June 30

“Who Cares If I Have a Will? I’ll Be Dead!”

Actually, I am paraphrasing what rapper Snoop Dogg actually said. An interviewer asked him whether he had a will following the revelation that Prince died intestate, which means he died without having a will. Snoop Dogg used more colorful language to describe his feelings, including frequent use of the “F” word when he said he hopes to be reincarnated as a butterfly and come back to watch his family fight over his money.

Well, as much fun as that sounds like for Snoop, it does his family no favors. While we have no control over the unfortunate fact that we are all going to die someday, we can and should take the time to arrange how our affairs are handled after we are gone. We do not make estate plans for ourselves, but for the people we expect to leave behind. Doing so, as far as I am concerned, is as much an act of love for our family as it is a practical necessity.

So, what if you aren’t convinced? What if, like Snoop, you could give a you-know-what about having an estate plan because it will not directly affect you? Well, consider the myriad of ugly things that could very well happen if you check out of this world without an effective estate plan in place.

There is a great probability that there will be some fighting amongst the family. Someone is going to claim that they knew what your intentions were, while others will disagree, and the then the fighting begins. For example, maybe you were quietly paying your son’s student loans. You die, and now your son tells the rest of the kids what you were doing and that you told him that you intended to pay off his loans. How do you think the other siblings are going to react? What are the chances that someone will call him a liar, which will make subsequent family Thanksgiving dinners very testy? Some of these disputes can take years, cost lots of lawyer fees, and regardless of how they are ultimately resolved, the chances are great that someone will hold a grudge for years, or even decades afterwards.

What happens if you give an expensive family heirloom to one of your kids before you die, and the siblings then have to figure out how to divide the rest of the estate? Do they subtract the value of the item from their share? How do they know what to do? This creates yet another scenario for a possible dispute between the family members. What if you wanted that heirloom to remain in the family? Without a proper writing, your heir can do what they want with it, including selling it so they can buy themselves that red sports car they have been craving.

If you die intestate, then the laws of intestacy will apply, and your estate will be divided accordingly. (See my earlier blog post, “Who Needs an Estate Plan?” to see what the law is in Wisconsin.) That may work OK, but what if you were divorced and later remarry? Under the intestate law in Wisconsin, your second spouse receives everything, which could really upset your kids from your first marriage. Then, when he or she dies, their estate would pass to their family, thus cutting out your children from your first marriage altogether. Is that what you want?

Some other bad things can happen if you do not have an estate plan. For example, if you did not leave any instructions behind regarding your faithful dog, chances are Scout could end up in a shelter if none of your family steps up to care for him. In addition, if you did not leave behind a letter describing what kind of funeral you want, your family may end up enduring through some maudlin memorial instead of the party where your friends and family tell funny stories about you that you actually wanted.

I hope by now that you understand that while it may be unpleasant to think about, the bottom line is that you should seriously consider leaving an estate plan for your loved ones to follow. They will thank you for it, and you can go to your rest knowing that you took as good care of your family in death as you did while living. So, with all due respect to Snoop, take care of your business, Dog. That way, if you do come back as a butterfly, your kids will not chase you around with a fly swatter.

May 31

Johnny Needs Braces: Is This a Custody or Placement Issue?

In a previous blog post (What’s The Difference Between “Custody” and “Placement,” And Why You Should Care, 5/16/2016), I explained that certain kinds of parental decisions people make concerning their children are an exercise of their custodial rights.  I listed the six different categories of custodial decisions, and said that I would go into more detail on some of those later.  In this blog post, I am going to discuss the non-emergency medical care category.  I like to call this the “Johnny needs braces and you better pay for it problem.”

The scenario usually goes like this: assume Mom and Dad share joint legal custody, with the kids living primarily with Mom, (while it could certainly be the other way around, for this example Mom has primary placement).  Dad provides health and dental insurance for the children through his employer-sponsored plan, and the parents split evenly any uninsured medical or dental costs for the children.  Mom and Dad have been divorced for several years now, and over time Mom has taken on more and more of the routine decision-making responsibilities.  Specifically, she’s the one who makes sure the kids get to the doctor or the dentist for their regular checkups because she has the children more time than Dad, and it’s just easier for everyone’s schedule.  Mom has become used to making the appointments and letting Dad know about them later.  Dad does not put up much of a fuss.  No one knows why, exactly.  Perhaps he’s even secretly relieved that Mom is taking on more of the burden.

This works fine for everyone, but then Mom takes Johnny to the dentist for his regular check- up.  Dr. Dentist tells Mom that it is time to correct Johnny’s overbite and refers her to an orthodontist for a consult.  Mom takes Johnny to Dr. Ortho without telling Dad ahead of time.  Dr. Ortho convinces her it is time to fit Johnny for braces.  Thinking that Dad will understand that Johnny needs braces, Mom gives the go ahead.  Dad’s insurance covers $2,000.00 of the $3,500.00 bill.  Mom sends a copy of Dr. Ortho’s bill for the remaining $1,500.00 to Dad with a note asking him to return it to her with a check for his share, $750.00.  This is the first that Dad learns about the braces.  Dad becomes upset.

I’ve had clients on both sides of this issue.  I think both parents could have handled the situation differently.  Johnny and his crooked teeth are their equal responsibility.  Mom should have told Dad about the referral to Dr. Ortho, but probably thought there was no reason to do so until she knew for sure Johnny needed braces.  Then, she exacerbated her mistake by giving the go ahead to Dr. Ortho without bringing in Dad.  Perhaps Mom has become so used to making decisions for the children that she did not think that this decision was any different from other, previous decisions.  It does not matter that Dad had slowly abrogated his custody responsibilities, although that was obviously his mistake.  Getting braces is one of those major decisions, which makes it a legal custody decision.

How can we tell the difference?  The short answer is that the decision is about something that is not routine or an emergency.  For example, if Dr. Dentist told Mom that it was time to update Johnny’s dental x-rays, Mom could have immediately authorized them.  Braces, which involve a much greater commitment of time and money, are another story.  By signing the contract with Dr. Ortho, Mom has already committed Dad’s insurance resources without Dad’s input.  Perhaps Dad would have wanted a second opinion, particularly if he thought that Johnny’s teeth were not yet mature enough for braces.

The most common argument from Mom’s side is that Dad would have vetoed the expenditure.  That argument actually supports Dad, as it is a tacit admission that Mom knew that she was trampling on Dad’s joint custody rights by signing the contract for braces.  Perhaps if Dad had been given the opportunity to come to the consult with Dr. Ortho, he would have recognized the necessity to repair Johnny’s overbite.  He deserves the chance to participate in the decision.  Of course, if Dad historically allowed Mom to make the majority of the custody type decisions alone, one could argue that he gets what he deserves.

The solution to this comes down to two words: communication and consistency.  Communication must be a two way street.  Mom must make sure she lets Dad know that Dr. Dentist thinks Johnny should be evaluated for braces.  Dad must keep the lines of communication open with Mom, and treat her with respect when she does call him.  Unfortunately, communication is usually the biggest problem between parents: after all, if Mom and Dad communicated well, they might still be married.  Yet the courts expect two people who, as an old mentor of mine used to say, can’t agree that grass is green, to communicate effectively and cooperatively regarding Johnny’s braces.

It is also vital that both parents remain consistent when dealing with each other regarding the kids.  Dad cannot cry foul when Mom surprises him with the orthodontist bill when he’s paid little attention to legal custody issues in the past.  On the other hand, Mom should always try to bring Dad into the mix.  If she makes the overture and Dad ignores or disregards it, he will have difficulty justifying his indignation later.

Every situation is different, involving unique personality mixes, backgrounds, and perspectives.  There is no easy answer to this conundrum, but both parents must honestly try to work together, or poor Johnny may be stuck walking around looking like Zero from the Beetle Bailey comic strip.  If the issue for Dad is the money, and he stubbornly refuses to pony up his share of the bill, then Mom may have to file a motion with the court asking the judge to enforce her divorce judgment.  Judges have little patience for parents who refuse to pay for reasonable things that benefit their children, so in the end, Dad will likely have to cover his share of the uninsured cost for Johnny’s braces.  The real take away here is that both parents should recognize that they have an equal obligation to their children, which they must take seriously, and put aside their own agendas and do what is best for their kids.

May 24

Payable on Death Accounts: the Good, the Bad, and the Ugly.

Payable On Death (POD) bank accounts are a popular tool for estate planners and financial advisors. One of the reasons they are so popular is that they appear to eliminate, at least for some people, the need for a will. What are POD accounts, what are their advantages and disadvantages, and can they be a good substitute for a will? These are the questions that I’ll answer in this post.

POD accounts are sometimes called Transfer on Death (TOD) accounts or Totten trusts. A POD account is simply a bank account, usually a savings account, where the owner names a beneficiary who will have access to the funds when the owner dies. They are easy to set up: all the owner has to do is fill out a couple of forms, including the beneficiary designation, and the bank takes care of the rest. There are no limitations on how much money one can put into a POD account, and most banks will let the owner name as many beneficiaries as they want. The owner can change beneficiaries or even cancel the account at any time, as the beneficiaries have no rights to the account until the owner has died. When the owner does die, the beneficiary can access the account by providing proof of death, usually a certified copy of the death certificate, to the bank. If there is more than one beneficiary, the bank will divide the account evenly among them.

Perhaps the biggest advantage of a POD account is that the funds in the account are not subject to probate. Probate can take up to a year or longer, and can cost thousands of dollars in attorney and probate related fees. While the probate is pending, the beneficiaries cannot access any of their inheritance unless they ask the court permission. In contrast, a beneficiary of a POD account can usually access the funds almost immediately after notifying the bank of the owner’s death.

There are some disadvantages to POD accounts. Let’s say Grandma sets up a POD account for little Tommy, who is 10 years old, with the intention that he would use the funds to help with college. Grandma unexpectedly dies a few months later without a will. The first problem we have is that Tommy is still a minor. The probate court, which Grandma was trying to avoid, will have to become involved, and name a guardian for the account until Tommy reaches age 18. This could ignite a fight between family members over who should have control of Tommy’s money. In addition, if Grandpa is still alive and Grandma funded the account with money that belonged to both of them, Grandpa could seek a court order declaring the POD account marital property, which could net him 50% of the account.

Another potential problem is that Grandma forgot or died before getting around to creating a similar account for Tommy’s baby sister Sarah. Since she died without a will, Sarah is effectively cut out of Grandma’s estate. When Tommy reaches 18, he will have no obligation to share his windfall with Sarah. Not only that, he does not have to honor Grandma’s wishes to use the funds for college, and can instead use the money any way he wishes. Imagine an 18-year-old with his hands on thousands of dollars and no accountability for them. That whirring sound you’re hearing is Grandma spinning in her plot at Heavenly Acres.

There are other disadvantages to POD accounts. POD account funds are not accessible to pay estate taxes or probate fees. So, if an owner had set up a POD account in which he put the majority of his money, upon his death, the rest of his estate would have to pay all of the probate fees and estate taxes, which could lead to some unintended consequences for the owner’s heirs and litigation over the funds in the account. For example, if Grandpa gave Ben $100,000.00 in a POD account and Carl a Transfer on Death Deed to real property worth $100,000.00, Carl would have to pay all of Grandpa’s funeral expenses and probate administration costs for the rest of Grandpa’s estate. I doubt that Carl would take on those obligations happily while Ben counts his money, which could lead to a fight between the beneficiaries. The owner cannot name alternate beneficiaries to POD accounts, so if the beneficiary dies before the owner, then the money in the account would flow through the probate process (this is a good reason to name more than one beneficiary in a POD account).

Sometimes people create POD accounts and have wills or trusts. This can be a problem, particularly if their beneficiary designation for the POD account does not match their will. For example, the owner could change his mind about a beneficiary and make a change to his will but forget to change the POD beneficiary. This could lead to results that the owner did not intend. That is why anyone who employs these accounts as part of their estate plan must be careful with how they name their heirs, and update their documents as their wishes change.

Finally, their simplicity versus a will or a trust can be a disadvantage. A will or trust can contain provisions placing conditions on when or even if the heirs receive their inheritance, which allows the owner to control their estate from beyond the end of their life. In the above example involving 10-year-old Tommy, if Grandma instead had a will or a trust, she could have designated when Tommy would receive his inheritance in case she died before he reached a certain age, graduated from school, or reached some other milestone that was important to her.

In the end, POD accounts do have their place in estate planning, but they should not be a substitute for a comprehensive estate plan.

May 16

What’s the Difference Between Custody & Placement, and Why You Should Care.

By far the biggest area of litigation in divorce law involves fighting over the kids. This should not be surprising, as our children’s’ wellbeing tends to be vastly more important and emotional to most parents than who gets the riding lawnmower. The failsafe way to resolve a dispute over an asset is to sell it and divide the proceeds, while there is no default method of resolving disputes over child placement and custody. It’s much more complicated and difficult.

The first thing we have to do is understand the difference between “custody” and “placement.” The most commonly misunderstood word in all of divorce law is “custody.” Most people, including some lawyers, use it as an all-inclusive term. Some even use “custody” and “placement” interchangeably despite that they have two very different, although related, meanings.

“Custody,” is defined in Wisconsin as the right and responsibility for making major decisions affecting your children’s lives. (Wis. Stat. §767.001(2). Major decisions include such things as:

  1. Non-emergency medical care
  2. Consent to marry
  3. Permission to enter military service
  4. Permission to obtain a driver’s license
  5. Religious or spiritual training
  6. Schooling (home school, public, private or parochial school)

I’ll go into more detail on some of these things in future posts. For now, it’s important to note what is not included as a major decision. For example, what happens if Tommy trips and cuts his lip while he’s at Dad’s house for the weekend? Does Dad have to call Mom to discuss whether they should get stitches? No. If it’s an emergency, Dad can take Tommy to the emergency room and get his lip stitched up, although he should call Mom as soon as he can to let her know what’s happening.

What a parent feeds their child while the child is with them is also not a major decision. Every so often a client will call me to complain that their ex is feeding the kids foods of which the client disapproves. Unless the child has a food allergy or celiac disease or some other kind of condition that requires careful monitoring of their diet, a parent can feed them anything they want within reason, and there is nothing the other parent can do about it. I understand it can be frustrating for a parent who is careful to feed their kids a balanced diet when the other parent gives them pizza and hot dogs, but so far, at least, courts have been loathe to get into those battles.

It is important to keep in mind that legal custody is a two-edged sword. The right to make major decisions for your child is an important privilege. Many parents have no problem jumping at the opportunity to exercise their legal custody rights. However, the other edge of that sword is that once you accept the privilege of making the major decisions for your child, you also have the responsibility, or obligation, for making those decisions with the best interests of your children, and not your own interests, in mind. That is where the problems arise. I have seen too many cases where a parent crows loudly that they want the right to exercise legal custody type decisions over their children, but when it comes time for them to actually put that into action they either shrink from the obligation or make a decision that may be expedient for them but disastrous for their child. In extreme circumstances, parents who fail to meet their obligations in this regard can even lose their custody rights. It should be no surprise that in many such cases we learn that the parent was more intent on pursuing their own selfish agenda than in doing what was best for their children.

“Placement” refers to where the children physically are at any one time, and to the right to make routine, daily decisions for your children. Sometimes lawyers and judges inadvertently add to the confusion by using the terms “physical placement” or “physical custody.” “Placement,” as a legal concept, simply refers to where the children physically live. The parent with whom the children live most of the time has primary placement. That parent has the right and responsibility to make routine decisions regarding the child’s daily care. The other parent exercises secondary placement, which, many people commonly refer to as visitation, and can make the same routine decisions during their time with the kids. Routine, daily decisions about a child’s diet, clothing, grooming, etc., are not custodial decisions. Disagreements between parents over these things take an inordinate amount of time to sort out and often distract parents from the real issues.

In most cases, the court will grant custody rights jointly to the parents. This is called “joint legal custody.” Courts will do this unless there is a very good reason to deny one of the parents those rights. For example, if a parent has a significant alcohol or drug abuse issue, has engaged in abuse of the other parent or the child, or if there is evidence of interspousal battery, a court could decide that the other parent should have sole legal custody rights. (Wis. Stat. §767.41(5) (am)). In addition, a court will award custody rights to one parent if:
• The parents agree, or
• If the court finds that one of the parents is incapable of performing their parental duties and obligations or does not want to do so, or
• That there is a condition that would substantially interfere with the parents exercising joint legal custody, or
• The parents are unable to cooperate in future decision making for their child (Wis. Stat. §767.41(2)(b)).

The law has evolved regarding the allocation of placement between parents. Wisconsin law no longer favors mothers over fathers: that notion is as antiquated as old Leave It to Beaver reruns. The current law requires the court to fashion a placement schedule “that maximizes the amount of time the child may spend with each parent” while taking into account logistical issues and geographical separation between the parents (Wis. Stat. §767.41(4)(a) 2). Some courts have interpreted this to mean that we start with the assumption that the parents will share equal placement. I disagree with that interpretation, because the statute does not require equal placement, but maximum placement with each parent per the unique circumstances of that family.

The court decides what it believes is in the best interests of the children. Judges do not make their decision in a vacuum, however. In contested cases, they employ a Guardian ad Litem, who is an attorney who represents the best interests of the children, to investigate the family dynamic and make a recommendation to the Court. I’ll write about that in more detail in a future post. Other experts and sources, such as child psychologists, teachers, clergy, extended family members and family friends, can be brought in to add information and give their opinion. Of course, both parents will have an opportunity to present their cases to the court, so they can present whatever they think is relevant and appropriate. The court listens to everyone, considers the recommendations of the parties and the Guardian ad Litem, and in the end, renders the best decision they can.

In my experience, the majority of these disputes ultimately settle without bringing the case before the judge. As a mentor of mine once said, the worst agreement is better than the best order. I think what he meant by that is that if the parents can come together and reach an agreement of their own making, even if the agreement is flawed, there is a far better probability that things will work out better for them than if they fight it out in court and have to live with a judge’s decision that may disappoint or anger one or both of them. I prepare my cases as if I am going to trial even though I know that most of the time we will settle them. That way, I know that we have covered our bases and made the best presentation possible for our clients. Once most people realize they have little to gain in a tug of war with their ex, with the kids as the rope, they come to their senses and settle their differences. At least, most reasonable people do that. There are always those people who, for whatever reason, are convinced that they must have “their day in court.” That’s their right, even if they’re wrong.

March 28

Seven Steps to Your Estate Plan

When I ask most people whether they have an estate plan, one of the more common responses I get goes something like, “Oh, but it’s really complicated to do, and I just don’t want to deal with it.”  Well, a good estate plan does not need to be any more complicated than you want it to be.  Like anything else, if one breaks the task down to bite-sized steps, then it becomes a much less daunting process.  If you follow these next seven steps, then you will be well on your way to setting up an estate plan that will meet your and your loved ones’ needs.

Step 1: Check Your Beneficiaries.  If you have life insurance, an IRA, or are a participant in a 401(K) plan or profit sharing plan, then you have filled out beneficiary designation forms.  In some cases, you may have filled out your beneficiary form several years ago, and have not thought about it since then.  Pull them out of your files, or, if you cannot find them, obtain copies from your insurance agent and plan administrator, and review them carefully.  For example, I recently reviewed a 401(K) beneficiary designation form for a client.  He left all of his account, which was over $500,000.00, to his first wife that he divorced a decade ago.  He has since remarried.  He told me that I saved him a lifetime of sleeping on the couch when I pointed that out to him and helped him update the form.

Life insurance proceeds and retirement assets do not pass through the probate process, and if you set things up correctly, you can avoid many of your other assets being shuttled through the probate process.  (Please see my earlier post: “Trust or Will: which is the better choice for your estate plan?” to learn how you can avoid probate altogether.)  For example, you can open your bank account as a payable-on-death account so that the proceeds will transfer immediately to your spouse or other named beneficiary.  So, review and update your beneficiary designations.

Step 2: Get a Will (a Trust Would Be Even Better).  A basic will ensures that your estate passes to the people who you intend.  Failing this, your estate will pass according to the state’s intestacy laws, which may result in a different outcome than you would have wanted.  A will also names an executor who has the chore of making sure your debts are paid, your assets gathered, and your assets get to the people you want to have them.  You can also name guardians for your kids in a will.

I strongly recommend that you consider using a revocable trust that will pass your property to your heirs just as a will, but unlike wills, avoids probate.  Another advantage of a trust is that you can control how your kids will receive their inheritance from you rather than them receiving it in a lump sum at a time in their lives that you may not have preferred.

Step 3: Write a Letter.  If you are not going to use a trust as your main estate document, and rely instead on a will, it might be a good idea to write a letter to your heirs describing what specific personal property items you want to pass to your heirs.  This will alleviate your kids fighting over who gets the cuckoo clock that your Aunt Mary left to you.

Step 4: Get a Durable Power of Attorney (POA).  Statistically, you will become incapacitated before you will die.  Who will take care of your finances if that happens?  Even if you are married, some institutions will still insist that your spouse have a power of attorney authorizing him or her to transact your business.  You could also name a trusted friend or relative as your POA if your spouse is unable or unwilling to act for you.  Be careful when you make this decision, however, as relatives have been known to steal from each other.  Shocking!  But seriously, sometimes it may be wiser to choose a trusted professional, such as your lawyer or an accountant, to act as your POA.  Talk to them about this first, however, before naming them.

Step 5:  Get a Health Care POA.  What happens if you do become incapacitated and your doctor needs someone to make medical decisions for you?  If you do not have a medical POA, then that scenario could potentially set up a fight between your spouse and adult children, especially if they disagree on the course of treatment.  By naming your spouse or some other trusted individual as your health care agent, you avoid any potential problems for your family during a pressure packed situation.  In addition, you could put your specific end of life decisions in writing, so your loved ones are not left wondering whether to keep you alive on the feeding tube.

In addition to the health care POA, you should also have a HIPPA waiver that would enable the people you name to have access to your medical records and talk to your doctors.  They would not be able to participate in making decisions for you, but they would be kept in the loop during the course of your treatment.  I can tell you from personal experience that this is a very handy document that sometimes is overlooked.  Get one, and name your spouse, kids, and anyone else that you want to have access to your records.

Step 6:  Avoid Estate Taxes.  Wisconsin has abolished the estate tax, and the federal estate tax will not kick in until you have an estate in excess of $5.4 million (in 2016), which, for a married couple, increases to twice that.  However, the law is a living, breathing animal, and it can change.  So, make sure that whomever you are leaving behind understands that to take full advantage of the tax laws that they should file an estate tax return for you even if no tax is due.

Step 7:  Organize Yourself.  Keep all of your estate planning documents, your financial records, and related documents in the same place.  Now that we have this wonderful thing called the Internet, many online storage systems enable you to create digital files out of everything.  Make sure that whoever your executor or trustee is knows where your records are located and that they have authorization to access them should you die.  They will thank you for this later.

Remember that the only consistency in life is change, and that the estate plan you create today may not work for you in the future.  That is why it is vitally important to review your estate plan regularly.  I review my clients’ estate plans every three years at a minimum and update them as necessary so that their plans remain relevant.  Please let me know if you would like me to help walk you through the steps of the estate planning process.