Estate Planning for Cohabitating Couples

 

I.              INTRODUCTION.

A.           Planning for health care decisions upon incapacity.

B.           Planning for financial matters upon incapacity.

C.           Managing jointly owned real estate.

D.           Planning for disposition of assets at death.

E.           Funeral and burial arrangements.

F.            Domestic partner benefits.

II.            NEED FOR ESTATE PLANNING.

A.           More likelihood of conflict among the partner and other family members.

1.            Children from prior relationships.

2.            Parents or siblings of the client.

B.           State law generally does not provide for inheritance rights for unmarried partners.

C.           Partner may be completely cut out of all decisions without proper documentation as family members are generally favored by health care providers, financial institutions, courts, etc.

III.           PLANNING FOR HEALTH CARE DECISIONS UPON INCAPACITY.

A.           Guardianship.

1.            Court procedure.

2.            Expensive, cumbersome and time consuming.

3.            Fall back option.

4.            A guardian’s authority is limited in critical matters.

5.            A protective placement proceeding will also be needed for admission to nursing home.

B.           Health Care Power of Attorney.

1.            Preferred approach.

2.            Names an agent.

3.            Simple and inexpensive (State form available).

4.            Withholding of feeding tubes and other life support.

5.            Admission to nursing home.

6.            Anatomical gifts.

7.            Other wishes such as visitors, people involved in decision making, religious wishes, etc.

C.           Living Will.

1.            Limited to persistent vegetative state or terminal illness.

2.            Simply a direction to the physician – no agent is named.

IV.          PLANNING FOR FINANCIAL MATTERS UPON INCAPACITY.

A.           Guardianship.

1.            Court procedure.

2.            Expensive.

3.            Cumbersome and time consuming.

4.            Fall back option.

B.           Joint ownership of assets.

1.            Only available for certain assets.

2.            No fiduciary responsibility.

3.            Can’t use for life insurance, IRAs, retirement plans, annuities.

4.            Co-owner can take 100% of most assets at any time.

C.           Durable Power of Attorney.

1.            Preferred approach.

2.            Names an agent to handle financial affairs (and an alternate agent).

3.            Simple and inexpensive.

4.            Can cover any financial matter including IRAs, retirement plans, life insurance, etc.

5.            Can be effective immediately or only upon incapacity.

6.            Special powers.

a)            Gifting.

b)            Changing beneficiaries.

c)            Adding “POD” or “TOD” to accounts.

D.           Revocable Trust.

1.            Trustee can manage assets and pay expenses.

2.            Only covers assets actually titled in the name of the trust.

3.            Includes provisions covering death as well.

V.           MANAGING CO-OWNED REAL ESTATE.

A.           Joint tenancy with right of survivorship.

1.            During life, both parties must sign to sell.  Otherwise, need to go to Court for partition proceeding.

2.            Either party can terminate joint tenancy by deed which converts the ownership to tenants in common.

3.            Joint tenants both liable for the full amount of any mortgage or other liabilities associated with the property.

4.            Passes to surviving joint tenant at death (surviving joint tenant needs to file Form HT-110 with Register of Deeds).

5.            Adding a partner as a joint owner is a gift if the partner is not contributing funds.

B.           Tenants in common.

1.            Each party owns an undivided interest in property.  It is presumed to be equal ownership unless the title indicates otherwise (for example 80%/20%).

2.            Each party can gift or will their interest in the property to whomever they choose.

3.            Tenants in common are liable for mortgages and obligations they specifically contract for.

C.           Tenancy Agreement.

1.            Documents each person’s interest in the property.

a)            Contributions to down payment or purchase price.

2.            Provides a process in the event the relationship fails.

a)            One party has option to buy out the other.  If first party chooses not to, then the other party can buy.

b)            If neither party wants to buy, property must be listed for sale.  Process is provided.

3.            Provides for responsibility for mortgage, taxes, repairs, improvements, etc. and what happens if one party fails to do so.

4.            Consequences of the death of a party depend on how the property is titled – i.e. joint tenants or tenants in common.  The agreement doesn’t typically cover this.

D.           Real Estate Trust.

1.            This can be used if both parties own the property together or if one party owns and wants to provide for the other party to use for his/her lifetime.

2.            Useful for including provisions dealing with the disability or death of a partner.

a)            Death of a party:

(1)          Other party can use for lifetime and then property is disposed of at second party’s death.

(2)          If one party dies, other party has to pay out the deceased party’s family but can then keep the house.

(3)          If one party dies, house must be sold at that point and proceeds divided appropriately.

b)            Disability of a party:

(1)          House must be sold and proceeds divided to provide funds for disabled partner’s care.

(2)          Non-disabled party can keep the home as long as pays expenses.

3.            Can include many of the same provisions provided in a Tenancy Agreement.

VI.          PLANNING FOR DISPOSITION OF ASSETS AT DEATH.

A.           Issues.

1.            What should pass to the partner?

2.            What should pass to other family members?

3.            What should happen at the second partner’s death?

B.           What will the beneficiaries receive?

1.            Dollar amount.

2.            Share of estate.

3.            Particular asset.

4.            Equal or need.

5.            Prior loans or gifts.

6.            Personal property.

C.           Manner of distribution.

1.            Outright – partner receives inheritance outright with no restrictions.

2.            Trust – Allows the client more ability to benefit both the partner and other family members.

a)            Income distributions.

(1)          All income to partner.

(2)          Income to partner only if needed.

b)            Principal distributions.

(1)          Limited to health care and financial emergencies.

(2)          Broad – client really wants partner to use as much as needed but if anything is left, passes to client’s family.

3.            Considerations.

a)            Ages of partner and other family members.

b)            Who should be the trustee?

(1)          Partner.

(2)          Partner and other family members.

(3)          Independent trustee.

c)            Relationship between partner and other family members.

d)            Leave something immediately to other family members.

e)            Nature of assets.

(1)          Tax deferred assets – generally better to leave outright for simplicity and income tax deferral opportunities.

4.            Probate vs. non-probate assets.

a)            Probate assets.

b)            Non-probate assets.

(1)          Joint assets.

(2)          POD and TOD assets.

(3)          Beneficiary designations.

(4)          Trust assets.

(5)          Marital Property Agreement.

5.            Revocable Trust.

a)            Client can use a revocable trust as the main vehicle of his/her estate plan.

b)            Avoids probate as to assets actually titled in the trust.

c)            The client retains complete control of assets during lifetime and can change provisions.

d)            The client can include provisions in the trust to provide for the partner and/or other beneficiaries.

e)            Allows the client to include a trust for partner’s lifetime but control the ultimate disposition of assets.

f)             Example:

·        John and Mary (age 65) – together 10 years.

·        John has two children; Mary has one child.

·        John’s assets:  $1,000,000.

·        Mary’s assets:  $200,000.

·        House – jointly owned $250,000.

·        John wants to make sure Mary is financially secure but also wants to benefit children.

 

o   Solution 1 – John leaves 1/2 of his assets to Mary outright

o   Solution 2 – John leaves 1/2 of his assets in trust for Mary

VII.         GIFT AND ESTATE TAXES.

A.           Estate Taxes.

1.            Estate taxes are imposed on the transfer of assets from a decedent to his or her beneficiaries.

2.            Exemptions:

Year                                                      Exemption
2009                        3,500,000
2010 Unlimited
2011 1,000,000

 

 

 

 

 

3.         Property transferred at death receives a new basis equal to the fair market value as of date of death (or in some cases the alternate valuation date).

4.         Wisconsin currently has no estate tax effective 1/1/08.

B.           Gift Taxes.

1.            A gift tax is imposed on the transfer of assets during a person’s life.  There are many exemptions from the gift tax, the most common of which are the following:

a)            Gifts to qualifying charities are exempt from gift tax.

b)            Annual exclusion gifts – the taxpayer may generally exclude the first $13,000 of gifts made to each donee during each calendar year from the gift tax.

c)            Tuition expenses and medical expenses paid directly to providers are exempt from gift tax.

d)            Each taxpayer has a $1,000,000 lifetime gift tax exemption but then the taxpayer’s estate tax exemption is reduced accordingly.

e)            Property transferred by gift takes a carryover basis meaning the donee takes the donor’s basis.

2.            Note:  Adding partner as a joint owner is a gift.

VIII.       FUNERAL AND BURIAL ARRANGEMENTS.

A.           Effective March 19, 2008, a new law was enacted dealing with final arrangements.

B.           If no advance directive, Wis. Stat § 154.30(2) sets forth a priority of the individuals who have authority to make final disposition decisions:

1.            Individual designated in Authorization for Final Disposition.

2.            Surviving spouse (not domestic partner).

3.            Majority of surviving children.

4.            Surviving parents.

5.            Majority of surviving siblings.

C.           Final Disposition includes:  viewing, funeral ceremony, memorial service, graveside service, burial, cremation or donation of body.

D.           Authorization for Final Disposition – new State form allows a person to designate a representative to make final arrangements.

IX.          DOMESTIC PARTNERSHIP.

A.           Effective date – August 3, 2009; Chapter 770 of Wisconsin Statutes.  The new law entitles domestic partners to 43 of the 200+ rights and privileges that spouses are entitled to under State law.

B.           Definition – An individual who has signed and filed a declaration of domestic partnership in the office of the register of deeds in the county of residence and meets the criteria of domestic partnership.

C.           Criteria of domestic partners – must meet all:

1.            Both partners over age 18.

2.            Neither partner is married or in another domestic partnership.

3.            Partners share a common residence (even if only 1 partner owns residence or either owns additional residences).

4.            Partners are no closer than second cousins.

5.            Partners are of the same sex.

D.           Application must be filed with county clerk for a declaration of domestic partnership that is then recorded with the register of deeds.

E.           Termination of domestic partnership – one or both partners file a notice of termination form with the county clerk who then issues a certificate of termination which is then filed with register of deeds.

F.            Rights and benefits of domestic partnership.

1.            Ownership of property – joint tenancy.  Creates presumption of joint tenancy for domestic partners where partners are named as owners in title, unless contrary intent on deed.

2.            Real estate transfer fee.  Provides an exemption from the real estate transfer fee for conveyances of real property between domestic partners.

3.            Revocation of certain provisions in favor of former spouse.  Under current law, a “divorce, annulment or similar event” revokes any revocable transfer of property made by the deceased individual to his or her former spouse or a relative of the former spouse by Will, trust, intestacy, by joint tenancy or survivorship marital property and fiduciary designation.

The new law provides that a “divorce, annulment or similar event” would include a termination of a domestic partnership.

4.            Intestacy.  Provides that for purposes of distributing the assets under intestacy a surviving domestic partner is treated the same as a surviving spouse under current law.

5.            Unintentional exclusion from a deceased individual’s Will.  As with a surviving spouse under current law, the new law provides that a surviving domestic partner is generally entitled to a share of the deceased domestic partner’s probate estate.  Unless a contrary intent is shown, the surviving domestic partner receives the share he or she would have received under intestacy, but the net estate is reduced by the value of gifts to the deceased partner’s children born prior to the domestic partnership.

6.            Personal Property.  In addition to a surviving spouse, a surviving domestic partner may file with a probate court a written selection of the following personal property, which must then be transferred to the domestic partner:

a)            Wearing apparel and jewelry held for personal use by the deceased individual or the surviving spouse/domestic partner;

b)            Automobile;

c)            Household furniture, furnishings and appliances; and

d)            Other tangible personal property not used in trade, agriculture or other business, not to exceed $3,000 in inventory value.

7.            Right to purchase deceased individual’s interest in home.  In addition to a surviving spouse, a surviving domestic partner also has the right to purchase the home in which he or she lived with his or her domestic partner prior to the domestic partner’s death.

8.            Exemption of certain property from general creditors’ claims.  As with a surviving spouse under current law, once the amount of claims against the deceased individual’s estate has been ascertained, the surviving domestic partner may petition the probate court to set aside as exempt from general creditors’ claims an amount of property reasonably necessary for the support of the domestic partner, not to exceed $10,000 in value, if it appears that the deceased individual’s assets are insufficient to pay all claims and still leave the surviving domestic partner such an amount of property in addition to certain other allowances.

9.            Family support during administration of the deceased individual’s estate.  Provides that a probate court may order payment for the support of a surviving domestic partner similar to a surviving spouse.

10.         Closure of small estates.  A domestic partner can use summary settlement under § 867.01(1)(b) and can transfer property under $50,000 without probate by affidavit under § 867.01.

11.         Rights of residents in care facilities.  Require adult family homes, residential care apartment complexes, community-based residential facilities (CBRF), nursing homes, hospitals, and hospices to extend the same visitation and accompaniment rights to domestic partners that are currently accorded to the spouse of a patient or resident of these facilities.

12.         Consent to admissions to nursing homes, CBRFs and hospices.  Permit domestic partners of an incapacitated individual to consent to an individual’s admission from a hospital to a nursing home or CBRF, or directly to a hospice in certain situations.

13.         Mental illness, developmental disability and alcohol and other drug abuse (AODA) treatment records.  Domestic partners are included as family members who may access treatment records in certain situations.

14.         Health care records.  The domestic partner is included in the definition of “person authorized by the patient” for the purposes of disclosure and release of health care records.

15.         Power of attorney for property and finances.  If the domestic partnership is terminated, a designation of the domestic partner as agent is terminated.

16.         Power of attorney for health care.  Includes domestic partner in the definition of “relative” for the purposes of designating a power of attorney for health care, and adds domestic partner to the list of relatives prohibited from acting as a witness to the execution of power of attorney for health care.  If an individual’s domestic partner has power of attorney for health care, the power of attorney would be revoked upon termination of the domestic partnership.

17.         Motor vehicle titles.  Allows a domestic partner to transfer a decedent’s interest in a motor vehicle to a domestic partner without a fee and without probate.

18.         Consent to autopsies.  Allow a domestic partner who assumes custody of a deceased individual’s remains to consent to the performance of an autopsy by a licensed physician.

19.         Consent to make an anatomical gift.  Permits the domestic partner of an individual to donate the body or part of the body for transplantation, therapy, research or education, if an individual who is near death or has died did not specify another agent.

20.         Family and medical leave.  Modifies family and medical leave provisions related to care of family members for serious health conditions to include domestic partners.

21.         Worker’s compensation death benefits.  Modifies current law related to worker’s compensation death benefits to provide a domestic partner with the same treatment as a spouse.

22.         Insurance for employees of local governmental units.  Expands current law provisions to domestic partners and dependent children and includes the Milwaukee Public Schools in the definition of a “local governmental unit” for this purpose.

23.         Victim notification by the Department of Corrections of an offender’s release.

24.         Evidence privileges – A domestic partner is included in the provisions related to the husband – wife privilege such as not having to testify against a spouse.

25.         Wrongful death – A domestic partner is included in all provisions related to wrongful death claims similar to a spouse.

26.         Crime Victim Compensation Panel – provides victims and families compensation for cost of medical treatment, lost wages, funeral and burial expenses, loss of support to dependents and replacement costs of bedding and clothing held for evidentiary purposes.

X.           STATE EMPLOYEES.

A.           Chapter 40 of the Wisconsin Statutes deals with the Public Employee Trust Fund and contains provisions dealing with the Wisconsin Retirement System, health and long-term care benefits, disability benefits, survivor benefits and deferred compensation plans.

B.           Changes were made to Chapter 40 this summer and are effective January 1, 2010.

C.           Applies to registered domestic partners (under the new domestic partnership law discussed above) and to unregistered domestic partners which are:

1.            Same sex or opposite sex partners for at least 6 months.

2.            Over age 18.

3.            Neither partner is married.

4.            Share a common residence.

5.            Not closer than second cousins.

6.            Must consider themselves to be members of each other’s immediate family.

7.            Must agree to be responsible for each other’s basic living expenses.

8.            File the required form (currently an Affidavit of Domestic Partnership).

D.           Domestic partner benefits.

1.            Effective January 1, 2010, State employees will be eligible to cover a domestic partner and the domestic partner’s dependent children under the State group health insurance.

2.            For public employees covered by the Wisconsin Retirement System, their domestic partners will be entitled to pension and other benefits in the same manner as a spouse. 

 

 

 

This document provides information of a general nature.  None of the information is intended as legal advice.  Additional facts and information or future developments may affect the subjects addressed in this document.  You should consult with a lawyer about your personal circumstances before acting on any of this information because it may not be applicable to you or your situation. 

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