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PROBATE OF REAL ESTATE AND POWERS OF ATTORNEY.

HOW VARIOUS OWNERSHIP FORMS AFFECT PROBATE AND PROBATE AVOIDANCE.

WHY WE NEED POWERS OF ATTORNEY.

 

 

Whether or not a probate is required is sometimes determined by how a particular piece of real estate is titled.  I will attempt to discuss various forms of common ownership of real estate and how those forms can affect or necessitate a probate. I will discuss certain ways that property can be administratively transferred at death without probate, and other probate avoidance procedures.

 

 Common Forms of Property Ownership

Property not owned by a married couple can be owned solely by one person, or as tenants in common, or as joint tenants.  Each of two or more tenants in common has an undivided interest in the whole property for the duration of the ownership.  There is no right of survivorship that goes with a tenancy in common. §700.17(3) Wisconsin  Statutes.

 

 On the other hand, with a joint tenancy each of two or more joint tenants has an equal, undivided  interest in the whole property for the duration of the ownership, irrespective of unequal contribution at its creation.  However, on the death of one of the two joint tenants the survivor becomes the sole owner, and on the death of one of three or more joint tenants the survivors are joint tenants of the entire interest. §700.17(2) Wisconsin Statutes.

 

 Wisconsin has a system of marital property for married people.  Marital property can be held as individual property, marital property or survivorship marital property.  For purposes of a discussion of how to pass property to survivors or to the next generation, survivorship marital property is essentially a joint tenancy between married people.  

 

A person can also own a life estate in  property.  This is commonly done by a quit claim deed from the owner of the property to their child or children with the grantor/parent reserving the life estate.  This means that the grantor/parent has complete ownership and control of the property but only for their life.  Once the parent passes away the interest passes to the children who are referred to as remaindermen.  

 

 

Means of Transferring Interests on Death Through Probate or Quasi-Probate / Administrative  Approaches

 

In the case of real estate owned by two joint tenants the property passes on the death of one joint tenant to the remaining joint tenant.  Likewise, when the owner of property has only a life estate in the property, upon their death the property passes to the remaindermen.  However, in order to confirm this situation in the property records or to have a saleable legal title it is necessary to have something at the Register of Deeds office. §867.045 of the Wisconsin Statutes allows for an administrative termination of either a joint tenancy or a life estate.  The process is quite simple and basically requires the filling out of a form and providing the Register of Deeds the last deed to the property, a certified copy of the death certificate and the last property tax bill.  This type of an administrative termination of joint tenancy or a life estate is fairly simple but it does not work in a situation of a tenancy in common.  

 

With a tenancy in common if the property is worth less than $50,000 it may be transferred by an abbreviated probate procedure of summary assignment or summary settlement. §867.01 and 867.02.  If the property is over $50,000 in value after subtracting the amount of any mortgages, a full formal or informal  probate would likely be required.

 

 Is joint tenancy or survivorship marital property a good way to avoid probate?  It may well  be acceptable for married couples.  It is not necessarily a good way in other situations.  Why not?

 

 In order to answer that question there should be some consideration of the goals that apply to estate planning generally.  Frequently mentioned goals in estate planning are the following:

 

1.  Get the property to the intended heir or beneficiary efficiently and cheaply.  (Sometimes this means probate avoidance).

2.  Keep the asset in the control of the client for as long as reasonably possible.

3.  If the person is elderly or in poor health, consider issues of Medicaid divestment or how to avoid the nursing home getting the asset.

4.  Management of the assets during the person’s life.  This issue comes up when a person who owns the property is mentally incapacitated or just unable to effectively manage their own  assets.  

5.  Tax avoidance.  This subject primarily comes up with people with large estates having a value well in excess of $1 million.  That figure may change drastically depending on what congress chooses to do with the federal estate tax.

 

Let’s look at some forms of ownership and how those forms meet the above goals.  First, let’s consider joint tenancy.  You can administratively terminate the joint tenancy at the Register of Deeds office as stated above so that is quick, cheap and good.  However, does the client have control of the property?  They would only have control of their one-half interest in the property if the property was in joint tenancy.  The joint tenancy is also not a good situation regarding Medicaid divestment issues for the most part.

 

 Instead of establishing a joint tenancy with a child or other person who is supposed to get the property, another option would be to have a parent or other person in need of estate planning transfer the property to the intended recipient and retain a life estate.  That life estate can be terminated upon the death of the grantor so, as with the termination of joint tenancy, that administrative process is quick, cheap and efficient.  A life estate situation is also probably better than a joint tenancy in that total control stays with the holder of the life estate for their entire life.  In certain situations, if the life estate has been in existence for less than five years at the time of the person’s death, there can be problems created related to Medicaid divestment.  At any rate, the life estate is usually still better than the joint tenancy related to Medicaid issues.

 

 What about other types of non-probate transfers?   People sometimes want to deed the property outright to a child or children.  This may be OK, but if the transfer is less than five years old it will be considered a divestment for Medicaid purposes.  There are certainly times a person knows that they are very ill, the end is near, and nursing home care is highly probable.  

 

Fortunately or unfortunately, those situations are probably the exceptions and most people don’t know when they are going to pass on.  Estate planning in the hospital or at the deathbed is unpleasant, stressful, expensive  and should be avoided.

 

 There is a relatively new statute (2005) which allows for non-probate transfer of real property upon death. §705.15.  This statute, which was actually introduced by former Representative Gary Sherman, provides an important and effective probate avoidance technique.  Essentially, what a person can do is record a quit claim deed naming who they want to have the property upon their death.  While the quit claim deed form is used, you are not actually quit claiming anything other than the right to have the property transferred on death.  This may sound like a life estate but it is not.  When you transfer property and retain a life estate that is an irrevocable decision unless someone wants to transfer their interest back to you.  With a transfer on death beneficiary designation the decision is revocable.  You can change your mind and say that you don’t want that person to have your property after your death, and you can name an entirely different person.

 

 Attorneys sometimes see various other forms of estate planning that I do not recommend and think they should be avoided.  One technique is to simply sign a deed to your house and give it to your child or children without recording it.  Another variation is for the child to get a deed from the parent, and vice versa, and then whoever dies first goes to the Register of Deeds office.  Don’t do it.

 

 What has been discussed above are ways to transfer real estate without a full probate.  However, non-real estate assets can also be titled in such a way as to avoid probate.  For instance, bank accounts can be set up in joint tenancy which may or may not be good for the same reasons as a joint tenancy with real estate.  However, accounts can also be designated as POD, Payable on Death to a particular beneficiary.  Likewise, with  IRA or brokerage accounts a person can be designated as beneficiary or there can be secondary beneficiary if the primary beneficiary does not survive the owner of the account.

 

 Powers of Attorney

 For many people a power of attorney for health care or a durable power of attorney for financial purposes can be more important than a Will.  With a power of attorney a person is naming a first, or first and second, choice of agent to handle either their health care decisions or their financial affairs in the event they are unable to do so themselves.

 

  With the common form of health care power of attorney that is used in Wisconsin, a person is not immediately giving  to someone else the right to make medical decisions or communicate with the doctor.  If the person in need of medical care can communicate in any way with a doctor, even by the blinking of eyes, they get to do that.  However, if they are in a situation where they can’t communicate with a doctor (such as medical incapacity or some type of emergency situation) their health care agent would communicate their wishes to the doctor.

 

 In Wisconsin a health care power of attorney is particularly important.  The law in Wisconsin provides that if you do not have some sort of written directive your friends or family members cannot tell the judge what your wishes are. If Terry Schiavo, the celebrated case from Florida, had occurred in Wisconsin she might still be hooked up to machines.  In my experience this is something that people really don’t want.  

 

In Wisconsin, unlike many states, if a person ends up in a nursing home and they do not have a health care power of attorney it may very well be necessary for a guardianship proceeding to start.  This is much more expensive than a power of attorney.  Also, a guardianship can have the effect of making the subject of the guardianship (known as a ward) similar to a child in the eyes of the law with the loss of many rights.

 

 A durable power of attorney for financial affairs gives the power to someone else (usually a first choice being a spouse) to make financial decisions. buy or sell property, pay bills, etc.  I think  that a durable power of attorney for financial affairs is something everyone should have, particularly people with some kind of business or complex financial life.  

 

Please be aware that when a person is signing a Will, a durable power of attorney for financial affairs or a health care power of attorney they have to have mental capacity.  What constitutes mental capacity can sometimes be complicated and is beyond the scope of these materials.  The degree of capacity required in order to make a Will is less than what people sometimes think.  However, I have had many people call my office and want to have a power of attorney or a Will done when people were clearly mentally incapacitated or even unconscious.  People have to be able to sign these documents and have an understanding of what they are signing.  Don’t wait too long to have these documents done or it may be impossible to do them.

 

 Keep in mind that a will or testamentary trust comes into being only upon your death.  A health care power of attorney or durable power of attorney for financial affairs is good while you are alive but terminates upon your death.

 

 Trusts are popular with many people and for certain situations trusts can be very important and a good probate avoidance technique.  However, complex living trusts are not for everyone.  I have had a number of people come into my office with problems related to living trusts because property was not transferred into the living trust or the people that the trust was set up to benefit simply did not understand them and did not do the things they needed to do to make them work.

 

 Keep in mind that you can make use of trusts without having a living trust and transferring all of the assets into the trust.  You can have a testamentary trust that comes into effect only when both spouses die.  This is an excellent tool for parents with young children.  Otherwise, if both parents died the children would get all of the assets at age 18, at a time when they are probably not able to handle that.

 

 Conclusion

Some people need more complex estate plans for more complex estates.  Everyone needs some kind of estate plan.  Don’t give everything to one child or one person and expect that they are going to share according to your wishes.  This is a recipe for disaster.  Put your wishes in writing.

 

 Preparing an estate plan can sometimes be a hard thing to do and an easy thing to put off.  I had two separate clients who had me prepare wills and, for reasons unknown to me, refused to come in to sign them, and then died before they were signed.  

 

The most important thing to remember about estate planning is to bite the bullet and do it.  It is one of those things that doesn’t get any easier by putting it off.  The cost can certainly be significant but the cost of not having an estate plan is often three to five times as high.  I have had two cases in the last two years where it was obvious that people needed estate planning because they had health issues.  In one case $700 to $800  would have covered all the work that needed to be done for a good estate plan.  No estate plan was done and the resulting probate cost was over $3,000.  In another situation where an estate plan probably could have been done for less than $500 but no estate plan was done the resulting probate cost over $7,000.

 

THE ABOVE CONCEPTS ARE GENERALLY APPLICABLE TO SMALLER ESTATES, PARTICULARLY WHERE THERE ARE NO IMMEDIATE MEDICAID DIVESTMENT ISSUES.  HOWEVER, EVERY SITUATION IS DEPENDENT ON YOUR INDIVIDUAL FACTS.  BEFORE DOING ANYTHING ABOUT YOUR INDIVIDUAL PLAN DISCUSS IT IN DETAIL WITH THE ATTORNEY OF YOUR CHOICE