Estate Planning Attorneys Milwaukee Waukesha Estate Planning Lawyers Wisconsin

Estate Planning

Waukesha Wisconsin Estate Planning Lawyers

Waukesha, Wisconsin attorney Craig Kuhary provides Estate Planning services, including the wills, powers of attorney, living wills, and living trusts, You want to avoid dying intestate, which means dying without having created either a will or a trust which provides instructions for passing your estate on to your heirs. Dying intestate subjects the estate to probate, creditors, lawsuits, judgments, lawyers, and death taxes which could significantly reduce the value of your estate.

I offer a free initial estate planning consultation. Contact me online, or call me at (262) 442-6681, today.

Introduction to Estate Planning

Estate planning is concerned with the use, conservation and disposition of a person's property and wealth. This involves two elements: (1) minimizing the gift or estate tax consequences that occur when a person's property is passed to another either during life or at death; and (2) provisions for taking care of the decedent's spouse and family.

Both elements can be enormously complex, interrelated and often operate inversely. For instance, the goal of providing more for one's children or grandchildren and less for a surviving spouse may cause adverse estate tax consequences. This summary describes the fundamentals of estate planning.

I. Definitions

There are four main methods by which property is transferred at death:

1. Will

A will is a written document that takes effect at the death of the person signing it (the "testator"). A will covers all property owned by the testator at death. A state court proceeding ("probate") is instituted and the provisions of the will are implemented under supervision of the probate court. Both the tax and family estate planning objectives of the decedent can be accomplished with a will.

2. Living Trust

A living trust (sometimes called an "inter-vivos" trust) is a document that is revocable at any time by the person signing it ("grantor"). Living trusts have become quite popular as a method to avoid probate. To avoid probate, the trust must be funded; this means that title to the assets which the grantor owns personally must be actually transferred to the trust -- real property is deeded to the trust; bank accounts are switched to the trust; and stocks, bonds, partnership interests and other holdings are assigned or transferred to the trust.

NOTE: The grantor is usually the trustee and beneficiary of the trust during his or her lifetime.

3. Joint Tenancy

Joint tenancy is a method of holding title to property when two or more people own property together, but the last survivor will own the property outright. When a joint tenant dies, his or her interest goes automatically to the survivor; there is no probate and a will or living trust has absolutely no effect on joint tenancy property.

There may be adverse tax consequences to the joint tenant who dies first. There is a presumption that the entire fair market value of the property is part of the decedent's estate for estate tax purposes, unless the surviving joint tenant can prove (through financial records) the amount of his or her share of the payments made towards the purchase, improvement or upkeep of the jointly held property. For instance, if the surviving tenant can prove he or she made a 30 percent contribution towards the purchase, improvement or upkeep of the property, then 70 percent of the property will be included in the deceased tenant's estate for estate tax purposes.

4. Community Property

Community property means that any earnings and assets acquired during the marriage belong equally to both spouses, regardless of who actually earned the income. Property acquired before marriage, or gifts and inheritances received by one spouse during a marriage, are generally the separate property of that spouse. There are ten community property states: Arizona, California, New Mexico, Oklahoma, Oregon, Texas, Utah, Washington and Wisconsin.

Upon the death of either spouse, the community property is split equally and the surviving spouse receives his or her share of community property outright. The deceased spouse's 50 percent share of community property is part of his or her estate and is subject to his or her will or living trust.

II. The Gift and Estate Tax Aspect To Estate Planning

There are five basic tax concepts to estate planning:

1. Gift Tax

A person may make a gift of $11,000 per year per recipient ("donee") without incurring a federal gift tax. For a husband and wife, the amount is $22,000 per year, per donee. In order to qualify, the gift must be completed presently; the gift cannot be placed in trust unless the beneficiary has the right to withdraw it within a reasonable period after the gift is made. In most circumstances, it is the person making the gift ("donor") who is taxed, not the donee.

2. Estate Tax

The federal estate tax is a tax levied on the property owned by the decedent at death. The tax is paid by the estate for the privilege of passing property to the donee(s). The tax is based on the fair market value of the property at the date of death or on the alternate valuation date (discussed below).

3. Stepped-up Basis at Death

When a person dies, all assets owned by the decedent are valued at their fair market value, usually by appraisal, by the person (the executor of the will or trustee of the living trust) filing the federal estate tax return. The determination of fair market value is generally made as of the date of death, however, there is an alternative valuation date of 6 months after death available for estates that have decreased in value.

As a corollary to this rule, the tax basis of the decedent's property is "stepped-up" to the estate tax valuation amount. Tax basis refers to the value of the property for computing gain or loss. It is usually the cost of the property plus improvements and less any depreciation.

4. The Unified Estate and Gift Tax Credit

Each person is entitled to a lifetime credit of $675,000 for gift and estate taxes called the "unified credit." This credit applies to gifts made over and above the $11,000 annual gift tax exclusion discussed previously. If a person makes an annual gift to a single donee of $50,000, then the additional $50,000 - which does not qualify for the annual gift tax exclusion - will reduce the unified credit from $675,000 to $636,000. The unified credit is phased out for estates over $10 million.

The unified credit plays a major role in estate planning because there is no estate tax for estates that are less than or equal to the unified credit. In most circumstances, there is no estate tax on estates of $675,000 or less.

5. The Marital Deduction

The decedent's gross estate is entitled to deduct all amounts passing to a surviving spouse which qualify for the marital deduction. The marital deduction can become extremely complicated, but it represents the most important deduction available to married couples. Property which passes to the surviving spouse under the marital deduction escapes taxation on the death of the first spouse, but that property then becomes part of the surviving spouse's estate for estate tax purposes. Oftentimes, because the surviving spouse is in a higher tax bracket, property passing under a marital deduction is taxed at a higher rate at the death of the surviving spouse.

III. Non-tax Aspects of Estate Planning

Couples with minor children need to carefully plan their estates, although the focus is usually on taking care of the children rather than saving estate taxes. The major assets are usually life insurance and the family home. In case of the deaths of both parents, provisions for the guardian(s) for the children and trustee(s) for the property must be carefully considered. While the funding of these trusts might follow the exemption trust and marital deduction trust pattern, the exemption trust is geared for the care and support of the children.

Also, decisions must be made such as: Should the trustee(s) save and conserve the trust estate for the college education of the children? At what ages should the children receive the trust principal and what amounts and when? All at 21? Half at 25 and the remaining principal at 35? What happens if the children die without having any children? Who then receives the property? The decedent's family, a specified charity or charities?

A carefully planned estate will cover a variety of remote contingencies, provide for the continuing personal and financial care and support of the decedent's spouse and family, and reduce or eliminate estate taxes.

Excerpted from an article by Robert L. Sommers. Article is available in its entirety on www.findlaw.com.