BASIC ESTATE PLANNING - KITZKE LAW OFFICES

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BASIC ESTATE PLANNING: PROBATE, 

GUARDIANSHIP AND LIVING TRUSTS

There are three major threats to your estate planning efforts (regardless of your age, income or assets): they are probate, taxes and creditors. Basic estate planning is designed to defeat Probate entirely and will also provide certain basic tax and creditor protections. 

I thought a Will was all the estate planning I needed.

You’ve probably been told (perhaps when you got married, bought a house and had children) that you should have a Will. The truth is, however, that a Will is not the best estate plan for you and your family—because a Will leads you directly to the expense, delay and publicity of the probate court. A will must be filed with and approved by the probate court before it can be enforced. 

Furthermore, many people have the misconception that a Will also protects you during your lifetime if you become incapacitated. This is simply not true. A Will provides no protection for you if you are incapacitated, which means the court will appoint someone to make decisions for you (this court process is called guardianship) — not necessarily someone you would have wanted.

What is probate?

Probate is the legal process through which the court and your personal representative pay your debts and distribute your assets after you die. In Probate, the Probate Court oversees the transfer of your assets to your heirs. The Will is simply a “road map” telling the Probate Court which asset should be transferred to which heir (without a Will, the assets go to the heirs set by state statute).

Why should Probate be avoided?

· It can be very expensive. Like most court actions, there are many technical requirements and forms which have to be filed with the court. Legal fees and other costs of administration must be paid before your assets can be fully distributed to your heirs. In Wisconsin attorneys fees alone are usually estimated at 3-5% of an estate’s value. If you own property in more than one state, your family will likely face probate in each state.

· Delays. It usually takes 9 months to two years to finish a Probate. During this time, assets are usually frozen and nothing can be distributed without the court’s approval.

· Probate is open to the public. Probate files are entirely open to the public, so any interested party (or nosy neighbor) can see what you owned, who you owed and to whom you are leaving your assets. 

Why does the court get involved at incapacity?

If you can’t make your own decisions due to mental or physical incapacity (stroke, car accident, etc.) and you haven’t appointed someone else in writing to act on your behalf, only a guardian appointed by the court can act for you, after a court hearing.

Under guardianship, the law also restricts how your family can use your assets for you, which may make it difficult to do future planning for you (particularly for nursing home planning) and usually requires annual court reports. 

Fortunately, there is a simple and proven solution to Probate and guardianship—the Revocable Living Trust.  It totally avoids probate at your death and lets you and your family keep full control of your assets during lifetime—even if you become incapacitated.

What is a Living Trust?

A Living Trust is a legal “container” that simply holds your assets for you; in many ways it looks a lot like a Will - it includes your instructions for distribution of your assets when you die. But, unlike a Will, a Living Trust avoids probate at death, and it prevents the court from controlling assets at incapacity.

How does a Living Trust avoid probate and guardianship?

When you set up a Living Trust, you transfer ownership of your assets to your Trust, which you control. Under modern trust law, in many cases you may keep title to Trust assets in your own name or you may title them in the name of the Trust---such as from “John and June Jones, husband and wife” to “John and June Jones Family Trust.”

Legally you no longer own anything (don’t panic: everything now belongs to your Trust), so there is no court involvement when you die or become incapacitated. As long as you or your spouse live, you are the Trustees of the Trust, so you continue to manage the assets. 

If the assets are not in my name, don’t I lose control? 

Absolutely Not. You always keep full control. As Trustee, you can do anything you could before—buy or sell assets, make gifts, even change or revoke your Trust (that’s why it’s called Revocable). You even file the same tax returns. Nothing changes but the ownership and, if you wish, the names on the titles.

My family lawyer said that transferring assets to a trust can be expensive and difficult.

It isn’t. Your estate planning advisors are trained to help you quickly and economically assure that your assets are in the Trust. Some items such as real estate need certain simple actions and items like jewelry, clothes, furniture and other assets without titles are automatically included. Insurance and other beneficiary designations may also be changed. 

Also, be aware that some probate advocates (who make a lot of money from probate) exaggerate this “funding” process to scare people.  It simply isn’t that difficult. It may take a little time—but you can spend some time now, with the help of your attorney and financial planner, or you and your family can pay the courts and probate attorneys later. 

If something happens to me, who has control?

If you are married, your spouse typically continues as Co-Trustee of the Trust with full authority to act on your behalf. If something happens to both of you or if you are the only Trustee, your hand-picked Back-up Trustee, who you have named in the Trust, will step in. 

What does the Back-up or Successor Trustee do?

They manage your assets and pay your expenses if you become incapacitated, and if you recover, you automatically resume control. At your death, they pay your debts and distribute your assets to the beneficiaries you named in your Trust. All this is done quickly and privately, according to the instructions in your trust. Nothing gets filed with the courts and there are usually no attorney’s fees.

Who can be Back-up Trustees?

Back-up Trustees can be anyone you choose: adult children, relatives, or trusted friends. You should name more than one Back-up Trustee, in case your first choice is unable to act.

What happens to my Trust when I die?

Unlike a Will, a Trust doesn’t have to die with you. Assets can stay in your Trust, managed by the person you have chosen—until you’re Beneficiaries (including minor children) reach the age(s) you want them to inherit or to provide for a loved one with special needs.

Doesn’t Joint Ownership avoid probate for spouses?

Not really—it just postpones it. When one spouse dies, full ownership does transfer to the surviving spouse without probate. But when that spouse dies without adding a new joint owner or if both spouses die at the same time, the asset will go through probate.

Watch out for risks with adding children or others, too. You could lose a portion or all of the property if your child gets divorced or is sued. There could also be estate and/or income tax problems. You could even unintentionally disinherit your own family if it isn’t done properly.

And when you add a co-owner, you could lose full control. With some assets, especially real estate, all owners must sign to sell or refinance. And if a co-owner becomes incapacitated, you could find yourself with a new co-owner—the court. 

Wouldn’t a Power of Attorney prevent all of this?

All Powers of Attorney end at death, so they can’t be used to avoid probate at death. Many also end at incapacity. A Durable Power of Attorney is valid through incapacity and will insure that you avoid court involvement (guardianship) if you are incapacitated. It’s very effective when used with a Living Trust. 

How can a Living Trust save on estate taxes?

Depending on the tax rates and exemptions in effect, the Trust can allow spouses to maximize their current exemptions by splitting the Trust assets at the death of the first spouse and thus passing assets to the family at the second spouse’s death with the maximum exemption applying to both spouse’s portions of their estates.

I have a Trust in my Will. Is that the same as a Living Trust?

No! A Will can create Trusts (to save estate taxes, care for minors or those with special needs) after you die. But the Will must be probated first—which means these Testamentary Trusts have to go all the way through Probate (and the attorneys and other fees paid) before the assets are “poured over” into the Trust. It’s an old trick of some probate advocates to put a Trust in a Will without explaining that it must go through probate.

Is a Living Trust Expensive?

Not when compared to the costs and loss of control that come with probate at death and Guardianship. Initially, a Living Trust may cost slightly more than a Will, but a Living Trust is always much less expensive than the costs of probate at death and guardianship. Also, be on guard for Living Trusts that are too expensive. You should be able to obtain a comprehensive estate plan, including a Living Trust, for $1,000 or under.

Should an attorney do my Trust?

Yes, an experienced estate planning attorney can provide valuable guidance and assistance and assure that your Trust is prepared and funded properly.

Are Living Trusts new?

No, Trusts have been successfully used for hundreds of years.

Who should have a Living Trust?

Some people might think that Living Trusts are only for large estates, but Living Trusts are for anyone who wants to avoid the costs and delays of probate and guardianship. Because the Trust process for transferring assets to heirs is so simple and avoids the probate court, even people with small estates will benefit from a Living Trust. And if your parents are living, you may want them to consider one so you won’t have to deal with the courts and attorneys at their incapacity or death. 

Kitzke & Associates, S.C.,

147 High Street

Mineral Point, WI 53565

414-254-5651 (cell) 608-987-0300 (office)

Jvkitzke@aol.com (Email)

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