Vogel Law Firm, Ltd.: estate planning law firm serving families throughout the State of Wisconsin

Tuesday, November 7, 2017

Wisconsin's ADRC

This will be a brief blog post. Quite often, I am asked whom to contact for assistance with the elderly.  The best place to begin when trying to locate services that are available to serve your elderly spouse or parent or a disabled person is to contact the local Aging and Disability Resource Center (ADRC). There are many resources available to assisted your elderly or disabled loved ones.  A helpful link to these contacts is here:  https://www.dhs.wisconsin.gov/adrc/consumer/index.htm

For Rock County, Wisconsin, the phone number is 855.741.3600. The email address is ADRC@co.rock.wi.us.

Thursday, August 31, 2017

Cabin Trusts and Liability Issues

Many clients have contacted me regarding the establishment of a trust to hold a family-owned lake home, hunting land, or other piece of treasured real property tied to the family. A question that often comes up in my initial discussions with clients is whether a trust or limited liability company (LLC) should be used as the vehicle for this purpose. Clients know that simply deeding the cabin to their children is not always a viable option. The clients need to create structure and procedure for the management of the property.

There are many articles written on websites related to the advantages and disadvantages and comparisons between using a trust or LLC to hold and manage family property on a long-term basis. When a trust is used, the family members, who are in line to inherit the cabin, are long-term beneficiaries of the trust. If drafted properly, the generations beneath the initial beneficiaries are future beneficiaries of the trust. The beneficiaries of the trust do not own the cabin. A trust is a unique legal relationship between the trustee and the beneficiaries. Typically, one or more children are selected to serve as trustees of the cabin trust.  A trustee is also not the precise legal owner of the cabin.  Moreover, the beneficiaries do not have an ownership interest in the trust. They have a beneficial interest. With an appropriate spendthrift clause in a trust, the assets held by the trustees are protected from the creditors of the beneficiaries. For example, if a beneficiary is sued in the future or must file personal bankruptcy, the beneficial interest in the trust is protected from the creditors of the beneficiary. Further, if a beneficiary divorces, the beneficiary's beneficial interest in the trust is not an asset that is divisible in a divorce proceeding.

The management and usage of the cabin is controlled by language in the trust.  This language may be amended in the future to accommodate for unforeseen contingencies that may come up years or decades after the original owner or owners of the cabin have died.

A cabin trust is typically irrevocable upon being funded with the cabin (i.e., the cabin is deeded to the trust). Funding usually occurs upon the death of the parent, but could occur earlier depending upon the circumstances. Many confuse the ability to revoke a trust with the ability to amend a trust. If appropriate language is used in a trust document, an irrevocable trust may be amended, but the trustees and beneficiaries may not revoke or terminate the trust other than pursuant to the terms of the trust or applicable state law.  However, depending upon how the irrevocable trust is written, the trustees and/or beneficiaries may amend the trust.  For example, the trust may provide that a majority or super majority of beneficiaries have the right to amend the trust. I have read many other articles related to LLC or trust usage for cabins, and the writers often speak of irrevocability in the context of amendability. These legal concepts are not the same. Irrevocable trusts often may be amended. In addition, Wisconsin trust law permits trustees and beneficiaries to modify trusts in many circumstances without court involvement (e.g., Nonjudicial Settlement Agreements). The assets of a trust may also be decanted into a completely new trust instrument with brand new language.

When an LLC is used to own the cabin, the LLC owns the cabin.  In addition, the family members, who are in line to inherit the cabin, are members of the LLC.  An LLC has members, which is a concept similar to shareholders of a corporation.  If the LLC structure is used to own the cabin, then each member (e.g.. typically a child of the prior cabin owner), owns a percentage interest in the LLC. The membership interest is the child's asset. The worst possible situation in the LLC context is an aggressive creditor coming after a member of the LLC and obtaining an assignee's interest in the LLC. This essentially means that the creditor becomes an owner of the beneficiary's membership interest. If I am this persons brother, I do not want to have a creditor involved with the family cabin. This could happen in a lawsuit or bankruptcy proceeding. In a perfect world with children or grandchildren, who never have creditor issues, the LLC form would be very useful; but the creditor risk should cause a client to ponder the negative aspects of this situation. Also, if a member divorces, the member's ownership interest in the LLC is an asset of the marital couple. While the law generally provides that inherited property is not subject to a divorce division, the membership interest still must be disclosed on financial disclosures and statements used in divorce proceedings. This is much different than holding a beneficial interest in an irrevocable trust.

The management and usage of the cabin is governed by an operating agreement for the LLC. The operating agreement is basically a partnership agreement between all persons owning an interest in the LLC. This operating agreement is flexible, but as time continues and the ownership interest of one member transfers to the member's children due to death, the ability to obtain the percentage of ownership interest required to amend the operating agreement may prove difficult.  This is different from a trust. A trust can includes two means of amendment.  The trust may be amended by the trustees and also amended by the beneficiaries.  If a trust has three trustees and 20 beneficiaries, the trustees do not always need to obtain the written consent from a majority of beneficiaries to amend the trust to address a needed change, a majority of trustees could make the necessary amendment. This provides an additional functionality for the trust compared to the LLC.

Whether a trust or LLC is used, it is best to also fund the trust or LLC with sufficient cash to maintain the cabin for many years to come, which would include money for property taxes, insurance, and repairs. If the LLC or trust is not funded with ample cash, there will be immediate conflict about who is responsible for paying these expenses. While the trust and operating agreement can both address payment of expenses, the ease of available cash is far superior tool.

Friday, February 6, 2015

Rating of Attorney Michael W. Vogel

Earlier this week, Attorney Michael Vogel was rated by Martindale-Hubbell® and was awarded an AV rating.  The AV rating signifies preeminence in the practice of law.  It is the highest rating provided by Martindale-Hubbell®, which has provided data about lawyers in the United States since 1868.  This rating is the result of a confidential peer review by lawyers and judges who have worked with Attorney Vogel or know his work personally. Attorney Vogel joins a select group of lawyers, who have received this designation.

As part of this review process, one of the lawyers participating in the confidential review process wrote this about Attorney Michael Vogel:  "Michael should receive your highest rating. I have retained Michael as my personal lawyer. I routinely refer clients to Michael." Another lawyer simply wrote:  "I would rate Michael at your highest rating."

According to Martindale-Hubbell®, the AV rating represents the following:

Legal Ability ratings are based on performance in five key areas, rated on a scale of 1 to 5 (with 1 being the lowest and 5 being the highest). These areas are:
  • Legal Knowledge - Lawyer's familiarity with the laws governing his/her specific area of practice(s)
  • Analytical Capabilities - Lawyer's creativity in analyzing legal issues and applying technical knowledge
  • Judgment - Lawyer's demonstration of the salient factors that drive the outcome of a given case or issue.
  • Communication Ability - Lawyer's capability to communicate persuasively and credibly
  • Legal Experience - Lawyer's degree of experience in his/her specific area of practice(s)
The numeric ratings range may coincide with the appropriate Certification Mark:
  • AV Preeminent® (4.5-5.0) - AV Preeminent® is a significant rating accomplishment - a testament to the fact that a lawyer's peers rank him or her at the highest level of professional excellence.

Friday, August 1, 2014

Life Estates and Medicaid Planning - Wisconsin Estate Recovery Program

For years, lawyers have used a particular planning technique to protect a client's assets from potential long-term care costs.  The idea used by attorneys is to have the parent change the ownership structure for their real estate.  Generally, a person owns their real estate in what is referred to as fee simple absolute.  This means that parent(s) own the entire parcel of real estate, and no one else has an ownership interest in the property.  In the elder law arena, lawyers would have the parents retain a life estate interest in the property and deed a remainder interest to their children, or, if the lawyer was more sophisticated, he or she would use an irrevocable trust to own the remainder interest.

If this life estate interest was created, it would begin the five-year look-back period related to Medical Assistance planning also referred to as Medicaid planning.  Assuming the parent(s) did not need long-term care services within five years of doing this transfer, then the property would no longer be considered an available asset and would not have to used to pay for the parent's long-term care cost.  In addition, at death, the parent's life estate interest would vanish, and the children or the irrevocable trust would own 100% of the real estate and would be able to move forward with the sale of the real estate and the division of the proceeds from the sale.  Essentially, the state or federal government would have no means of making a claim against the parent's estate, because the life estate interest vanishes as of the parent's date of death. 

This planning has been considerably disrupted by recent law changes made in the State of Wisconsin.  For some time, many states have held that the retention of the life estate interest is still a countable asset or is an asset that can be covered against after the parent's date of death.  Wisconsin has now become a state that will impose an Estate Recovery Claim against the value of the life estate after the parent's date of death.  This means that the entire value of the property will not be protected from a potential Medicaid reimbursement claim in the event the parent does qualify for Medicaid. 

For example, assume a parent creates this life estate/remainder interest ownership structure for their family farm.  During the parent's life time, the parent enjoys the use and income from the farm.  Eventually, the parent's health fails, and the parent needs to enter a nursing home.  Five years has expired since the parent transferred the remainder interest to the children or the irrevocable trust.  The parent qualifies for Medicaid, and Medicaid begins paying for the parent's cost of care at a local nursing home.  The parent ends up living in the nursing home for fourteen months.  Medicaid pays a total of $70,000.00 toward the cost of the parent's care.  During this time, the parent never had to pay for the cost of the nursing home.  However, after the parent's death, the State of Wisconsin has an Estate Recovery Program that will assert a claim against the value of the life estate interest in the family farm.  The value of the life estate interest is determined by an actuarial table contained in the Medicaid eligibility handbook that is published by the State of Wisconsin.  As the parent gets older, the life estate value decreases.  Unfortunately, the life estate always has some value as of the parent's death. 

The good news is that for all life estates created prior to August 1, 2014, the old rules will apply.  This means that the State of Wisconsin cannot make a claim against the life estate value after the parent's death.  On the contrary, if the life estate interest is created after July 31, 2014, the State of Wisconsin will be able to make a recovery claim against the value of the life estate interest in the real estate.  This is a significant drawback to this type of planning.  While the value of the remainder interest will potentially be protected, assuming the five-year timeline has expired, the value of the life estate interest will not be fully protected.  The State of Wisconsin will be able to make a claim against the value after the parent's death.  This is important information to understand, because there are countless properties out there with life estate/remainder interest ownership structures. 

The last few weeks have been interesting in my practice, because I have been assisting several people with the creation of life estates to take advantage of this planning that will soon disappear.  If you find that lawyers are still using this life estate/remainder interest planning technique after July 31, 2014, you will want to make certain that your clients understand that the full value of the property will not be protected through this type of planning.  I am the first to admit that there are reasons for still doing the planning, but the tremendous benefit of protecting the entire value of the property after the expiration of the five-year look-back period is now not one of them.   

Social Security Benefits

Repeatedly, I am asked by my clients for information related to Social Security benefits.  In fact, just yesterday, it happened again.  The benefits available through the Social Security Administration for retired persons are complex.  There are a plethora of options available for those who have reached retirement age.  Questions arise as to whether a person should opt-in and take early benefits at age 62, should they wait until full retirement age, should they wait even beyond full retirement age, should one spouse apply and the other spouse not apply. 

In the Social Security arena, couples especially have many options available to them as to when and how they claim benefits.  Recently, a few different web sites have been created by financial institutions or academic institutions in an effort to assist people with making decisions related to social security benefits.  You may find it helpful to visit any of the following websites: maximizemysocialsecurity.com; socialsecuritysolutions.com; or socialsecuritychoices.com.  Also, AARP and T. Rowe Price have created online calculators for use in determining whether it is logical to claim benefits early or to postpone the receipt of benefits.  Some of these websites charge a fee for the service; however, some are free. 

While it may seem that simply contacting the local Social Security office and telling them that you want to claim benefits is a simple procedure, a retired person will want to make certain that they are maximizing the benefit they receive from Social Security.  My advice is to do your research before you contact the Social Security Administration to arrange for the payment of your benefits.  You may be leaving significant money on the table for you or your spouse by not making the correct choice.  

Thursday, August 29, 2013

IRS Formally Recognizes Same-Sex Marriage

Today, in a historic joint ruling, the U.S. Treasury and Internal Revenue Service (IRS) recognized legally-married, same-sex couples for all federal tax purposes.  Revenue Ruling 2013-17 was issued, and the ruling provides the following language:

"For Federal tax purposes, the terms “spouse,” “husband and wife,” “husband,” and “wife” include an individual married to a person of the same sex if the individuals are lawfully married under state law, and the term “marriage” includes such a marriage between individuals of the same sex."

Further, the ruling held as follows:

"For Federal tax purposes, the Service adopts a general rule recognizing a marriage of same-sex individuals that was validly entered into in a state whose laws authorize the marriage of two individuals of the same sex even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages."

For Wisconsin, the ruling does not apply to couples registered as domestic partners, unless the couple was legally married in a jurisdiction that recognized same-sex marriage.

This ruling follows in the footsteps of the recent U.S. Supreme Court decisions related to the Defense of Marriage Act (DOMA).  The decisions related to DOMA mandate that the IRS recognize same-sex marriage for federal tax purposes.  Revenue Ruling 2013-17 formally implements this drastic change.

The change will affect countless tax provisions. To begin, the ruling means that same-sex couples must file annual income tax returns as “married filing jointly” or “married filing separately.”

Friday, August 23, 2013

Wisconsin's New Estate Recovery Law

Recently, Governor Scott Walker signed the 2013-2015 budget bill into law.  The new law is referred to as 2013 Wis. Act 20.  The full text of the budget bill is available at this link:  https://docs.legis.wisconsin.gov/2013/related/acts/20.pdf

This budget bill contains significant changes to Wisconsin’s ability to recover funds from the assets of deceased persons whom received medical assistance, a/k/a Medicaid.  The changes made to portions of Chapter 49 of the Wisconsin Statutes are very impactful and will affect countless Wisconsin families.  Unless modifications are made, the new law is effective on October 1, 2013.

For many years, Wisconsin has maintained a Medical Assistance Lien and Estate Recovery law.  The law is codified in Chapter 49 of the Wisconsin Statutes.  This law permitted the State of Wisconsin to recover assets from a person’s estate, if the person received medical assistance during lifetime.  Most commonly, the recovery relates to the decedent’s receipt of Medicaid benefits, but other programs are also involved.  Federal law requires that Wisconsin have this type of law on its books.  Historically, Wisconsin used two methods to recover Medical Assistance cost:  (1) placing liens against a home owned by the recipient of the Medical Assistance, and (2) filing claims against a deceased recipient’s estate.  The claim against a deceased recipient’s estate was generally handled through a probate court proceeding.  A tremendous summary of the old recovery law can be found at this link:  http://cwagwisconsin.org/wp-content/uploads/2011/03/Lien-Law-Estate-Recovery-Program-Brochure.pdf

The new law greatly enhances the ability of Wisconsin to recover funds from a recipient or from the surviving spouse of a recipient of Medical Assistance.  In addition, the new law gives Wisconsin more power to file liens against real estate, in which the recipient of Medical Assistance had an ownership interest of any kind, including a life estate interest.  See Wis. Stat. § 49.849.  Wisconsin’s Estate Recovery rights were primarily contained in section 49.496 of the Wisconsin Statutes.  Among many others, 2013 Wis. Act 20 added sections 49.4962, 49.848, and 49.849 to the Wisconsin Statutes.  Each of these new sections provides broader powers to the Department of Health and Family Services to recover monies from recipients of Medical Assistance or spouses of recipients of Medical Assistance.  The broadness of this change can only be understood by looking at an example.

Example:  Many Wisconsin parents have deeded a remainder interest in their real estate to their children or perhaps to an irrevocable trust for the benefit of their children.  When this deed is made, the parent retains a life estate interest in the real estate.  When the Quit Claim Deed is signed by the parent, the five-year look-back period under Medicaid law is triggered.  This means that if the parent does not have to apply for Medicaid to pay for nursing home costs during the subsequent five years, the real estate becomes a non-countable asset under Medicaid rules, i.e., the real estate does not have to be used to pay for the parent’s nursing home costs, and the parent will otherwise qualify for Medicaid.  Also, upon the parent’s death, the state could not make a claim against the real estate to recovery sums expended on the parent’s behalf during the parent’s lifetime.  This type of planning has literally been done by thousands of families in Wisconsin.  Unless modified by the legislature, the new law turns this planning on its head.

Under the new law, the State of Wisconsin has the right to file a claim or lien against any real estate owned by the recipient of Medical Assistance.  This is a huge change.  Previously, after the five-year look-back period expired, the real estate was off the table.  Now, the State of Wisconsin may still file a lien against the recipient’s life estate interest, any partial interest, real estate owned by a living trust created by the recipient, or any other “current ownership interest in real property.”  Wis. Stat. § 49.848(3)(a)(1)(a).  The phrase “living trust” is not defined in the new statutory sections.  Basically, the prior life estate planning, which was used by countless lawyers in Wisconsin, is no longer completely effective under 2013 Wis. Act 20.  I write “completely effective,” because there still are some advantages, but clients are interested in securing complete protection for these real estate parcels.  Under the new law, a life estate/remainder interest split will only secure a partial protection after the five-year look-back period has expired.  If five years has expired, then the value of the remainder interest would be protected and not subject to the lien, but the value of the life estate interest remains subject to the Wisconsin’s recovery rights.  The value of the life estate interest at death is determined under an actuarial table published as part of Wisconsin’s Medicaid Eligibility Handbook.  See Wis. Stat. §§ 49.848((5)(bm) and 49.849(5c)(c).  The new law gives the state power to recover from any “Property of a decedent.”  “ ‘Property of a Decedent’ means all real and personal property to which the recipient [of medical assistance] held any legal title or in which the recipient had any legal interest immediately before death, to the extent of that title or interest, including assets transferred to a survivor, heir, or assignee through joint tenancy, tenancy in common, survivorship, life estate, living trust, or any other arrangement.”  Wis. Stat. § 49.849(1)(d)(1).

Further, section 49.4962 of the Wisconsin Statutes gives Wisconsin the power to void a real estate conveyance that was “made by a grantor who was receiving or who received medical assistance . . . during the time that the grantor was eligible for medical assistance.”

It cannot be emphasized too lightly how significant this law change is to elder law planning; Medicaid planning; post-death issues that families must address, if a deceased person received Medical Assistance; and many other issues.  To my knowledge, no articles have been written interpreting this new statutory language.  Furthermore, the Department of Health and Family Services must digest the statutory language and modify the Medicaid Eligibility Handbook accordingly.  Although this law is effective as of October 1, 2013, it will be several months before we have completely clear guidance on how this law will be applied to the public.