The SECURE Act

Published by Denasha Scott, Margaret Lund on | Permalink

The  SECURE (Setting Every Community Up for Retirement Enhancement) Act which was signed into law in late December  makes wide ranging changes effecting IRAs, 401(k)s and other qualified retirement plans and retirement plan beneficiaries. The provisions in the Act may require changes to existing estate plans and will necessarily shape future plans. Some of the more significant provisions are discussed below.

Elimination of the Stretch IRA

The Secure Act eliminates the stretch IRA for many beneficiaries.  Previously, the assets of certain retirement  plans could be placed in an inherited IRA and the annual required minimum distribution (RMD) which the beneficiary was required to take would be calculated based on the beneficiary’s life expectancy.  Under the SECURE Act, generally, all the assets of a retirement account must be completely distributed to the beneficiary  no later than the end of the 10th calendar year following the year of the employee or IRA owner’s death. While this is the general rule, there are also a number of special rules that apply to certain eligible beneficiaries (the retirement account owner’s surviving spouse or minor child, a disabled or chronically ill beneficiary, or someone who is no more than 10 years younger than the retirement account owner). We’ll discuss those in more detail later in this post.

The inability to stretch the inherited IRA over a beneficiary’s life expectancy can have significant tax consequences.  A shorter distribution window means much larger distributions must be made. Because most distributions from a retirement plan are considered taxable income, these higher distribution amounts could increase the beneficiary’s taxable income causing  the beneficiary’s income to be in a much higher tax bracket.  

Many estate plans include the payment of retirement accounts to trusts.  The SECURE Act  may require these trusts to be administered differently than what was intended by the Settlor of the trust.  For example, if the Trust is a conduit trust which requires the Trustee to promptly pay over to the beneficiary any amounts which the Trustee withdraws from the retirement plan, the required ten-year distribution window may mean that the beneficiary will be receiving much larger distributions from the trust than the Settlor of the trust intended.  In many cases, it is possible to instead have an accumulation trust that permits the Trustee to accumulate and reinvest in the trust the amounts which the Trustee has to withdraw from the inherited IRA. The Trustee would still have to withdraw the funds from the inherited IRA within 10 years after the retirement account owners death, but would not necessarily have to turn around and distribute those amounts to the beneficiary. Instead, the Trustee could reinvest the withdrawn funds and keep them in the trust where they are protected.

There are other trusts which were originally structured to qualify for the stretch of benefits over the life of a beneficiary but will no longer qualify for the stretch under the SECURE ACT, or where some of the definitions and language used in the trust regarding retirement plans may not make sense any more due to the changes in the law.

It is therefore important to review any existing estate plans that include  payment of retirement benefits to a trust and to make any necessary changes, so that the assets of the retirement benefits will be distributed in the most beneficial manner possible under these new rules.

Exceptions to the Ten-Year Distribution Rule

There are exceptions to the new 10 year rule.  Generally the rule does not apply to certain eligible beneficiaries.

The Stretch IRA will still be available for  the following designated beneficiaries: the surviving spouse, disabled or chronically ill individuals, and individuals who are not more than 10 years younger than the employee (or IRA owner).

There is also a limited exception to the 10 year rule for IRAs or retirement accounts payable to a child of the employee (or IRA owner) who has not reached the age of majority. In that case, the minor child may  only base the child’s RMD on the child’s life expectancy until the child reaches the age of majority.  Then all remaining assets of the retirement plan must be distributed within ten years after the child reaches the age of majority.

Other Important Changes

No More Age Limit for Contributing to IRAs

Under the previous rules, retirement plan account holders were prohibited from contributing to retirement plans past the age of 70½. Now, as long as an employee continues to work, he or she may contribute to a retirement plan.

Required Minimum Age of Distribution Increased to 72

The rules also increase the age at which an account holder, or their spouse, are required to begin withdrawing money from the plan, pushing back the age from 70½ to 72.

Additional Exempted Early Distributions to Benefit Families

The SECURE Act allows for penalty-free withdrawals of up to $5,000 from a retirement plan to help pay for the arrival of a new child, whether through childbirth or adoption. Any such qualified early distributions must be taken out within a one-year window, from the time of the first withdrawal.

Additionally, the SECURE Act now has expanded the qualified educational expenses of 529 plans to cover student loan repayments, so up to $10,000 per beneficiary may be distributed tax-free to help pay off those loans.

Conclusion

The SECURE Act has made some significant changes to the laws surrounding IRAs and 401(k)s and other qualified retirement plan benefits.   Existing estate plans particularly those which involve  retirement accounts payable to trusts may need to be revised in light of these changes.   

Attorneys at Stafford Rosenbaum LLP are available to help you determine whether the SECURE Act will affect your estate plan, and can help you make any necessary changes.

This blog was created with the help of Stafford Rosenbaum LLP law clerk and Marquette University Law School student Mathias J. Rekowski.

Why Your 18 Year-Old Needs Powers of Attorney for Finances and Healthcare

Published by Olivia M. Pietrantoni, Eileen M. Kelley on | Permalink

As parents, you may not realize that once your child turns 18 years-old, federal and state law restrict your ability to access your child’s healthcare records and to make healthcare and financial decisions on your child’s behalf. This becomes problematic if your adult child were ever to become incapacitated, and unable to make those decisions for him or herself.  This issue can be avoided if your child executes financial and healthcare powers of attorney. 

Generally speaking, a power of attorney is a document that allows you, as principal, to appoint an agent or agents to act on your behalf in connection with matters identified in the document in the event you become incapacitated. These documents relate to financial and healthcare matters.

One of the greatest benefits of a power of attorney is that it allows the agent to act quickly in an emergency.  If your adult child becomes incapacitated and does not have a power of attorney naming you as the agent, then a guardianship may be necessary. In a guardianship proceeding, the court appoints a guardian to make the healthcare and financial decisions on behalf of the incapacitated individual. Guardianship proceedings take time and can be expensive. Having your college student sign a power of attorney for healthcare and finances is a simple way to prepare for an emergency.

Court of Appeals: Statute of Frauds Does Not Nix Unsigned Agreement to Convey Property Upon Death

Published by Jeffrey A. Mandell on | Permalink

The Wisconsin Court of Appeals recently adjudicated a dispute about the legal standard applicable to a decades-old contract to transfer property after the owner’s death. See Haug v. Greve, 2015AP54 (April 26, 2016). The case involved the common law statute of frauds, as well as two Wisconsin statutes adopted at the very end of the twentieth century. Ultimately, the court of appeals affirmed the lower court’s holding that a contract to devise real property upon death which is governed by Wis. Stat. § 853.13 is exempt from the statute of frauds, both under the common law and as codified in Wis. Stat. § 706.001.   

Robert Greve died in 2002. After his second wife, Bernice, died in 2012, a dispute arose between Robert’s estate and his children from his first marriage. The conflict centered on ownership of a riverfront cabin property. The Estate contended that the property should devise as provided in Robert’s will, while Robert’s children claimed that title passed to them under an earlier deed.

In 1960, Robert’s mother, Mildred, had deeded the cabin property to herself and to her son as joint tenants with a right of survivorship. In 1972, Mildred deeded her interest in the cabin property but reserved a life estate “to enjoy the use of the property in connection with Robert Greve and his family.” The 1972 deed also contained evidence of a contract that stated “Robert Greve does further agree, that he will, in the event he owns the [property] at the time of his death, devise and bequeath [the property] to his children in equal shares.” Mildred signed the deed, but there was neither a signature nor a signature line for Robert. In 1999, Robert executed a will that left ninety-five percent of his estate to Bernice, and divided the rest between his two children. The 1999 will did not mention the cabin property. 

Robert’s children maintained that the terms of the 1972 deed provided that the property devised to them. But Robert’s Estate disagreed, arguing that the provision of the 1972 deed devising the property to Robert’s children at the time of his death was invalid. The invalidity argument rested on the statute of frauds, which has traditionally applied to contracts to make a will to transfer real property. The statute of frauds, which has deep origins in the common law, requires that contracts to transfer property must satisfy several criteria, including being set forth in writing and signed by all parties to the agreement. See, e.g., Stuesser v. Ebel, 19 Wis. 2d 591, 120 N.W.2d 679 (1963). In 1999, Wisconsin codified the statute of frauds in Wis. Stat. § 706.001. The codified version conforms to the common law in requiring written, signed agreements to transfer land. See Wis. Stat. § 706.02(1). Here, because Robert had not signed the 1972 deed, the Estate argued that any agreement the deed evidenced to pass the cabin property to his children was unenforceable under both the common law and the codified versions of the statute of frauds.

The Circuit Court for Forest County held the 1972 deed constituted an enforceable contract to devise property. Relying on Wis. Stat. § 853.13(1)(d), the court found that clear and convincing extrinsic evidence established the existence of a contract. The court also found that Robert subsequently breached that contract by failing to uphold his promise to convey the property to his children. The evidence on which the trial court relied included the deed itself, as well as testimony by Robert’s aunt (Mildred’s sister-in-law) that she was present during two separate conversations between Robert and Mildred regarding their intent that the cabin would convey to Robert’s children. The trial court reasoned that the agreement was exempt from the statute of frauds codified in Wis. Stat. § 706.001 because the contract itself was not an interest in land, but instead a contract to make a will. Such contracts fall within the scope of Wis. Stat. § 853.13.  

On appeal, the Estate argued that Wis. Stat. § 853.13’s provision allowing clear and convincing evidence to prove the existence of a contract to devise property was inapplicable to the 1972 deed, because the deed preceded the creation of the statutory provision by a quarter-century. The Estate urged the appellate court to follow the common law principles in effect in 1972, under which the statute of frauds governed contracts to transfer real property upon an owner’s death.  The Estate argued that the agreement between Mildred and Robert became irrevocable upon Mildred’s death in 1976, which was more than 20 years before the enactment of either Wis. Stat. § 853.13, governing the creation of contracts to devise property, or Wis. Stat. § 706.001, codifying the statute of frauds.

The appellate court rejected this argument, holding that Robert and Mildred’s agreement did not become irrevocable until Robert’s death in 2002. Prior to his death, the court reasoned, Robert had unilateral authority to convey the property to anyone. However, by not exercising this authority, Robert allowed the 1972 agreement to become irrevocable when he died. The agreement thus took effect in 2002 and was governed by the law in effect at that time. As a result, the agreement was subject to Wis. Stat. § 853.13(1)(d) rather than the statute of frauds, either as established by the common law or as codified in Wis. Stat. § 706.001.  The appellate court also made clear that it considered Robert and Mildred’s 1972 agreement worthy of protection, noting that, even if the statute of frauds governed, the court would have used its equitable authority to enforce the 1972 agreement.

The implications of the court’s approach are yet to be seen in other Wisconsin property transfer cases. It is notable that the determination of which legal regime applied to the dispute was resolved by looking to the date on which the agreement at issue became irrevocable; for that reason, future cases with different facts may continue to argue for the application of the common-law statute of frauds or other legal authority predating Wis. Stat. §§ 706.001 and 853.13. While the Haug court’s rationale for enforcing the 1972 agreement can be read as favoring leniency about the formal requirements for contracts to transfer real property, the case is fact-specific and does not establish a broad rule. As a result, the case does not relax the burden Estates or other individuals face when making arrangements for future transfers of real property.

Law clerk Syed Madani assisted in researching and writing this post. 

Wisconsin Supreme Court Holds that Milwaukee Cannot Enforce City Employee Residency Requirements

Published by Jeffrey A. Mandell on | Permalink

In Milwaukee Police Association v. City of Milwaukee, 2016 WI 47, the Wisconsin Supreme Court held that Wis. Stat. § 66.0502 precludes the City from enforcing its residency requirement.

For many years, the City of Milwaukee has required its city employees to reside within city limits as a condition of employment. On June 20, 2013, the legislature created Wis. Stat. § 66.0502, which prohibits local governments from enacting and enforcing residency requirements of any kind, except those that require police officers, firefighters, or other emergency personnel to reside within fifteen miles of the local government.

On the day the statute took effect, the City of Milwaukee Common Council adopted and the Mayor signed a resolution concluding that the new statute violated the Wisconsin Constitution’s home-rule amendment, which allows cities and villages to “determine their local affairs and government, subject only to this constitution and to such enactments of the legislature of statewide concern as with uniformity shall affect every city or village.” Art. XI, § 3(1). The resolution further directed all City officials to continue enforcing Milwaukee’s local residency rule.

The Milwaukee Police Association filed suit, seeking a declaratory judgment that the City’s residency ordinance and resolution were unenforceable to the extent they conflicted with § 66.0502. The Police Association also sought judgment and damages under federal civil rights law (42 U.S.C. § 1983), alleging that the City’s continuing enforcement of its residency ordinance constituted a deprivation of individual officers’ liberty interests. Sometime later, the Fire Fighters Association intervened in the action. All parties filed for summary judgment. The circuit court declared the City Ordinance and Common Council Resolution void and unenforceable to the extent they violate § 66.0502. The trial court further found that § 66.0502 creates a protectable liberty interest, but that there was no evidence of actionable deprivation to justify an award of damages. The City appealed, and the Police Association cross-appealed.

The court of appeals reversed in part and affirmed in part. With respect to the § 1983 claim, the court of appeals affirmed the circuit court’s decision not to award damages. With respect to the home-rule amendment, the court of appeals concluded, “because Wis. Stat. § 66.0502 does not involve a matter of statewide concern and does not affect all local government units uniformly, it does not trump the Milwaukee ordinance.” The court of appeals expressed deep concern over the disproportionate “impact” it believed Wis. Stat. § 66.0502 could have on the City – even to the extent of concerns expressed by the court that Milwaukee could become the next Detroit. The Wisconsin Supreme Court granted the Police Association’s petition for review.

In a decision announced last week, the Wisconsin Supreme Court affirmed in part and reversed in part. First, the Court held that Wis. Stat. § 66.0502 precludes the City from enforcing its residency requirement. The Court clarified that a legislative enactment can trump a city charter ordinance either (1) when the enactment addresses a matter of statewide concern, or (2) when the enactment with uniformity affects every city or village. Without much analysis or review of the facts of this case, the Court concludes that because Wis. Stat. § 66.0502 uniformly affects every city or village on its face, it trumps § 5-02 of the City’s charter on residency requirements.

Second, in affirming the court of appeals, the Court held that the Police Association is not entitled to relief or damages under 42 U.S.C. § 1983. The Court noted that the § 1983 claim failed because the Police Association did not meet the requirements necessary to prevail. Particularly, the Police Association failed to show a deprivation of rights, privileges, or immunities protected by the Constitution or laws of the United States.  Justices Ann Walsh Bradley and Shirley Abrahamson concurred with majority’s holding on the § 1983 claim, but dissented from the majority’s holding regarding the City’s home rule power.

Interpreted broadly, this decision grants the state legislature the right to govern municipal matters as long as the legislature enacts a statute that uniformly applies to municipalities even if that statute is specifically targeted at matters of local concern. In the dissent, Justice Ann Walsh Bradley theorizes that “under the majority opinion, the only legislation that would not uniformly affect all municipalities is one that would overtly single out a particular city or village.” This decision serves as a blow to the home-rule power that was originally “intended to free municipalities from legislative interference” and to municipalities. 

Recent Case Highlights the Importance of Clarity and Follow Through In Avoiding Family Disputes

Published by Eileen Kelley on | Permalink

The recent Wisconsin Court of Appeals decision In the Matter of the Living Trust of Margaret Sheedy and Patrick Sheedy highlights not only the importance of clear drafting, but also follow through in avoiding family disputes in estate planning.  The case involves a dispute between six siblings regarding the treatment of their parent’s cabin in two successive trusts.  The first trust, drafted in 1995, in essence divided the cabin between all of the sisters, while a subsequent 2004 trust directed the cabin to be distributed to only one child as a specific bequest.  That trust was later further amended, changing the distribution to back to shared interest to be divided between the children.  The 2004 did not indicate whether it was intended to revoke the 1995 trust.  Although the parents created both trusts together, one parent completed four amendments to the 2004 trust after the death of the other parent.  It was not clear from the 2004 trust whether one of the grantor parents had the ability to amend the trust following the death of the other.

At the time of the surviving parent’s death in 2012, the cabin was titled in the name of the 1995 trust, and it was unclear which of the trusts or trust amendments governed its disposition.   A group of the siblings argued that it was the 1995 trust that controlled the cabin’s disposition because of the title. Unsurprisingly, the sibling who was to receive the cabin outright under the 2004 trust argued that, though that trust did not explicitly revoke the 1995 trust, the 2004 controlled.

Ultimately the Court of Appeals concluded that the 2004 trust revoked the 1995 trust, the cabin title to the 1995 trust was not dispositive, and the surviving parent was able to amend the 2004 trust after the death of the first grantor. The sisters are to share the cabin equally.  However, the real lesson from the Sheedy case is that each of the disputes between the siblings could have been avoided had the trust documents been explicit about their intentions.  The language of the 2004 trust could have easily stated it was revoking the 1995 document.  A simple addition could have also confirmed the ability of a surviving grantor to amend the document.  The additions of these two sentences might have helped avoid prolonged litigation between siblings after the death of their parents. Additionally, the dispute about the ownership of the cabin property by the trust could have been avoided by follow-through on updating the title after the 2004 plans were in place. 

If you have questions about estate planning, please contact a member of the Stafford Rosenbaum Trust and Estates team.  

Facebook Legacy: After-Death Settings

Published by Eileen Kelley on | Permalink

As we reported in Estate Planning for Your Digital Assets, the law is rapidly developing at the intersection of death and social media.  Facebook has announced it will now enable users to direct the disposition their accounts.  Other platforms are likely to follow suit.

Facebook users can now plan what happens to their account at their death. The options include: choosing a “legacy contact” to manage the account, deleting your account permanently after death, or  keeping your account as it is. Previously, family or friends had to notify Facebook that a user had died. Upon verifying the death, Facebook would “memorialize” the account, meaning the account could be viewed but it could not be edited or managed.

Under the new system, the legacy contact may make one last post on your behalf when you die, respond to new friend requests, update your cover photo and profile, and archive your Facebook posts and photos. The legacy contact will not be able to log in as the deceased or see the deceased’s private messages.

Follow these steps to designate a Facebook legacy contact:

  • On the right side of your Facebook page, click on the downward-facing arrow to show the drop-down menu. Click on “Settings.”
  • Choose “Security,” then “Legacy Contact” at the bottom of the page.
  • Choose your legacy contact from your friends list. Choose the options you want your legacy contact to have.
  • You will be offered an option to send a message to your selected legacy contact.

If you have questions about planning for your digital or non-digital assets, please contact a member of the Stafford Rosenbaum Trust and Estates team. 

Coauthored by Holly J. Wilson and Eileen M. Kelley.

Estate Planning for Pets

Published by Eileen Kelley on | Permalink

An often overlooked component of the new Wisconsin Trust Code, Wis. Stat. § 701.0408 authorizes pet trusts in Wisconsin for the first time.  The new statute creates a new estate planning mechanism for furry family members. 

Previously, a Wisconsin pet owner hoping to direct funds for the care of pets in the event of his or her death had to leave funds indirectly.  The enforceability of a trust created for this purpose was not clear.  But the new law confirms the validity of pet trusts to fund the care of animals in Wisconsin.

A pet trust can be created as a standalone trust or as part of a broader revocable living trust.  An individual can be appointed to carry out the terms of the trust. This need not be the same person selected as trustee of a revocable living trust.  The trust terminates upon the death of the last surviving animal it was designed to care for.  Funds not used for the pets are distributed to the trust’s creator or his or her successors.

Funding is an important consideration for ongoing care of pets. Pet trusts can provide funds for an animal’s needs, including food, toys, and veterinary care.  Pet trusts can also document instructions for care and the trust maker’s wishes for major decisions for the pet.  However, it’s not clear yet how these wishes will be treated by a Wisconsin court. This is why in addition to the funding provided in a pet trust, estate planning for pets should also involve confirming the guardianship of pets and discussing your wishes with your potential pet guardians.  

To speak to one of our animal loving attorneys about providing for your pets in your estate plan, please contact one of the members of the Trust & Estates Team. 

Mr. Fritz, the author's Miniature Schnauzer.

Same-Sex Couples May Now Benefit from Portability of Estate Tax Exemptions

Published by Jared M. Potter on | Permalink

Since 2011, married couples in Wisconsin are able to use portability of estate tax exemptions.  This means that upon the first spouse’s death, their unused estate tax exemption would “port” over to the surviving spouse.  In 2014, each person has an estate tax exemption of $5.34 million, so a person can transfer $5.34 million free of estate tax.  Any amounts over the $5.34 million exemption would be subject to estate tax.  Portability allows a married couple to combine their estate tax exemptions for a total of $10.68 million.  For example, Spouse A dies this year with an estate worth $4 million.  Spouse B would file a federal estate tax return for Spouse A using $4 million of Spouse A’s estate tax exemption and porting over the remaining $1.34 million to Spouse B.  Spouse B now would be able to exclude $6.68 million from estate tax at Spouse B’s death.

On October 6, 2014, the U.S. Supreme Court declined review of the Wolf v. Walker, 986 F.Supp.2d 982 (W.D. Wis. 2014), thus providing marriage equality for same-sex couples in Wisconsin.  Prior to that decision, many same-sex couples prepared estate plans that closely approximated a marriage-like relationship, but likely they did not have portability of estate tax exemptions as part of their estate plan.  With the law change in Wisconsin, same-sex couples should review their prior estate plans to see if planning to use estate tax portability is a good fit. 

Like most estate planning tools, portability has advantages and disadvantages.  One major benefit of portability in estate planning is that it takes advantage of the stepped-up income tax basis of assets twice:  once when the first spouse dies and again when the surviving spouse dies.  Two step-up basis increases in assets that are held for a long time could provide substantial tax savings to a couple.  In contrast, prior to the availability of portability, one typical estate plan was to divert assets equal to the then existing estate tax exemption to a credit shelter trust.  The credit shelter trust estate plan allows for one step-up in income tax basis.  Another benefit of using portability is that it is a simple method of planning without the use of complex trusts. 

As mentioned earlier, there are some disadvantages to portability.  First, in order to use portability, the surviving spouse must file a federal estate tax return.  The filing of a federal estate tax return can be time consuming and costly.  Second, portability planning only provides tax advantages to the spouses and does not take into consideration shielding the assets from taxation for future generations. 

Each couple must weigh the potential advantages and disadvantages of using portability as a method of reducing estate tax.  It is important to discuss whether or not to make changes to your estate plan with an estate planning attorney.  If you have questions about your estate plan, please contact a member of the Stafford Rosenbaum Trust and Estates team.

The Best Laid Plans: Avoiding Three Common Estate Planning Mistakes

Published by Eileen Kelley on | Permalink

For many clients working with estate planners, the finished product is carefully packaged and centered around either a Will or Revocable Living Trust.  After leaving the estate planner's office, seemingly innocent decisions can undo the work done to the Will or Trust and negate clients’ intentions.  Three of these common estate planning mistakes are described below. 

Creating Joint or Payable On Death Property.  

For both financial accounts and real property, joint ownership or completing transfer on death designations can quickly create contradictions with an estate plan.   By law, jointly owned property automatically passes to the surviving joint owner upon an owner's death.  This is true both of bank accounts and real estate titled with rights of survivorship.  A Transfer on Death designation directs the account holder to transfer the asset to a specific designee upon the death of the owner.  Both joint accounts and transfer on death designations remove the account or property from the probate estate of the original owner and in many cases this may be a desired result.  But often such designations are undertaken without regard for the overall estate plan and create inconsistencies that frustrate the carefully created plan.   For example, if an individual's Will leaves a certain gift to charity, but the individual later changes his or her bank account to a joint account, there may no longer be funds available in the probate estate to complete the gift in the Will.   Similarly even if a trust leaves a residence to all of the owner's children, if the property is in fact held in joint tenancy with just one of the children, the property will pass to automatically to that child.

Not Updating Beneficiary Designations.

Many people’s largest asset are retirement accounts and life insurance policies. The disposition of these accounts as a general rule is not governed by a Will or Trust.  Instead upon an individual's death, these accounts will be distributed according to the beneficiary designation on file with the account or policy holder.  Often these accounts and policies are employer sponsored meaning beneficiary designations are completed  upon starting a new job and promptly forgotten about.  It's not uncommon to find beneficiary designations directing that benefits be paid in a manner that is vastly different from the disposition in a more recent estate plan.  Therefore, updating beneficiary designations is an essential part of any overall estate plan and ongoing diligence is required to be sure that later beneficiary designations complement the overall estate plan.

Failing to Fund A Revocable Living Trust.  

A Revocable Living Trust only governs the disposition of the assets that are transferred to the Trust. This is typically accomplished by retitling assets, including bank accounts and real estate into the name of the trust.  For many, one of the primary goals of a revocable trust is probate avoidance, but this is only accomplished if all of the assets that otherwise would have been probate assets are instead held in the name of the trust at death.

 

If you have questions about how to structure your accounts and beneficiary designations to match your estate plan, please contact a member of the Stafford Rosenbaum Trust and Estates team.

Five Estate Planning Considerations for People Going Through Divorce

Published by Jared M. Potter on | Permalink

Going through divorce can be very difficult, stressful and painful, so it is not uncommon for divorcing parties to neglect their estate plan. But what would happen if you died during the divorce process or shortly thereafter? Who would make healthcare or financial decisions for you if you were incapacitated during a divorce proceeding? Who would receive your share of the marital estate? Who would care for your children? For most people, these questions would create additional unwanted anxiety. However, with some simple planning, these concerns can be extinguished. Here are five estate planning tips for a person going through a divorce or for someone who recently divorced:

1. Change your power of attorney for health care. During marriage, most people draft powers of attorney for health care (and finances) designating their spouse as the primary agent. This would allow the spouse to make health care decisions if the party is unable to do so. Under Wisconsin law, if your spouse is your agent, then they remain as your agent until judgment of divorce is granted. For someone going through a divorce, they would probably cringe at the thought of their soon-to-be ex-spouse making health care decisions for them. It is a good idea to revoke the previous power of attorney for health care and execute a new power of attorney for health care with new agents chosen by you to make health care decisions if you are unable to do so.

2. Change your power of attorney for finances. Similar to the power of attorney for health care, if you and your spouse drafted a power of attorney for finances during your marriage, it is very likely that the primary agent is your spouse. Under Wisconsin law, if your spouse is your agent and a petition for divorce is filed, then your spouse can no longer act as your agent. While this alleviates the concern of the spouse acting contrary to your interest, it does not provide for another agent to act for you. It is a good idea to revoke the previous power of attorney for finances and execute a new power of attorney for finances with new agents chosen by you to make financial decisions if you are unable to do so. 

3. Draft a living will. A living will is a document that declares whether or not you would like life sustaining procedures instituted in the event that you have a terminal condition or have a permanent loss of consciousness. If you do not revoke the health care power of attorney as suggested above, your spouse may be able to make decisions regarding whether or not you receive life sustaining procedures.

4. Draft a new last will and testament to designate guardians for your children. While your soon-to-be or ex-spouse is the most likely candidate to be the guardian of any minor children, I recommend that the client choose new guardians listed in a last will and testament. In the event that your spouse is deemed unfit to care for the children or was to die, then the designation of new guardians in your last will and testament would serve as evidence of your wishes regarding who should be the guardian of your children.

5. Draft a trust for the benefit of your children. For many divorcing couples, financial concerns are the cause of divorce.  Under Wisconsin law, if you were to die during a divorce, your estate would pass according to your current estate plan. Typically, this would give your estate to your currently divorcing spouse.  However, with a properly drafted revocable trust and last will and testament, if you were to die during divorce your estate plan could divert some of your estate (you cannot completely disinherit a spouse under Wisconsin law) to a trust for your children’s benefit. The trust could list persons other than your ex-spouse as the trustee to manage the assets on the children’s behalf.

It is important to discuss whether or not to make changes to your estate plan with your divorce attorney and estate planning attorney. If your divorce is already pending, there may be temporary orders in place preventing you from making these changes.  If there is not, these simple tips could help protect your estate and your children if tragedy was to strike.

If you have questions about estate planning considerations and your divorce, please contact a member of the Stafford Rosenbaum Trust and Estates team.

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