3/19/2014€¦ · wis. stat. § 853.03. •formalities for non-probate transfers appear in the...

3/19/2014

1

Brown Bag CLE Series

NON PROBATE TRANSFERS OF ASSETS AT DEATHPresented by:

Atty. Donal M. Demet

Demet & Demet, LLCThursday, March 20, 2014

Online Viewers…• Problems streaming? Try using another browser.

• Submit questions to the presenter by clicking on the speech bubble icon at the bottom of the screen.

• An attendance code will be read in two parts during the presentation. – CLE credit is only available for live viewing.

– To be eligible for CLE credit, report both parts of the attendance code into the the online attendance form immediately following the presentation.

– http://law.marquette.edu/mvlc/attendance-form

WHAT IS PROBATE?• Wisconsin Probate Code, Wis. Stat. Ch. 851 &

following

• Probate is a court-supervised procedure for transferring ownership of someone's assets after he or she dies.

• The goal of probate is to protect the rights of heirs or other beneficiaries and others who have an interest in an estate.

• Interested parties (defined in 851.21) receive notice of the proceedings and have a right to appear, and object.

http://law.marquette.edu/mvlc/attendance-form

3/19/2014

2

SUMMARY PROCEDURES

• Wis. Stat. Ch. 867 “Probate - Summary Procedures” is a veritable goldmine of techniques to solve smaller probate problems.

• Generally significantly easier and less costly than Probate.

SUMMARY PROCEDURES, Cont’d.

• TRANSFER BY AFFIDAVIT. Wis. Stat. § 867.03. Where solely owned property of a decedent is less than $50,000.

• See Circuit Court form PR-1831.

• Advantage: Simple.

• Disadvantage: Dollar limit.


• TERMINATION OF JOINT TENANCIES AND MARITAL PROPERTY WITH RIGHT OF SURVIVORSHIP through the register of deeds office using Form HT-110.

• See, Wis. Stat. § 867.045.

• Advantage: No value limit.

• Disadvantage: Does not allow transfer of solely owned property.

3/19/2014

3


• SUMMARY SETTLEMENT AND SUMMARY ASSIGNMENT under Wis. Stat. §§ 867.01 & 867.02

• For small or bankrupt estates with solely owned assets that do not otherwise qualify for Transfer by Affidavit.

• Advantages: finality and protection of a court order.

NON PROBATE TRANSFERS

• Numerous transactions are exempt from probate.

• These do not require court supervision as a matter of course.

• These assets transfer by non-probate means, sometimes stated as, “by operation of law,” at death.

NON PROBATE TRANSFERS, Cont.d

• JOINTLY OWNED PROPERTY. Joint tenants or martial property with rights of survivorship automatically passes to the surviving owner at death. See, Wis. Stat. §§ 700.18 and 700.19;

• For bank accounts and securities, see also,Wis. Stat. Ch. 705;

• For married couples, see, Wis. Stat. §§ 766.60 and 766.605.

• Potential problem: a joint owner or their creditors can access and exercise management and control of the property prior to death.

3/19/2014

4


• TRANSFER ON DEATH DESIGNATIONS.

• Wis. Stat. Ch. 705: Bank Accounts, Securities, Real Estate

• Ch. 705 provides a mechanism for designating a transfer on death payee.

• Differs from joint account ownership in that the beneficiary has no ownership rights until after death.

•


• WASHINGTON WILL MARITAL PROPERTY AGREEMENTS.

• See, Wis. Stats. §§ 766.58(3)(f) and 867.046.

• Spouses can contract with each other for non-probate transfers.


• BENEFICIARY DESIGNATION ASSETS. Life insurance proceeds, funds in an IRA, pension, 401(k), or other retirement plan will bypass probate – if the decedent has named beneficiaries other than the estate.

• There are marital rights under state law, generally in Wis. Stat. Ch. 766. See, Wis. Stat. § 766.61 for insurance policies; see, Wis. Stat. § 766.62 for employee benefits.

3/19/2014

5

FAILURE OF BENEFICIARY

• Not having any valid beneficiary designation.

• Insurance contracts, retirement plans and IRA documents set forth default beneficiaries.

• It may be a “next of kin” type designation, and may also be the “estate.”

• If the beneficiary is “the estate,” a probate or summary procedure may be necessary to claim the proceeds.

FEDERAL PREEMPTION UNDER ERISA

• Almost all private retirement plans are regulated by the Employee Retirement Income Security Act (ERISA), 29 U.S.C. 1001 et seq.

• The Retirement Equity Act of 1984 (REA) amended ERISA to require survivor benefits be paid automatically to a surviving spouse upon the death of the pension participant, unless the spouse consents in writing to an alternative beneficiary. See, 29 U.S.C. 1055(c)(2)(A).

• ERISA preempts state law (statutory & common)

FEDERAL PREEMPTION UNDER ERISA, Cont’d.

• ERISA plan’s documents control, even in the face of clear evidence of the plan participant’s intentions to the contrary. See, Kennedy v. Plan

Administrator for DuPont Savings and Investment Plan, 555 U.S. 286, 129S. Ct. 865, (2009).

• This differs from state testamentary law, where the intent of the testator is paramount. Lohr v. Viney,

174 Wis. 2d 468, (Ct. App. 1993).

3/19/2014

6

WHAT IS A QUALIFIED DOMESTIC RELATIONS ORDER?

• A "qualified domestic relation order" (QDRO) is a domestic relations order, usually issued in connection with a divorce, that creates or recognizes the existence of an alternate payee's right to receive all or a portion of the benefits payable with respect to a participant under a retirement plan.

• Reference: ERISA § 206(d)(3)(B)(i); IRC §414(p)(1)(A)

GOVERNMENT EMPLOYEE PLANS

• Government employee plans are usually not subject to ERISA due to federalism principles and home rule concepts.

• They are generally created by ordinance or statute, which may impose requirements or limitations on the ability to make or change beneficiary designations.

• Also, they may or may not recognize Qualified Domestic Relations Orders.

GOVERNMENT EMPLOYEE PLANS

• Government plans generally have their own set of rules.

• See, for instance, http://www.opm.gov/retirement-services/publications-forms/pamphlets/ri83-116.pdf which sets forth the ground rules for court orders concerning Federal Employee Retirement Plans.

http://www.opm.gov/retirement-services/publications-forms/pamphlets/ri83-116.pdf

3/19/2014

7

LIVING TRUSTS

• Assets transferred to a trust prior to death will pass by non-probate means.

• Usually referred to as a “living trust.”

• These trusts are normally revocable trusts that the settler can change during his/her life.

• Title to the assets is transferred into the legal ownership of the trust. At the settlor’s death, successor beneficiaries succeed to the beneficial ownership of trust assets.

LIVING TRUSTS, Cont’d.

• Irrevocable trusts are rarer, and typically utilized for tax benefits or creditor protection.

• If a living trust is not “funded” by actually transferring title of the assets into the trust prior to death, solely owned assets may have to be probated in order to end up in the trust.

• A living trust is usually accompanied by a “pour over” will that provides that the trust is the beneficiary of any solely owned assets, so that the assets follow the dispositive plan in the trust.

CREDITOR ISSUES

• Probate assets are generally subject to the claims of creditors.

• Creditors actually receive actual or constructive notice.

• Some non-probate assets, such as life insurance and retirement plan assets are exempt from creditor’s claims.

3/19/2014

8

CREDITOR ISSUES, Cont’d.

• See, Wis. Stat. § 815.18 for a list of exempt assets.

• No formal notice procedure for non-probate assets.

• Provisions for Medicaid Estate Recovery that apply to non-probate assets. The law regarding Medicaid recovery is in a state of flux. 2013 Act 20 contained an expansion of the estate recovery to nonprobate assets. These may apply if the decedent or their spouse received Medicaid benefits while alive. Hot issue in “Elder Law.”

TAX ISSUES

• General rule: probate and non-probate assets are both subject to estate tax, and receive similar treatment with respect to “step up in basis.”

• The gross estate consists of the value of all property (real or personal, tangible or intangible) owned by a decedent or in which the decedent had an interest at the time of death. See, for instance, I.R.C. § 2042 regarding non-probate insurance.

TAX ISSUES, Cont’d.

• Generally combine probate and non-probate assets to determine estate size.

• In 2014 the Federal Estate tax unified credit exemption amount is $5,340,000, so very few estates are affected.

• Non probate transfers typically obtain a step up in basis under I.R.C. § 1014.

3/19/2014

9

TAX ISSUES, Cont’d.

• A beneficiary can end up with a big income tax bill if they inherit IRA’s, retirement plan assets or other assets which are considered Income in Respect of a Decedent. I.R.C. § 691.

• The beneficiary usually includes these items in the year of receipt. It is usually tax wise to postpone the actual receipt as long as possible, and spouses generally have the most advantageous distribution elections.

Pause For Attendance Code & Announcement

• A MVLC Student Advisory Board Member will read part one of the attendance code for online viewers.

• Upcoming Events:

– Friday, April 11th – Volunteer Appreciation Party

– Thursday, April 24th – Alumni Awards reception

– Friday, April 25th – Annual Pro Bono Society Induction

PERILS OF MULTIPLE OWNERSHIP OF REAL ESTATE

• The bundle of rights constituting ownership, (use, management, expense, taxes and enjoyment of property), must be shared with co-owners.

• The co-owners may not get along, or might be unable or unwilling to agree on the use, maintenance, apportionment of expense, sale, or mortgage of property.

3/19/2014

10

PERILS OF MULTIPLE OWNERSHIP OF REAL ESTATE, Cont’d.

• Can’t sell or mortgage the entire property without the consent and cooperation of all of the owners.

• Very difficult to sell or mortgage a partial interest in a property.

• Also, liens and encumbrances of a partial owner can inconvenience all of the owners. For example, judgment and tax liens filed against one owner can render the property effectively unmarketable.

POSSIBLE SOLUTIONS TO MULTIPLE OWNERSHIP ISSUES

• Co-ownership agreement if the parties can come to terms. These are best negotiated at the beginning of the joint ownership. They become very difficult to negotiate when you know who the buyer is and who the seller is.

• Instead of co-ownership, consider having title held by an entity, such as a trust, LLC or corporation.

POSSIBLE SOLUTIONS TO MULTIPLE OWNERSHIP ISSUES, Cont’d

• Instead of co-ownership, consider giving one heir or owner the fee simple, with a mortgage granted to the other heir of heirs. This clarifies the rights of all concerned.

• Domestic Partnership under Wis. Stat. Ch. 770 does not seem to deal with management, control and division of property.

3/19/2014

11

CHALLENGING TRANSFERS POST DEATH

• WILL CONTESTS AND SIMILAR CHALLENGES. There are 3 main challenges to the validity of a will.

– Failure to comply with the formalities;

– Lack of Competency, and

– Undue Influence.

• The formalities are minimal, and are recited in Wis. Stat. § 853.03.

• Formalities for non-probate transfers appear in the governing documents or relevant statutes.

CHALLENGING TRANSFERS POST DEATH, Cont’d

• LACK OF COMPETENCY

– The testamentary capacity necessary to execute a valid will requires that the testator have the mental capacity to comprehend the nature, extent and state of affairs of his/her property, an understanding of his relationship to persons who are or might naturally be expected to be the objects of his/her bounty and that the testator understand the scope and general effect of the provisions of his/her will in relation to his legatees and devisees. Estate of O'Laughlin, 50 Wis.2d 143, 146, 147, 183 N.W.2d 133 (1971);


• UNDUE INFLUENCE

– Undue influence is established by proving: (1) susceptibility to undue influence, (2) opportunity to influence, (3) disposition to influence, and (4) coveted result. In Matter of Estate of Becker, 76 Wis.2d 336, 347, 251 N.W.2d 431 (1977);

– or alternatively, by proving the existence of (1) a confidential relationship between the testator and the favored beneficiary and (2) suspicious circumstances surrounding the making of the will. Will of Faulks, 246 Wis. 319, 360, 17 N.W.2d 423 (1945)

3/19/2014

12


• UNDUE INFLUENCE, Continued

– Factors to be considered are age, personality, physical and mental health and ability to handle business affairs. Estate of McGonigal, 46 Wis.2d at 213; Estate of Hamm, 67 Wis.2d at 288, 289.


• INTER VIVOS CONVEYANCES CAN BE CHALLENGED IN THE SAME WAY. Lack of Competence and/ or Undue influence in the execution of an inter vivos conveyance is proved in the same way that undue influence is proved in the execution of a will. First Nat’l Bank of Appleton v. Nennig, 92 Wis. 2d 518, 536; Ward v. Ward, 62 Wis 2d 543, (1976). Hauer v. Union State Bank of Wautoma, 192 Wis. 2d 576, 589, 532 N.W. 2d 456, 460-61 (Ct. App. 1995).


• ABUSE OF FIDUCIARY RELATIONSHIP.

– Self Dealing.

– Exceeding authority by POA.

– See Praefke v. American Enterprise Life Ins., 257 Wis.2d 637, 655 N.W.2d 456, 459 (Wis. 2002).

3/19/2014

13


• ABUSE OF FIDUCIARY RELATIONSHIP, Continued

– Can an agent change the beneficiary designations of non-probate assets? The issue is whether the agents actions exceeded the express powers granted by the four corners of the document. But there also may be an issue of who has standing to contest the acts of the agent. See, Methodist Manor v. Ruth Ann Py, 2008 WI App 31 and Methodist Manor v. Martin, 2002 WI App 130.


• INTENTIONAL INTERFERENCE WITH AN EXPECTED INHERITANCE. See, Harris v. Kritzik, 166 Wis. 2d 689, (Ct. App. 1992). Where by fraud, duress or other tortious means one intentionally prevents another from receiving from a third person an inheritance or gift that he/she would otherwise have received

Pause For Attendance Code

• A MVLC Student Advisory Board Member will read part two of the attendance code for online viewers.

3/19/2014

14

MAIN HURDLES IN BRINGING A POST DEATH CHALLENGE

• CONSTITUTIONAL RIGHT TO WILL YOUR PROPERTY.

– Will of Wright, 12 Wis.2d 375, 380, 107 N.W.2d 146 (1961).

– This right reflects a strong concern that people should be as free as possible to dispose of their property upon their death.

– There are limitations on this right to transfer, such as marital and family support obligations. See, Stat. Chapter 766, and Chapter 861.

MAIN HURDLES IN BRINGING A POST DEATH CHALLENGE, Cont’d.

• CONSTITUTIONAL RIGHT TO WILL YOUR PROPERTY, Continued

– Transfers may violate obligations to creditors. Chapter 242 Fraudulent Transfer Act. Interests in a retirement plan must be transferred in a manner that complies with ERISA. Medicaid Recovery.


• PRESUMPTION OF COMPETENCY. Everyone is presumed be competent until satisfactory proof otherwise. Nyka v. State, 268 Wis. 644, 646 (1954).Lack of capacity must be proved by clear, convincing and satisfactory evidence. Estate of Persha, 2002 Wi App 113

3/19/2014

15


• LACK OF NOTICE OR KNOWLEDGE OF TRANSFERS. Unlike probate proceedings, most lifetime transfers can be accomplished “in secret” without any notice to heirs and other “interested parties.” Thus, an injured party may never discover their loss. Good for privacy, bad for protection of inheritance rights.


• PROCEDURAL ISSUES. In probate proceedings, as noted before, interested parties receive formal notice. Where nonprobate transfers are involved, a potential beneficiary may have to commence an action, or appear in an Interpleader action filed by the insurance company or plan administrator.

ATTORNEY AIDING AND ABETTING LIABILITY

• Tensfeldt v. Haberman, 2009 WI 77, where the attorney who knew of the terms of a divorce judgment, yet prepared estate planning documents inconsistent with the required estate planning terms of a divorce judgment was liable for aiding and abetting the violation. The Court noted:

•

• “[An attorney] is duty bound ... to exercise good faith. He must not be guilty of any fraudulent acts, and he must be free from any unlawful conspiracy with either his client, the judge, or any other person, which might have a tendency to either frustrate the administration of justice or to obtain for his client something to which he is not justly and fairly entitled.” [citations omitted].

3/19/2014

16

ATTORNEY AIDING AND ABETTING LIABILITY, Cont’d.

• Tensfeldt v. Haberman, 2009 WI 77, where the attorney who knew of the terms of a divorce judgment, yet prepared estate planning documents inconsistent with the required estate planning terms of a divorce judgment was liable for aiding and abetting the violation.

ATTORNEY AIDING AND ABETTING LIABILITY

• The Court noted in Tensfeldt:

“[An attorney] is duty bound ... to exercise good faith. He must not be guilty of any fraudulent acts, and he must be free from any unlawful conspiracy with either his client, the judge, or any other person, which might have a tendency to either frustrate the administration of justice or to obtain for his client something to which he is not justly and fairly entitled.”

3/19/2014€¦ · wis. stat. § 853.03. •formalities for non-probate transfers appear in the...

Documents