Powers of Attorney Explained
by Justin Brewer, Associate Attorney
A power of attorney, or POA, is a legal document that allows you to grant another person the authority to make decisions on your behalf. This person, commonly referred to as your “agent,” will make decisions and take actions as if they were you in the case you are not able to make those decisions yourself. POAs are an important part of planning for your future. What happens if you are incapacitated, and can’t make healthcare decisions for yourself? Who will make life-ending or life-prolonging decisions if you cannot? What if you can no longer manage your business or financial affairs on your own? POAs can resolve all of these questions, and give you peace of mind.
There are several types of POAs that you can create, but the two main categories include financial and health care. These give your agent specific authority to act on your behalf for financial decisions, or make healthcare choices, if you are incapacitated.
A Financial POA gives your chosen agent the authority to make financial decisions on your behalf. These can range from paying bills and expenses, or making deposits and withdrawals with your bank, to buying and selling real estate or other property. Your agent for finances will be able to sign documents and make choices as if they were you, on your behalf.
While generic financial POAs give broad authority to your agent, you can tailor your POA to meet your needs. For example, you can allow your agent to pay your bills and write checks, but prevent them from selling your property or buying new property.
A healthcare POA gives your agent the authority to make healthcare decisions for you. This can include medical treatments, medications, surgery, or in the worst-case scenario, end-of-life care. Hospitals typically want their patients to have a healthcare POA, so they know who to go to for decisions if you cannot make them for yourself. A healthcare POA agent can access your medical records for you, and will be allowed to seamlessly visit you if you are hospitalized.
Your agent under the healthcare power of attorney will only be able to act on your behalf if you are deemed incapacitated by doctors, and are unable to communicate your wishes. Healthcare POAs are an integral component of your long-term planning and should be included in any estate plan you come up with.
Related to a healthcare POA is the living will. A living will is a document where you can leave specific instructions for your care in serious medical situations. For example, if you suffer a serious accident that leaves you reliant on a feeding tube and breathing machine, what would you want the doctors to do? With a living will, you can make these choices ahead of time, and your doctors will follow them. Like healthcare powers of attorney, doctors will only turn to a living will if you are unable to communicate your wishes.
“Durable” vs. “Springing”
Have you heard of either “durable” or “springing” POAs? These terms refer to when and how long a POA is effective. Durable POAs are effective the moment you sign them, and continue to be effective when you become incapacitated. When a POA doesn’t grant your agent authority until you are incapacitated, or until some other condition is met, the power of attorney is called a springing POA.
When determining what type of power of attorney you need, you should think about when you want your agent to be able to act on your behalf. Do you need someone to help with your finances now? Or are you planning for the worst, and only need a POA agent if you are incapacitated?
Ultimately, POAs are a crucial part of your short- and long-term estate planning. They are customizable, and allow you to rest easy, knowing that even if you can’t make your own decisions, the people you trust will be able to.
Ready to create a POA or Living Will? The attorneys at Russell Law Offices, S.C. are experienced and ready to help you create a plan that works for you and your needs. Call for a consultation today!
What is Basis and Why is it Important?
by Nathan Russell, Owner & Managing Attorney
I really enjoy estate planning as it affords me the opportunity to really dig into my client’s goals. This allows me to ask a various list of questions of my clients and, in return, provide a lot of insight into their estate planning concerns and goals. As an estate planner, one of the most common concepts I have to explain to clients is the term “Basis”. “Basis” is a term used to describe the cost or original value of an investment or asset for tax purposes. It is essentially the amount used to calculate capital gains or losses when an asset is sold. The basis can be adjusted to reflect changes in value, such as improvements made to real estate or stock dividends. When a client sells an asset, their capital gain or loss is determined by subtracting the basis from the sale price of the asset. It is important to accurately determine the basis of an asset to correctly calculate taxes owed on any profits from a sale.
Improvements Can Modify Basis
While your basis in an item is generally determined at the time of purchase it can be modified.
Specifically, improvements to an asset can impact the basis in the following ways:
- Capital Improvements: Capital improvements are permanent additions or alterations to a property that increase its value, extend its useful life, or adapt it to a new use. Examples include adding a room, installing a new roof, or updating a bathroom. These improvements increase the basis of the property.
- Repairs: Repairs are expenditures made to keep an asset in good condition and maintain its value. Examples include fixing a leaky roof or replacing a broken window. Repairs do not increase the basis of the property, but they can be deducted from current year income.
It’s important to note that to qualify as a capital improvement or repair, the expenses must be ordinary, necessary and reasonable in amount, and incurred in connection with the property. Additionally, documentation should be kept supporting the expenses as either a repair or a capital improvement.
What Does Stepped-Up Basis Mean?
When drafting estate plans, it is critical to determine if you should utilize a “stepped-up basis” plan. “Stepped-up basis” is a tax term used to describe the adjustment of the cost basis of an asset for tax purposes upon the death of an owner. The stepped-up basis is equal to the fair market value of the asset at the time of the owner’s death. This means that, for tax purposes, the person inheriting the asset can treat the asset as if they had purchased it for its fair market value at the time of the owner’s death. The fair market value is often determined by the public market for stocks and bonds while an appraisal is generally necessary for real estate and business assets.
For example, if an individual owns stock worth $100,000 at the time of their death and their cost basis in the stock was $50,000, the person inheriting the stock would receive a stepped-up basis of $100,000. This would effectively eliminate any capital gain that would have been recognized if the stock had been sold for $100,000 while the original owner was still alive.
The stepped-up basis can have significant tax implications for the person inheriting the asset, as it can reduce the amount of capital gains tax they would owe if they sold the asset in the future. It’s important to note that not all assets are eligible for a stepped-up basis and that the specific rules and regulations vary depending on the type of asset and jurisdiction.
In general, in Wisconsin, if an asset is considered marital property, the surviving spouse generally receives a stepped-up basis for the entire property upon the passing of the spouse. Marital property is generally defined as property acquired during the marriage, regardless of which spouse holds title to the property.
Upon the death of one spouse, the surviving spouse typically receives a stepped-up basis equal to the fair market value of the property at the time of death. This means that, for tax purposes, the surviving spouse can treat the entire property as if they had purchased it for its fair market value at the time of the deceased spouse’s death.
It’s important to note that this stepped-up basis only applies to marital property. Any separate property that was owned by one spouse prior to the marriage or acquired during the marriage through gifts or inheritance would not be eligible for a stepped-up basis.
Basis and Gifting an Asset
When you give an asset, such as stock or real estate, to your child, the child’s basis in the asset is generally the same as your adjusted cost basis in the asset immediately prior to the gift. This means that if you bought the asset for $100 and its value has increased to $200, your child’s basis in the asset would be $100.
It’s important to note that there may be gift tax consequences if the value of the asset you give exceeds the annual gift tax exclusion amount, which is currently $17,000 per recipient for the year 2023. Additionally, if you give an asset that has declined in value, it may be beneficial to transfer the asset to your child rather than selling it, as the child would then inherit your lower basis in the asset.
In conclusion, understanding the concept of basis is crucial in estate planning and in calculating taxes owed on asset sales. It is important to accurately determine the basis of an asset, which can be adjusted through capital improvements or repairs. The stepped-up basis is a tax tool that we can use to save significantly on taxes for the person inheriting the asset. Estate planning requires careful consideration of all these factors to ensure a smooth transfer of assets and minimize tax liability. The attorneys at Russell Law Offices, SC are experienced and knowledgeable in the areas of tax basis to help you weave its consideration into your estate plan. Call for a consultation today!
Wisconsin Probate Administration
by Laine Carver, Associate Attorney
After a loved one passes away, family members are often left with the seemingly daunting task of administering the decedent’s estate. This can be overwhelming for some folks, especially if the decedent did not leave a will prior to death. However, with a bit of legal consultation, administration of a decedent’s estate, also known as probate, does not need to be so difficult. This article is intended to provide family members with a basic understanding of the probate process and hopefully make the experience less stressful for everyone involved.
Opening the Estate
The first step in opening an estate is to actually apply to do so. In this application, the applicant (generally an heir of the decedent) will provide information about the decedent, family members of the decedent, whether or not there was a will, and nominate the Personal Representative. The Personal Representative is charged with administering the estate. This is sometimes referred to as the Executor in other states.
In Wisconsin, most estates are administered either by Informal Administration or Formal Administration. Informal Administration allows the Personal Representative to administer the estate without direct involvement of the court. Formal Administration requires an attorney to be hired and is often the type of administration to choose when the estate is large, if there is a question of the legitimacy of a will, or if any other type of dispute may arise.
Once the Personal Representative is appointed, he or she will be issued Domiciliary Letters, which allows the Personal Representative access to the decedent’s information and assets, such as bank accounts, investments, safe deposit boxes, etc.
Once the estate is opened, the Personal Representative must publish a “Notice to Creditors,” which, as its name suggests, notifies creditors of the administration of the estate. Creditors will have 90 days to file a claim against an estate. If a creditor fails to file a claim in that time period, the debt owed to the creditor is likely never to be paid by the estate.
The compiling of estate assets is the most time-consuming duty of the Personal Representative. The estate assets (and liens on those assets, like a mortgage) are accounted for on the Inventory statement that is filed with the court by the Personal Representative. The assets must be valued at their fair market at the time of the decedent’s death. Generally, if the asset is sold to a third party after the decedent’s death, the selling price is a sufficient value. If the asset is being purchased by an heir of the decedent or is going to be co-owned by beneficiaries, an appraisal of the asset may be necessary to obtain a fair market value.
Once the asset values are all accounted for, the Personal Representative will file the Inventory statement. Upon filing, the estate must pay an Inventory filing fee of .2% of the net value of the estate.
Closing the Estate
After the Inventory has been filed, the Personal Representative must do three things to close the estate. First, the Personal Representative must provide a full accounting of income, expenses, and distributions from the estate. This is done on the Final Accounting statement that will be filed with the Court. Second, the Personal Representative must distribute the estate assets according to the decedent’s will or the laws of intestacy (if the decedent died without a will). To confirm the assets have been appropriately distributed, the Personal Representative must obtain Estate Receipts from the heirs or beneficiaries that received the distributions. Once these are obtained, the Personal Representative files a Statement to Close the Estate, which ends the administration of the decedent’s estate.
Probate administration is a scary thought for many who just lost a loved one. However, with legal counsel who are well-versed in the process, it can be (relatively) quick and painless. If you or someone you know has questions about the administration of a loved one’s estate, do not hesitate to call Russell Law Offices, S.C. at 608-448-3360 to see how we can best serve you.
What is a Testamentary Trust?
by Mike Schulz, Associate Attorney
A trust is an agreement under which a trustee holds property for the benefit of a beneficiary. Trusts can differ greatly in how they are created, what terms govern their operations, and so on. Trusts that are created through instructions left in your Will are known as testamentary trusts. For those with young children, this type of trust is a low-cost way of ensuring that their needs will be met, and their inherited property is managed responsibly in the event that both parents die before the children turn 18.
Care for Children
As opposed to outright distribution of an inheritance to an adult beneficiary, in the event that both parents die and intend to leave property to their minor children, the property must be managed for them under some kind of fiduciary arrangement. Consequently, it should not be assumed that an estate is too small to justify setting up a trust for minor children.
As is the case for all trusts, significant consideration should be given to the trustee appointment and powers. The same individual who might serve as the guardian of a minor’s estate can be selected as a trustee and would probably serve more easily and flexibly under a trust or as custodian of a testamentary custodianship.
There are several advantages to setting up a testamentary trust versus other arrangements for minor children. Under a guardianship for example, minors receive property and the ability to manage the funds at the age of 18. Distribution at such an early age can be avoided by using a testamentary trust. The trust can be structured in a way which defers termination until the child becomes 21 or 25, or even at such time as it appears to the trustee that the child has completed their education. Distribution of the remaining funds to all beneficiaries can (and often should) be deferred until youngest child has attained the required age or circumstances specified within the will.
Flexibility and Cost
Testamentary trusts are created through instructions provided within your will – which means it can be updated at any time based on the changes in circumstances. The executor of an estate – the person administering the will through probate – is instructed to create the trust if certain conditions that are met.
Additionally, because the trust isn’t formed until your death, the cost of creating the trust can be paid out of the estate – saving the upfront cost and efforts that go along with creating a different type of trust.
Russell Law Offices, S.C. can help you navigate this process efficiently and effectively. Call the office today to schedule your consultation with one of our Estate Planning attorneys.
Special Needs Trusts
By Laine Carver, Associate Attorney
All too often, people receiving public benefits like Medicaid or Supplemental Security Income (“SSI”) are disinherited from a relative’s estate. The fear is that an inheritance will disqualify the individual from those public benefits. However, the solution does not have to be to disinherit that individual. By creating a Special Needs Trust, the individual can likely receive the benefits of the inheritance while retaining their public benefits like Medicaid or SSI.
A trust is a legal creation in which a third-party—the trustee—has legal ownership of the trust assets for the benefit another person—the beneficiary. A Special Needs Trust is one created for the benefit of a person with a legally-recognized physical or mental disability and specific language that allows the beneficiary of the trust to retain public benefits like Medicaid and SSI. The trust assets can be used to pay for the beneficiary’s medical expenses, travel, entertainment, and other quality of life expenses. Furthermore, upon the death of the beneficiary, assets remaining in the Special Needs Trust can be paid to another party as determined by the language in the trust.
Self-Funded vs. Third-Party Funded Special Needs Trusts
A Special Needs Trusts may be funded in one of two ways. The first way is to fund the trust with the beneficiary’s own assets. This is a “self-funded” Special Needs Trust. The second way is to fund the trust with assets owned by a third party who wishes to pass those assets to the beneficiary. This is a “third-party funded” Special Needs Trust. Though largely similar, there is one very important difference between self-funded and third-party funded Special Needs Trusts: upon the death of the beneficiary, if the beneficiary received Medical Assistance under the state’s Medicaid plan, the amount of this assistance generally must be paid back to Medicaid under a self-funded trust. However, there is noMedicaid payback requirement when the Special Needs Trust is third-party funded. Therefore, it is extremely important to be certain that inheritances and gifts are made directly to an individual’s Special Needs Trust and not the individual, if at all possible.
Pooled Special Needs Trusts
Pooled Special Needs Trusts (PSNTs) are a common way for individuals to access the benefits of Special Needs Trusts at a lower cost. PSNTs are Special Needs Trusts managed by a non-profit organization that holds trust assets for the benefit of multiple individuals. Each beneficiary of a PSNT has their own sub-account within the trust itself. The benefits of PSNTs are plentiful. First, the pooling of trust assets reduces the administrative costs of managing the trust. For example, the cost of investing the trust assets is reduced since there are more assets to invest. Second, PSNTs are often managed by experts who specialize in Special Needs Trusts and public benefits like Medicaid and SSI. Finally, some PSNTs, like those managed by Wispact, provide grants to beneficiaries to pay for the attorney’s fees for establishing a sub-account within the trust.
First Step in Creating a Special Needs Trust
If you think you or someone you know could benefit from a Special Needs Trust, please do not hesitate to contact Russell Law Offices, S.C. to set up a consultation to determine if a Special Needs Trust is right for you.
What is Estate Planning?
by Michael Schulz, Associate Attorney
Did you know you have an estate?
Almost everyone does! Your estate includes the things that you own such as your home, car, personal belongings, bank accounts, life insurance and more. Upon the event of your death, an estate plan will help those who are taking care of your arrangements follow through with your wishes.
Create a Will or Trust
A Will provides the instructions for your estate and lists the beneficiaries of your assets. Within a Will, your assets are required to go through your state’s probate process. The court system sets the framework for the distribution of your assets based on your wishes. Typically, this process can take a few months to a couple years depending on the complexity of your estate. On the other hand, a Trust avoids the probate process while also listing the beneficiaries of your estate. Additionally, a Trust can remain valid long after your death, when managed by a Trustee, for future wishes of your assets such as taking care of a loved one or providing for future generations. Everyone’s needs for their estate will be different, so a personalized plan is the best option. Consult your attorney for advice as to which option is best for you and your estate needs.
Estate planning will organize your records, ensure your assets have accurate information and update your beneficiary designations. It is likely that only YOU know the information about your assets, where the information is and how to access it. The estate planning process is a great way to collect your information from inside of your head and put it in all one spot so there is no confusion for your loved one. Honest mistakes and outdated information can become a big problem for your beneficiaries and may end up under the supervision of the state. Inaction could leave you with no input as to where your assets and minor children go at the time of your passing.
Going through the estate planning process is very important, so do not delay! If you do not have an estate plan completed upon your death or incapacity, your estate follows the standard process and beneficiary flow chart that your state applies. While it is the standard, you may not like your assets to be managed in that manner. Thus, it is critical that you control the future of your estate with a complete and up-to-date estate plan.
All in all, an updated estate plan should give you peace of mind that your loved ones will be protected after your death. Call Russell Law Offices, S.C. to schedule your estate planning consultation today.
Russell Law Offices, S.C. has created a FREE downloadable Estate Planning Checklist to help prepare you for the Estate Planning Process. Click the button below to download now!
Considerations when Selecting a Power of Attorney
by Nathan Russell, Owner & Managing Attorney
Selecting people who will represent you and your wishes is an important part of the estate planning process known as choosing your Powers of Attorney. Your Power of Attorney will act on your behalf if you are no longer able to do so. The two types of Power of Attorneys are Financial Power of Attorney and Medical Power of Attorney. Both can be lead and managed by the same person or by different people in your life.
Many people select their spouse, their children, a close relative, or friend, but you have the power to choose whoever you would like. Selecting a power of attorney is not necessarily who is closest to you but who can represent you and your wishes the best.
Characteristics to look for when selecting your Power of Attorneys:
- Someone who is trustworthy
- Don’t forget, the people or person you select as your power of attorney will have access to your assets and have final decision-making authority when considering your medical decisions. Choosing a trustworthy power of attorney to carry out your wishes is of the upmost importance.
- Someone who understands their duties as your Power of Attorney
- Serving as a Power of Attorney is a significant responsibility that should not be taken lightly. This person should be responsible, reliable, and able to fulfill the job duties for you.
- Someone who understands your wishes and your values
- You should have conversations about your wants and wishes prior to making this person your Power of Attorney. Be very clear and specific about what your wants and needs are. This person should also be able to stay the course of your wishes, even when emotions are high and in the event of an emergency when decisions need to be made quickly.
- Someone who is articulate and can communicate your wishes to professionals
- Your Financial Power of Attorney does not need to be a banker, just like your Medical Power of Attorney does not need to be a doctor. But they should be assertive, someone who knows how to ask the right questions and someone who is not afraid to challenge suggestions or options that may not reflect your wishes.
The attorneys at Russell Law Offices, S.C. are experienced in drafting these important documents for clients. Please feel free to reach out to schedule a consultation with one of our estate planning attorneys.
Will vs Trust: Which is right for you?
by Michael Schulz, Associate Attorney
The differences between a Will and a Trust are simple, but the process of selecting the right pathway for you and your estate can be complex. Both are considered essential to a comprehensive estate plan but have major differences in how they function.
Table adapted from Legacy Assurance Plan, 2022
The key differences between a Will and a Trust that you should consider are:
- The effective date
- Probate and Your Privacy
- Complexity and Cost
A Will is effective only after your death and does not have the authority to manage your property if you become incapacitated. A Trust can take effect during your lifetime as well as after your passing. A Trust can be used to manage and distribute your assets before death, immediately after death and into the future.
Probate and Privacy:
A Will requires validation through the court’s probate administration process. The state’s court must confirm your will and allow your executor to distribute assets per your Will’s instructions. This can be a long and sometimes costly process. In addition to drawing out the process of transitioning your assets to your beneficiaries, all Wills are subject to becoming public record, which means anyone is about to see the details of your Will. If you wish to keep your estate private, a trust could be a good solution as it does not become subject to public record.
Complexity and Cost:
A Trust typically requires more paperwork and, therefore, can initially be more costly than a Will to establish. But, avoiding probate costs that a Will is guaranteed to incur, a Trust may be a worth-while investment. On the other hand, because of the cost and complexity of a Trust, it may not be updated regularly.
Both Wills and Trusts are legal documents but are created under different laws. Trusts, which fall under Contract Law, are held to a stricter standard than Wills, which fall into Testamentary Law. Typically, because of this a Trust will trump a Will.
Choosing between a Will, a Trust or a combination of both can be a headache. Let Russell Law Offices, S.C. help you choose the right pathway for you and your estate. Call to schedule a consultation today!
References available upon request.
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