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3/19/2014 Brown Bag CLE Series NON PROBATE TRANSFERS OF ASSETS AT DEATH Presented by: Atty. Donal M. Demet Demet & Demet, LLC Thursday, 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. 1

3/19/2014 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. SUMMARY PROCEDURES, Cont’d. • 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. 2

3/19/2014 SUMMARY PROCEDURES, Cont’d. • 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

3/19/2014 NON PROBATE TRANSFERS, Cont.d • 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. • NON PROBATE TRANSFERS, Cont.d • 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. NON PROBATE TRANSFERS, Cont.d • 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. 4

3/19/2014 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). 5

3/19/2014 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. 6

3/19/2014 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. 7

3/19/2014 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. 8