Wood Law Firm, LLC - Fennimore, Wisconsin

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The UCC

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Long time no post.

In the legal profession it is easy to let work absorb your life. I noticed that last night when I realized it has almost two years since my last post. A lot has changed since that post and a lot has stated the same, only it has gotten better.

I consider myself a general practitioner. I have specialties by virtue of frequency of work: trusts and estate planning, probates, municipal law, real estate, and all areas of business. This week I acquired a new set of skills by virtue of excessive research and practice.

I have always done business law and have helped forms hundreds of limited liability companies, and helped farm families and businesses succeed in business. That said, most of my work was on the formation, administration and equitable dissolution. This week I dealt with an issue of insolvency. I do not practice bankruptcy law and have only a generalized knowledge about the process. This week, that changed.

It was very interesting and I am glad to say I can now assist clients in UCC transactions and issues. For those of you who do not know, UCC stands for Uniform Commercial Code. In Wisconsin is around Chapter 400 and the sections change based on what your specific issue may be.

It was an interesting process and therefore I am proud that my office may be able to assist you will insolvency issues, specifically with farming operations and crops. I really believe having this knowledge has helped me by a better business attorney in general. If you know the dangers and pitfalls that may happen during insolvency, it is easier to help plan to avoid those things. I do not do bankruptcy and do not plan to start.

I would love to help you or your family with all issues of law. The best bet if you wonder if my office handles something is to give us a call. If we can help you, we will be all in with your representation. If we cannot help you, we will refer you to someone who can.

Thank you and hopefully I can have more frequent posts.

Is There Still a Need for Revocable Trusts in Wisconsin?

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Prior to 2011, Revocable Trusts were a common tool used by Wisconsin Estate Planning Attorney’s for many reasons but arguably most often as a tool to avoid having to have clients pay estate tax. I have included a chart from Wikipedia showing the breakdown of the Federal Estate Tax as it has progressed through the past fourteen years.

Year Exclusion
Amount		 Max/Top
tax rate
2001 $675,000 55%
2002 $1 million 50%
2003 $1 million 49%
2004 $1.5 million 48%
2005 $1.5 million 47%
2006 $2 million 46%
2007 $2 million 45%
2008 $2 million 45%
2009 $3.5 million 45%
2010 Repealed
2011 $5 million 35%
2012 $5.12 million 35%
2013 $5.25 million 40%
2014 $5.34 million 40%

The common use of the Revocable Trust was to allow for a tax credit shelter to protect the surviving spouse but still allow the ability to draw income and principle from the trust for his/her lifetime. Now, the estate tax is over 5 million dollars. This also does not address the issue of portability. Portability means that when one spouse dies the surviving spouse can use any unused estate tax credit from the deceased spouse. This may mean that the surviving spouse can have a credit up to 10.5 million dollars.

Which brings mean back to the question, is there a need for a Revocable Trust if your clients do not have an estate worth 10.5 million dollars. The answer is yes. I use Revocable Trusts when a client owns property in another state. This will ensure that the client does not have to open an probate in that state. I am sure that the Trust will find other uses, but in my opinion it is second when it comes to the Irrevocable Trust.

FAQ’s about Irrevocable Trusts and Divestments

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There is no doubt that the hot topic in elder law currently is the idea of assets protection and/or divestment. With the State’s drastic changes to estate recovery, there has been a corresponding increase in the number of clients for whom an irrevocable trust becomes an attractive option for Medicaid planning. There are number of different kinds of irrevocable trusts, this discussion will center on Medicaid planning. Readers should always consult with an elder law attorney for advice on their specific situation and should not assume that this is blanket legal advice. This is solely meant for educational purposes and not for legal advice.

 

My idea is to draft a set of frequently asked questions and then answer those questions to give everyone better understanding about the changes in Wisconsin Law.

 

  1. What is all the talk about a 5 year period?

 

To ensure the legitimacy for people divesting their asset, the State has a 5 year period which must pass before you will be eligible for Medical Assistance. When you create an irrevocable trust and actually “fund” the trust, you must wait 5 years before you apply for Medical Assistance otherwise you will have to wait a penalty period. If you apply for Medical Assistance within the 5 year period from when you funded the irrevocable trust, you will have to wait a penalty period based on your age and based on the value of the asset. Again, this only applies once you apply for Medical Assistance. If you do not apply for Medical Assistance, this is not a concern to you.

 

Many speculate that the time period will go up to 7 years but at this point it is a 5 year look back.

 

  1. If I go into the Nursing home and I am married and I apply for Medical Assistance, will my spouse be forced to leave the house?

 

No. If you married and one spouse goes into the Nursing home and applies for Medical Assistance, there are a set of provisions in the Medical Assistance Laws known as Spousal Impoverishment Provisions. These provisions guide us through the process of what happens when only one spouse goes to the Nursing home and applies for Medical Assistance and one spouse is at home. It states that the one spouse at home has the right to keep your residence, most vehicles, and a set dollar amount which is scaled due to proration which right now is about $117,000. If you have over $117,000 you will have to spend down before your spouse will be eligible for Medical Assistance.

 

The spouse in the Nursing home is allowed to have $2,000 worth of assets per month. If you have your assets protected by an irrevocable trust however, you may protect those assets and you will not count the things that are funded in the irrevocable trust if a 5 year period of time goes by. A problem usually occurs with spousal impoverishment when the second spouse goes into the Nursing home either after the passing of the first spouse or at the same time as the first spouse. Now because there is not a spouse living at home, the spousal impoverishment provisions do not apply and both spouses would only be allowed $2,000 or so worth of assets.

 

  1. If I apply for Medical Assistance within the 5 year “look back” period, will I lose my home?

 

No. The common conception of people is that the State actually takes assets, liquidates them, and forces you to take the money out of them. The idea of assets at hand and what you may have at hand comes into your eligibility for Medical Assistance. Therefore, if you apply for Medical Assistance within the 5 year “look back” period, you will not be eligible for Medical Assistance until you wait a penalty period as described in FAQ #1. If you have more assets as the Spousal Impoverishment FAQ #2 spoke about, you will not be eligible for Medical Assistance. This does not mean that you will have your house taken away. It simply means that you will have to pay out of pocket for Nursing home if you are not eligible for Medical Assistance until a set period of time.

 

  1. Is an irrevocable trust the only way we can avoid including assets in the 5 year “look back” period?

 

This answer is tricky. Until Act 20 the answer to that question was no. There were life estate deeds that could be completed whereas the parents/parent would give the property to some and reserve the right to reside in that residence for their lifetime. If the 5 years ran from the time you gifted it but reserved a life estate you were fine as if you did an irrevocable trust. However, Act 20 stated that no matter how long of a time period you wait, the State will attach a lien to the remainder interest of your beneficiaries. This means in layman’s terms that if you have a life estate deed after August 1st, 2014, and you apply for Medical Assistance, even after the 5 year “look back” period, the State will attach a lien for the percentage of the uncompleted gift. Even simpler terms a life estate deed is not an effective way to avoid Medical Assistance. However, if you did do a life estate deed that does not mean, as described in the FAQ #3, that you will lose your home, it just simply means the State will attach a lien to the property which must be satisfied before you can sell.

 

Another way of avoiding estate or Medical Assistance issues besides the irrevocable trust is to do a straight up gift. To gift your real estate or other items to someone without reserving any right of ownership for yourself. You’ll still have to wait the 5 year period, but once that 5 years runs because you are not reserving any interest, you will be able to get Medical Assistance without a penalty. The problem with a completed gift, in my opinion, is that creditors can attach to the interest of the person you gifted it to, the person you gifted it to can remove you from the residence at any time because you have no right to be there and you are not a tenant of any kind and it may be confusing who is responsible for insurance, taxes, and other obligations when you are essentially a guest at the residence.

 

  1. Do I have to put in all of my real estate and/or other items into the trust?

 

No. Often times if we are putting real estate into an irrevocable trust to fund it, I will advise my client to leave a portion out. The number one fear with clients in the permanency of the divestment procedure. An irrevocable trust is in fact irrevocable. You cannot change things in the irrevocable trust once the irrevocable trust is established. Therefore, you can sell real estate within an irrevocable trust but you must refund that money into some sort of an interest baring account to ensure that you did not ruin your divestment chances. Therefore, it may be a good idea to keep a chuck of land out in case you need to sell it to have some money. However, because you are not funding that real estate into the irrevocable trust, it would be eligible for Medical Assistance in the “look back” period and again they may attach a lien to that property.

Business Succession Planning

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Next week Tuesday I will be presenting at a Fennimore Chamber of Commerce “Lunch and Learn.” The topic I was asked to cover is business succession.  I have helped many businesses succeed without delving into the significance. What I mean is, to create a successful business succession plan the attorney must consider all the legal ramifications; and believe me there are many. Estate planning, tax planning, etc. What I didn’t realize until I prepared my outline for the presentation is all of the “other planning issues” faced by the business owner at the time of succession. Family issues, fairness, pride, nerves, etc. With that as a backdrop, I researched to find and develop a list of common mistakes made by business owners at the time of succession. The following is a list of a few common problems I have found and believe me there are others to consider.

  1. Common Problems that Prevent a Successful Business Succession Plan – What NOT to Do:
    1. Oftentimes business owners do not think about the welfare of their business whenever they pass the torch to a business successor
      1. Sometimes, business owners will ask for an unreasonable purchase price when selling their business to a family member or third party.
      2. If a deal is completed with an excessive price, there could be hazardous results since it will substantially change the business’s economic equilibrium and increase the costs of operating the business.
  • Over time, the business’s expenses could not be used to support the business, going instead to the debt used to cover the business successor’s acquisition costs.
  1. Sometimes, a small business is its own worst enemy. Some circumstances that cause a business to fail from the inside out.
    1. The business successor not having enough leadership ability or experience to properly take over the business,
    2. The business successor not having enough education or skill to manage the business or to supervise over the business’s work product,
  • The business owner and workforce’s self-satisfaction that the business can be transitioned without adequate planning
  1. Many clients, out of a sense of fairness, will try to divide their business interests equally among all of their children. (Estate Planning implications and Life Insurance and other tools – there is such a things as too fair)
    1. In many instances, this can lead to bad results—
      1. The business’s division can water down the business’s profitability, giving the children no incentive to continue the business.
      2. Worse, it might cause management problems where a share of the business goes to a child that is a ne’er-do-well and another goes to a golden child.
        1. For example, without the right business structure, the ne’er-do-well could easily make business deals that could destroy the business.
      3. Additionally, differences between the children’s personalities might cause the business to dissolve over a lack of compatibility
    2. Outside market forces – things outside of the businesses control
  2. Why is it so important to have a plan?
    1. Oftentimes a successor is chosen at the last moment due to a lack of planning and subsequent sense of urgency.
    2. After a business owner dies, becomes severely disabled, or retires, interested parties may scramble trying to find someone that they believe, rightly or wrongly, can manage the business. May have ethical considerations – like lawyers – duty to clients.