What is Wisconsin Estate Recovery?

The Wisconsin Estate Recovery Program seeks repayment for the cost of certain long-term care paid by programs such as Medicaid, BadgerCare Plus, and Family Care. Recovery is made from the assets of a recipient after their death, or after the death of their surviving spouse. Over the years, the state has become increasingly aggressive in recovering more and more assets after the deaths of people who have received long-term care benefits. Estate Recovery often comes as a surprise to surviving family members, when they learn the state often has the right to recover a significant portion of a deceased person’s assets.

What People are Affected by the Estate Recovery Program?

  1. Medicaid and BadgerCare Plus members of any age who have lived in nursing homes paid for by Medicaid or have received inpatient hospital benefits for 30 days or more.
  2. Medicaid and BadgerCare Plus members aged 55 years or older who received benefits for skilled nursing services and many home health care services.
  3. People aged 55 years or older who receive services from one of several long-term care programs, including Community Options Program Waiver, Family Care, and Community Opportunities and Recovery.
  4. Members of Wisconsin Chronic Disease Program (WCDP), and Community Options Program members who are over age 55.

When will Estate Recovery seek to recover benefits?

The Estate Recovery Program will seek to recover its payments after the death of a recipient, unless that recipient is survived by a spouse or a minor child. In that case, Estate Recovery will wait until after the subsequent death of the surviving spouse or dependent. The Estate Recovery program will place liens on real estate of recipients of long-term nursing home benefits.

Estate Recovery recovers assets through Probate cases, Transfers by Affidavit, and by placing liens on the recipient’s real estate.

What Assets Can Estate Recovery Obtain?

The Wisconsin Estate Recovery Program can recover funds from a surprising number of different assets of a deceased person.

  • Probate Assets. If a Formal or Informal Probate Administration is opened, the Personal Representative will be required to give notice to the Estate Recovery Program, which will then file a claim for recovery.
  • Transfer by Affidavit Assets. Transfer by Affidavit can be used when the deceased person had under $50,000 of probate assets. When a surviving family member completes a Transfer by Affidavit, they are required to send a copy by certified mail to the Estate Recovery Program, which will then determine whether it has a lien.
  • Real Estate. After the death of a recipient, Estate Recovery will place a lien on real estate. However, Estate Recovery will not pursue the lien as long as the property is owned by a surviving spouse.
  • Life Insurance Policies established after August 1, 2014. This is a recent change that further broadened the power of Estate Recovery to obtain assets. Even though a life insurance payout is a non-probate asset, it can still be recovered by estate recovery if the policy was created after this date.
  • Jointly-Held Checking and Savings Accounts. This is perhaps the most surprising and most severe provision. If a decedent had owned a bank account jointly with another person, such as a sibling or an adult child, Estate Recovery has the right to recover funds out of that account, even though there is a surviving joint owner. This, incidentally, is one of many reasons why a person should be very thoughtful when considering adding a non-spouse as a joint owner of a bank account.
  • Revocable Trusts created after August 1, 2014. If properly created and funded, a Revocable Trust will successfully avoid the need for a probate proceeding and will avoid the claims of many creditors. However, Revocable Trusts do not escape Estate Recovery.

In What Order Will an Estate Recovery Claim be Paid?

If Estate Recovery makes a claim during a Probate Administration or in response to a Transfer by Affidavit, it will be paid pursuant to a particular order of priority. Costs that will be paid before the Estate Recovery Claim are:

  • Costs of administering the estate, including attorney fees
  • Reasonable funeral and burial costs
  • Costs of the “last illness” that were not covered by insurance

 For further questions about the Wisconsin Estate Recovery Program, or for assistance resolving an Estate Recovery lien, contact Lippow Law Offices, LLC.

 

How To Use a Transfer on Death Deed

Transfer on Death Deeds are a underused tool to bequeath real estate to loved ones after your death. They are simple and inexpensive to create, and they will generally save your surviving family significant time and expense.

What Does a Transfer on Death Deed Do?

A Transfer on Death Deed (officially called a “Designation of TOD Beneficiary”) transfers ownership of real estate to a person or people of your choice after your death, without needing to go through Probate. This means that your loved ones do not have to wait for the probate process to conclude, and it means your estate will not have to pay the 0.2% Probate Inventory Fee when transferring the property. If you have created a TOD Deed for your property, this means that you do not need a Will or Trust to transfer this particular asset.

 The Designation of a TOD beneficiary does not affect ownership until after the death of the owner, or after the death of the last to die of multiple owners.  As long as at least one owner is still alive, the TOD Deed can be amended or revoked at any time. If the property is sold prior to the owner’s death, the TOD Deed automatically becomes invalid.

Who Can Use a Transfer on Death Deed?

TOD Deeds can be used for almost any Wisconsin real estate. If used on Jointly-owned real estate, such as a home owned by a married couple, the TOD Deed goes into effect upon the death of the second spouse.  As of April 18, 2018, TOD Deeds can now also be used to transfer fractional interests such as property owned as Tenants in Common.

To Whom Can You Give Property Using a TOD Deed?

You can give property to either a single person, or multiple people. If you give to multiple people, you will need to designate whether the recipients own the property as Joint Tenants (where they all own the entire property), or as Tenants in Common (where they each own a specific percentage of the value of the property.

In addition, as of April 18, 2018, you may also designate one or more people as contingent beneficiaries, in case a primary beneficiary does not survive the owner.

What Are the Limitations of a Transfer on Death Deed?

A Transfer on Death Deed will not be the solution for all families.  TOD Deeds should not be used when any of the beneficiaries are minors. They should also not be used when multiple beneficiaries may not get along or may not agree on how to use the property.

Transferring real estate with a TOD Deed does not escape creditors of the decedent. This also does not prevent Wisconsin Estate Recovery from pursuing reimbursement for Medicaid or long-term care payments made during the lifetime of the decedent.

To see if a Transfer on Death Deed is right for you, and to request assistance drafting and recording the Deed, contact Lippow Law Offices, LLC for a free consultation.

Estate Planning and Probate Quiz

There are many common misconceptions about estate planning and probate law. Take this quiz to see how much you know about these issues. Are you correctly planning for your family’s future?  The answers are below.

Questions:

  1. True or False: Having a Will is the easiest way to avoid probate after your death.
  2. True or False: Your heirs won’t have to pay any estate taxes after your death.
  3. True or False: I will have to pay gift taxes on any gift I give someone if it’s higher than the $15,000 annual exemption.
  4. True or False: I can create my own Will without an attorney or witnesses, as long as it’s handwritten and I sign it.
  5. True or False: A certified copy of a Will is just as valid as the original.
  6. True or False: You can keep your house out of probate after your death simply by filing a Transfer on Death Deed with the Register of Deeds.
  7. True or False: Your Will is the best place to designate your wishes for your funeral, burial, or cremation.
  8. True or False: A Will is the only legal document in which you can officially nominate a Guardian for your minor children, in case both you and your spouse pass away.
  9. True or False: After a family member’s death, I can use a Durable Financial Power of Attorney to pay their remaining bills for them and close out their bank accounts.
  10. True or False: A bank safe deposit box is always the best place to store your original Will.

Answers:

  1. False! Having a Will does not avoid Probate. Probate is generally necessary if there is over $50,000 of probate assets after your death, regardless of whether you had a Will or not.
  2. True! For a single person, the first $11.2 million dollars of assets is exempt from Federal estate taxes. This is doubled from recent years. There is currently no Wisconsin estate tax.
  3. False! If you give a gift higher than the annual exemption, you do have to file a Federal Gift Tax Return. However, you won’t have to pay taxes on it; that amount simply gets subtracted from your lifetime gift/estate exemption that is currently $11.2 million dollars.
  4. False! An unwitnessed handwritten Will is called a “holographic Will”. However, it’s not valid in Wisconsin. All Wills have to be signed in front of two witnesses.
  5. False! With few exceptions, the original Will must be located after a person’s death. A copy will not be valid. Keep your original Will in a safe place.
  6. True! A Transfer on Death Deed simply costs $30 to record with the Register of Deeds. After your death, the real estate automatically transfers to the recipient(s), without having to go through probate.
  7. False! Directives for funerals or burials are not enforceable in a Will. And as a practical matter, Wills often aren’t located or read until after the funeral has already taken place.
  8. True! If you have minor children, it is particularly important that you have a Will, so that you can nominate a Guardian for them.
  9. False! By definition, Powers of Attorney expire at the moment of death. You cannot use a Financial Power of Attorney for any purpose after the person has passed away.
  10. False! Storing a Will in a bank safe deposit box can often cause a lot of problems after your death, as it can be surprisingly difficult for surviving family members to access the box. You should only store a Will there if you have specifically made arrangements to give at least one family member a key and legal access to the box.

“I Want to Quit Claim My Property to a Relative.” No You Don’t.

I regularly receive calls from potential clients who have a lot of misunderstandings about what Quit Claim Deeds are, how they work, and when they should be used. “Quit-Claiming” a property to someone else is rarely as simple as people think, and often doesn’t accomplish their goals anyway.

Quit Claim Deed is simply one type of deed that can be used to transfer real estate from one person to another. It can be used for either a sale, gift, or for other particular transfers such as transferring property to a trust, or between spouses in a divorce.

Perhaps the most common type of real estate deed is a Warranty Deed. This is the deed generally used in a routine sale between an impartial buyer and seller. With this deed, the seller provides a warranty that they actually own the property, and that there are no undisclosed liens, encroachments, claims, or other clouds on the title. It is generally accompanied by the seller purchasing a Title Insurance policy to insure this warranty.

With a Quit Claim Deed, on the other hand, the seller simply transfers away whatever interest they may have in the property, and they give the property “as is”.  The seller may not actually even own all of the property, or the property might have various encumbrances on it. A Quit Claim Deed would work perfectly well when, for instance, one spouse wants to add the other spouse’s name onto the deed of the home they live in, but it would be inappropriate if a buyer were purchasing the property from an unrelated party.

So, when a potential client tells me they want to “quit claim” a property to someone else, my first questions are who the recipient is, and whether the transfer is a gift, sale, or some other kind of transaction.

If you are “quit claiming” a property from yourself to someone else, you are not simply “putting their name on the deed.” You are actually transferring ownership of the property to them. For instance, if an elderly parent quit claims their home to an adult child, the parent is actually giving up all rights to that property. The child can then evict them, sell or leverage the property, or have creditors put liens on the property. If you intend your child to own your property after your death, simply quit claiming a property to them is rarely an effective estate-planning strategy.

Also, if you are not receiving payment from the recipient for the fair market value of the property when you use a Quit Claim Deed, then you are really gifting the property to that person. Unless this transfer is to a spouse, or otherwise specifically exempted, you will likely have to file a Federal gift tax return if the value of the real estate is over $15,000. The recipient also loses the potential step-up in basis that they would receive if they obtained the property as an inheritance.

If you have a mortgage on the property that you are trying to gift, then you face additional complications. As a general rule, a mortgage potentially becomes due in full when the property is transferred. So if you are gifting a property to an adult child, for instance, you either need to pay off the mortgage, or have the recipient re-finance the property or formally assume the loan.  They cannot simply take over the payments.

Drafting a Quit Claim Deed itself is relatively simple. You will need the full legal description of the property as well as the parcel ID number. However, before the deed can be recorded with the Register of Deeds, you always need to obtain a Transfer Return Receipt from the Wisconsin Department of Revenue. This can now only be done online. To complete the Transfer Return, you will need various information including the Social Security Numbers of both parties, the value of the property, and acreage of the property.

You will then need to pay a fee when you record the Deed. There will always be a $30.00 recording fee with the county Register of Deeds. And unless your particular transfer is exempt, you will also have to pay a 0.3% ($3 for every $1,000 of value) as a Transfer Tax. Examples of exempt transfers are transfers to many revocable trusts, to spouses, or to children. You then submit the Deed, along with the Transfer Return Receipt and the applicable payment, to the Register of Deeds.

Quit Claim Deeds are relatively common documents. However, they are not right for all transactions, and thought should be used before using one to transfer property to a friend or relative.

For questions, or to obtain assistance using a Quit Claim Deed, contact Lippow Law Offices, LLC.

 

 

2018 Estate Planning and Tax Updates

As the year 2018 begins, several changes go into effect that may affect families’ estate planning.

Increase in Annual Gift Tax Exemption

After being stuck at $14,000 for the last several years, the per-person annual gift tax exemption rises to $15,000 for the year 2018. This means that a person may make gifts adding up to less than this amount without having to file a federal gift tax return. A married couple making a joint gift can double this exemption up to $30,000, and if the gift is also to a married couple, it can effectively be doubled again up to $60,000.   For gifts above this amount, no tax is immediately due; the gift simply gets reported, and the amount will be subtracted from the giver’s lifetime gift/estate exemption upon their death.

Increase in Lifetime Gift/Estate Tax Exemption

The per-person federal estate tax exemption had been $5 million, with annual inflation adjustments that had brought the exemption to approximately $5.5 million. However, under the Tax Cuts and Jobs Act, the exemption has been doubled to $10 million per person. After the inflation adjustments, the 2018 figure will be approximately $11.2 million per person, which can be doubled up to $22.4 million for a married couple.

However, under current law, this increase is scheduled to expire at the end of 2025, at which time it would revert back to the $5 million (plus inflation) if no other laws are passed.

 

 

Maintenance Will No Longer Be Deductible after 2018

The new Federal Tax Code is upending 76 years of laws regarding the taxation of maintenance payments, known in many states as alimony.

Currently, the spouse paying maintenance after a divorce is able to deduct maintenance payments from their income taxes. The spouse receiving the payments then has to pay taxes on the extra income.  Beginning on January 1, 2019, this system reverses. For new divorces concluded before this date, the higher-earning spouse will no longer be able to deduct their maintenance payments, but the receiving spouse will have to add those payments to their gross income.

This will have the effect of bringing in more tax revenue to the Federal government, as the paying spouse generally will be taxed in a higher tax bracket than the receiving spouse.

However, this will also likely have the effect of spurring more divorce filings in 2018, and making those divorce proceedings more acrimonious.

As described by Politico:

The deduction is a big deal to splitting couples because if someone who earns, say, $250,000 — which puts them in the 24 percent income tax bracket under the new law — agrees to pay $4,000 per month, it really costs the person around $3,000 after taking the deduction into account. Without the break, many people will agree to pay only what would have been their after-tax amount — in this case, about $3,000. It is likely that more couples will end up fighting in court because they won’t be able to agree on alimony terms.

 

 

What is the “Death Tax”? And What Happens if it is Abolished?

Benjamin Franklin wrote that “in this world nothing can be said to be certain, except death and taxes.”  This may be true, however under Federal Tax law it is extremely unlikely that you will ever have to pay taxes on your death.

As part of its sweeping tax reform plan, the Trump administration is proposing to abolish the Estate Tax, sometimes known as the “Death Tax”.  What exactly is this tax, and what would be the effects of eliminating it?

Under current law, the Estate Tax affects an extremely minimal amount of families and brings in a very minimal amount of revenue to the government.

According to the IRS, the Estate Tax “is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death” This includes cash, retirement accounts, real estate, life insurance, and other assets. Any Estate Tax due is paid out of the estate’s assets, after death, before the remaining assets are transferred to the heirs.

However, there is an extremely large exemption – or minimum amount –  before any Estate Taxes are due.  In 2017, the per-person exemption is $5.49 million.  This amount will raise further in 2018 to $5.60 million.  A married couple will be able to exempt a total of $11.2 million from Estate Taxes.  Assets above this exemption level are taxed at a rate of 40%.

This extremely high exemption amount means that barely any Americans actually pay any Estate Tax after their deaths.  In the year 2016, only 5,219 tax returns throughout the entire country required the payment of an Estate Tax. A similar amount of people – 5460 – are projected to have to pay the tax in the year 2017.  This compares to the approximately 2.6 million deaths that occur each year, meaning about 2 out of every 1,000 deaths end up paying an Estate Tax.

The 5,219 people in 2016 paid a total estate tax of $18.3 billion dollars, This compares to the approximately $3.3 trillion in income tax collected by the IRS in 2016.

So whether or not the “Death Tax” is repealed in the near future, there will be no effects on the vast majority of Americans, and only a relatively minor effect on the Federal budget.

Lippow Law Offices

4 Things That Do NOT Belong in Your Will

These are items that do NOT belong in your Will.

  1. Funeral and Burial Instructions. Since a Will is about planning for your eventual death, it would make sense to include funeral, burial, and/or cremation instructions in the document, right? However, these ideas do not belong in your Will. First, such wishes would not actually be legally enforceable. A Will nominates a Personal Representative, disposes of your assets, and nominates a guardian for your minor children, if necessary. It cannot force people to otherwise act in a certain way after your death, even with regard to your remains. Second, as a practical matter, your Will may not be located or read until well after the funeral already takes places. Rather, you should either write out such instructions separately, discuss your wishes with your family, or else complete an Authorization for Final Disposition form.
  2. Contingent Gifts.  When preparing a Will, it is often tempting to put restrictions on gifts to family members in order to influence their behavior. For instance, only giving a particular gift if the recipient has graduated college, or gotten married, or not having a criminal record. However, you should be extremely careful when considering including such contingencies.  Many are unenforceable under the law.  Even if such a provision would be legal, they are often difficult to draft without creating ambiguities. If you do want to include restrictions on when family members can receive their gifts, you will need to consider using a Revocable Trust.
  3. Healthcare Directives and Powers of Attorney. By definition, a Will applies to events after your death. Therefore, it is not the correct document for planning for healthcare or financial decisions during your incapacity. Rather, you need to also draft a Healthcare Power of Attorney and a Durable Financial Power of Attorney.
  4. Gifts to Loved Ones with Special Needs. You must be extremely careful when using a Will to bequeath assets to a disabled family member. Receiving a lump sum gift may make them ineligible for certain government benefits, such as Supplemental Security Income (SSI).  You also have to be wary of giving money to a person who may not be capable of managing their own finances.  If you are contemplating gifting an inheritance to someone in this situation, you will need to create a Trust. In particular, Special Needs Trusts can be used to protect a recipient’s disability benefits, while also allowing the funds to be properly managed on their behalf.

What Does a Durable Financial Power of Attorney Do?

A Durable Financial Power of Attorney protects you in the event you are no longer able to make your own financial decisions, whether due to age, illness, or injury. It allows you, in advance, to select a person of your choice (your “Agent”) to make many different financial decisions for you. These decisions range from paying your bills, to buying and selling property, to applying for insurance coverage for you. Having a valid power of attorney in place will avoid the need for your loved ones to petition a court for guardianship over your finances.

Why is it called a “Durable” Financial Power of Attorney?

The “Durable” in a Durable Financial Power of Attorney means that it remains valid even in the event that the creator of the document becomes legally incapacitated. A standard Financial Power of Attorney, that you might sign for a limited purpose such as allowing someone to endorse a particular check or sign a particular real estate document, becomes invalid if you no longer have legal capacity. But a durable power of attorney will stay valid throughout your life time. All powers of attorney, however, expire at the moment of the creator’s death. Thus, powers of attorney cannot be used as a substitute for a Will or Trust.

How Do You Create a Durable Financial Power of Attorney?

Creating a valid Power of Attorney is relatively simple, and can be done by a competent adult. The State of Wisconsin Department of Health Services has a standard simplified fill-in-the-blank form that is appropriate for many people, and it can be completed without an attorney. The form is available for download at this website. Keep in mind the form must be signed in the presence of a Notary Public.

Alternatively, any estate planning attorney, including at Lippow Law Offices, LLC, can work with you to create a more thorough, personalized power of attorney. A personalized power of attorney, which should be part of any full estate plan, will allow you more choices as to what powers your agent has over your finances.

Who Should You Choose as Your Agent?

A Financial Power of Attorney Agent can be any competent adult, including a friend or relative. Married people often appoint their spouse as the first choice for their Agent. Adult children, siblings, and close friends are other common choices. You should always select someone who is particularly trustworthy, honest, and reliable, as you are giving them significant control of your finances, potentially during times when you will be unable to supervise or overrule their decisions. Your selection should be someone who has both the time, ability, and willingness to manage your finances.  Ideally, your choice should also be a person who is relatively nearby you, so that it will be easy for them to physically access your mail and financial document.

You will always have the option to designate a primary Agent and then any number of backups, or successor agents. This way, if your primary Agent is either unable or unwilling to take on the responsibility when the time comes, someone else will be there to take over as Agent.

What Powers Can You Grant to Your Agent?

Using an attorney to draft your Durable Financial Power of Attorney allows you to customize an extensive list of powers to give to your Agent. Following are many of the categories of powers:

  • Real Estate: The power to buy, sell, mortgage, and rent your home and other real estate.
  • Stocks, Bonds, and Retirement Plans: The power to buy, sell, and exchange securities, mutual funds, and other such investments, and the power to contribute to and withdraw from retirement plans.
  • Banks and other Financial Institutions: The power to open and close bank accounts; make transfers, deposits, and withdrawals, and have access to your bank safe deposit box.
  • Operation of Businesses: The ability to manage your business, including the ability to buy or sell an ownership interest.
  • Insurance and Annuities: The ability to buy, exchange, or terminate insurance policies and annuities.
  • Estates and Trusts: The power to accept or sell a share or payment from an estate or trust. Note that this does not give your agent the ability to write a Will or Trust on your behalf.
  • Claims and Litigation: The power to pursue and settle a claim or lawsuit against someone on your behalf, and the power to defend or compromise a claim brought against you.
  • Taxes: The ability to prepare and file tax returns on your behalf, and to represent you before the IRS.
  • Employment of Agents: The power to hire and fire agents and employees such as lawyers, accountants,  and household employees.

The Importance of Estate Planning for Unmarried Couples

It is particularly important for unmarried couples to create an estate plan. Even the most basic of preparation can make a dramatic difference in the event that one partner passes away or becomes incapacitated.  If you in a long-term relationship, but not legally married, follow these steps to protect yourself and your loved ones.

Write a Will

In Wisconsin, if you pass away without a Will, state law will determine who receives your probate assets, and it will not be your partner.  If you are survived by children, whether they are adults or minors, they will divide all your probate assets rather than your partner. If you do not have any children, then any surviving parents followed by any surviving siblings, will receive an equal share of your assets. So if you want your long-term partner to inherit your belongings, you will need to have a Will.

Update Your Beneficiary Designations on Your Retirement Accounts and Life Insurance

Most retirement accounts, including 401(k)s and IRAs, allow you designate a beneficiary on the account who will automatically receive the assets after your death. Life insurance policies, by definition, require you to name a beneficiary. It is a common mistake for unmarried partners in a long-term relationship to forget to update their beneficiary designations, particularly on older retirement accounts that they may not give much thought to.

Consider Opening Joint Bank Accounts With Your Partner

The benefit of a joint bank account is that when one owner passes away, the surviving owner automatically owns the remaining funds in the account. However, if you have an individually-titled bank account, even if the money in the account is regularly used to pay shared expenses, the assets will not pass to your surviving partner after your death. Rather, if you die without a Will, the money will to your next of kin, possibly depriving your partner of necessary funds to pay bills.

Make Sure Your Partner Has an Ownership Interest in Your Home

Particularly if you do not have a Will, it is important that both you and your partner have an ownership interest in your home. Even if your partner contributed funds to the purchase or monthly payments, they may not have rights to the property after your death if only your name is on the deed. The simplest way to prevent this problem is to make sure that both of your names appear on the deed, specifically as “joint owners with right of survivorship”. This ensures that when one of you dies, the surviving partner automatically owns the entirety of the house. Another option, if you want only your name to appear on the deed, is to create a Transfer on Death Deed, listing your partner as the beneficiary.

Create a Financial Power of Attorney and a Healthcare Power of Attorney

This may be the most important step on this list, and also one of the easiest things to do. If an unmarried person becomes unable to make their own decisions, whether due to injury, illness, or age, their long-term partner will not be able to legally make decisions for them without valid Powers of Attorney. A Financial Power of Attorney will allow your partner to make a wide range of financial decisions for you – everything from paying routine bills, to buying and selling property, to applying for insurance for you. A Healthcare Power of Attorney will ensure your partner has the authority to speak with your doctors and make medical decisions on your behalf. Without a Healthcare Power of Attorney, your long-term partner likely will not have the right to be involved in your medical care.

Complete an Authorization for Final Disposition

This state-created form allows you to designation a particular person to make funeral arrangements on your behalf. This includes decisions about funerals, burials, and cremations. For an unmarried person, even if they are in a long-term relationship, this form can be quite important so that after your death there is no doubt that your partner should be making these decisions for you, rather than a surviving family member. The Authorization for Final Disposition can be found here.