekend and evening appointments are available by request.

At Horn & Johnsen SC we have personal relationships with our clients and their families.  “Building relationships, not billing minutes.”

How the Supreme Court DOMA Ruling Affects Estate Taxes (Part 1)

Prior to the U.S. Supreme Court ruling that DOMA is unconstitutional (United States v. Windsor), married gay and lesbian couples could not take advantage of the federal “unlimited marital deduction” available to other married couples (note that this rule is applicable only to U.S. citizens).  Through the unlimited marital deduction, a married person can give an unlimited amount of assets, either by gift during his or her lifetime or by bequest upon death, to his or her spouse without incurring any federal gift or estate taxes.  Therefore, regardless of the value of the estate, a married couple can easily avoid paying any estate taxes upon the first death.

Prior to Windsor, for a married gay or lesbian couple, if the total value of the first spouse’s estate exceeded the applicable exclusion amount (currently $5.25 million), the surviving spouse who inherited the estate would have had to pay estate taxes of up to 40% on all assets over the exclusion amount.  Now, married gay and lesbian couples can also take advantage of the unlimited marital deduction.

Another estate tax advantage now available to gay and lesbian couples is portability, which will be addressed in Part 2.

Of course, federal estate tax planning is only one component of a comprehensive estate plan.  Regardless of whether or not you have a taxable estate, a good estate plan is essential if you wish to make things as easy as possible for your loved ones upon your death or incapacity.

Supreme Court Strikes Down DOMA

This week, in a 5-4 ruling, the case of United States v. Windsor, the U.S. Supreme Court struck down a provision of the 17-year-old Defense of Marriage Act (“DOMA”), which defines marriage as between a man and a woman.  DOMA had previously denied federal benefits, such as Social Security benefits, veterans’ benefits, family medical leave, and the ability to file joint income tax returns, to same-sex couples who are legally married.  This ruling will have a huge impact on more than 130,000 same-sex married couples, especially as it applies to income tax planning and estate and gift tax planning.  Follow our blog for additional information to come!

I’m getting married! Do I need a prenuptial agreement?

According to Wisconsin marital property law, all property of spouses is presumed to be marital property.  If you wish to override this presumption, then you and your fiancé should enter into a prenuptial agreement.  The process does not need to be an adversary one.  Rather, your prenuptial agreement can simply allow the spouses to control the character of each spouse’s property by virtue of title throughout your marriage.  For example, the agreement can provide that all assets titled solely in your name are your individual property, all assets titled solely in your fiancé’s name are his or her individual property, and all assets titled in both names are joint marital property.  In Wisconsin, there are strict requirements to ensure your prenuptial agreement is legally binding.  Therefore, it is advisable to contact a qualified attorney to draft this agreement well before your wedding date.  Further, in order to ensure your assets pass to your intended beneficiaries upon your death, each spouse should also have a solid estate plan in place.

Cabin Trusts - Let's Keep It In The Family!

In Wisconsin, I have many clients who own a family vacation home “Up North”.  In fact, within my own family, we have a lovely cabin in Vilas County where we spend many relaxing holiday weekends together.  Therefore, I personally understand the importance of planning to ensure a treasured family cabin can remain within the family following the death of a parent or parents.

Within a revocable living trust, a popular and very effective option is to create a separate “Cabin Trust” that will spring into existence upon the death of the trustor(s) (note that the “trustor” is the person who creates the trust).  The trust can direct that the family vacation home will then be distributed to this Cabin Trust along with a specified cash amount to provide for the upkeep and maintenance of the property, which should include, but not be limited to, real estate taxes, insurance, improvements, and general maintenance of the property, for a certain period of time.  The trust should also designate the beneficiaries (usually the trustor’s children) who may share in the use and enjoyment of the property.  If a child dies, then his or her right to such use and enjoyment can pass to that child’s descendants.

In addition, the trust should name a trustee of the Cabin Trust who will be responsible for the general management of the property and trust funds.  When the trust funds run out, the trust should provide that the adult beneficiaries of the trust will then become responsible for paying their fair share of the expenses.  If a beneficiary fails to pay his or her share, then such beneficiary has lost his or her right to the use and enjoyment of the vacation home.

Finally, the trust should designate the circumstances under which the vacation home can be sold.  Often, parents require either a majority or a unanimous consent among those children who have met their financial obligations before the property can be sold.  Parents also often provide within the Cabin Trust that their children will have the first option to purchase the vacation home from the trust at a discounted price.

Overall, a well-crafted Cabin Trust can be a wonderful tool to keep the vacation home in the family and to eliminate potential future family disputes!

Providing Divorce Protection for Your Children

Despite the fact that the Baby Boomer generation has seen high divorce rates, my experience has been that parents of Baby Boomers generally did not wish to discuss divorce protection for their children and grandchildren.  Times have changed…

Most people now acknowledge that divorce is a common occurrence.  Therefore, why not provide your beneficiaries with the opportunity to protect their inherited assets in the event of a future divorce?

Traditional estate planning, including the use of direct beneficiary designations, wills, and “bare bones” living trusts, usually provide for an outright distribution to your beneficiaries upon your death.  Most often, married beneficiaries will then promptly place these assets into various accounts titled jointly with their spouses.  Even if your beneficiary keeps the account titled solely titled in his or her own name, he or she may later add to the account using marital income.  At that point, the account has been comingled and may no longer be considered individual property (also known as separate property).  Thus, in the event of divorce, half of your hard-earned assets may end up in the hands of your beneficiary’s ex-spouse.

Rather than distributing your assets outright upon your death, a properly drafted living trust can instead distribute inherited assets to each child or other beneficiary in the form of a divorce protection trust.  Each child can act as his or her own trustee, and you can specify that there are no restrictions as to how your child can use the assets of the trust.  Any assets that remain titled in the name of your child’s divorce protection trust would be clearly identified as your child’s separate property, not to be divided in a divorce proceeding.

You can also specify within your living trust how the assets of your child’s divorce protection trust would be distributed upon your child’s death.  If you wish, you can even provide your child with the power to name his or her spouse as the beneficiary of the trust upon his or her death.  However, if there is a subsequent divorce, your child can then change the beneficiary – never losing divorce protection!

Divorce protection is one of the many options available within a comprehensive living trust plan.  If you are interested in providing your children or other beneficiaries with divorce protection, if you have minor beneficiaries, if you have special needs beneficiaries, or if you simply wish to make things as easy as possible for your loved ones upon your death or incapacity, you should consult with an estate planning attorney regarding crafting a plan that will best accomplish your desired objectives.

Do I Really Need an Estate Plan If I Don’t Have Many Assets?

Regardless of age, we are all one accident away from death or disability.  For example, if Terri Schiavo had created an estate plan, a seven-year court battle between her husband and her parents could have easily been avoided.  Therefore, it is a good idea for all adults to have at least basic estate planning documents in place – especially when you have minor children.  In Wisconsin, these documents should include (at the minimum):  (1) a Will designating how your property will be distributed upon your death and naming guardians and establishing trusts for your minor children, (2) a Property Power of Attorney designating someone to manage your financial matters in the event you become mentally incapacitated, (3) a Health Care Power of Attorney designating someone to make health care decisions for you in the event you become mentally incapacitated, (4) a Living Will indicating whether or not you wish to be kept alive artificially under certain circumstances, (5) a HIPAA form authorizing your agent to access your medical records when needed, and (6) an Authorization for Final Disposition specifying your burial and funeral wishes and also designating who is in charge of your burial and funeral upon your death.

Of course, depending your circumstances, there may be additional estate planning documents that should be part of your individual estate plan.  The best way to determine what you need is to consult with a qualified estate planning attorney.

Should I name my minor children as the beneficiaries of my life insurance policy?

For most parents of young children, the primary asset that would be available should a death occur is life insurance.  Often, when I meet with parents, I find that they have named their children as the direct beneficiaries of their life insurance policies.  While the intent is to protect their children, most parents do not understand the potential consequences of this strategy.

In Wisconsin, state law determines that a child will be entitled to receive insurance proceeds at the age of 18.  In the meantime, the insurance company will not release the proceeds until a guardian has been appointed by the court.  The guardian will have limited discretion regarding how the funds can be used or distributed.  Further, if a child’s biological parents are divorced or otherwise separated, the surviving biological parent will most likely be named as the child’s guardian and therefore the person who is authorized to manage the life insurance proceeds.  This arrangement is often contrary to the deceased parent’s intent.

When minors are involved, a better strategy is to establish a trust within your will (known as a testamentary trust) or within a revocable living trust and to name this trust as the beneficiary of your life insurance policy.  The advantage is that you can choose the trustee (who will be in charge of the proceeds), and you can also determine the terms under which the assets can be used and distributed from the trust.  For example, you could name your current spouse, your parent, or your sibling as the trustee and authorize the trustee to distribute as much of the trust assets as he or she determines is appropriate for your children’s health, education, maintenance, or support until each child reaches the age of 25.

A qualified estate planning attorney can recommend the best strategy for your situation, especially pertaining to the establishment and use of a trust.  To arrange a free consultation regarding your own estate planning needs, please contact our office at (608) 824-9540.