Most people do not like the thought of dying and do not want to dwell on what happens to their assets if they pass away. Therefore, there is a natural inclination not to want to think about dying, much less, pay somebody to help you set forth a plan on what happens to your assets at death. Unfortunately, many families find out the hard way the complications that are created upon death by not doing constructive planning before they pass away.
Clients will tell me, “I really don’t need a Will because the State will provide where my assets go at death anyway. So, why do I need a Will?” Wisconsin Statutes at Chapter 852 provides for intestate succession. These are the rules that direct where assets subject to probate will pass on a person’s death if they do not have a Will. The first thing to keep in mind is that this Section only covers assets which are subject to probate. Assets held jointly with another party automatically go to the survivor and accounts and securities that are held as payable on death accounts or transferrable on death accounts automatically pass outside of probate to the party named as a beneficiary on the account. Life insurance policies and retirement plans pass to the beneficiary designated for these policies or retirement accounts outside of probate also.
Other than the assets described above, what happens upon the death of a spouse with assets that are subject to probate on the first death? Section 852.01 of the Wisconsin Statutes provides for the distribution of assets when there is no Will. Subsection (a) provides the rules on what assets go to the surviving spouse or domestic partner. This subsection provides that if there are no surviving issue (children, grandchildren etc.) of the decedent or if the surviving issue are all issue of the surviving spouse or surviving domestic partner and the decedent, the entire estate then goes to the surviving spouse. However, subsection (2) provides, if there are surviving issue, one or more of whom are not issue of the surviving spouse or surviving domestic partner, one-half of decedent’s property, other than the decedent’s interest in marital property and the decedent’s interest in property held equally and exclusively with the surviving spouse or domestic partner as tenants-in-common go to the surviving spouse.
We have had a number of clients who were very surprised to find out that when their spouse had children from a previous marriage who were not their children also, if there is no Will, not all of the assets go to them on their spouses death. As described above, if the former spouse had children from a previous marriage, then only one-half of the decedent’s property (not including marital property) passes to the surviving spouse and the other one-half of the property goes to the decedent’s children from the prior marriage. The net of this is that the surviving spouse does not receive any of the decedent’s spouse’s interest in marital assets owned by both spouses. The surviving spouse obviously keeps their one-half of marital property, but the other one-half of marital property owned by the decedent’s spouse goes entirely to the decedent’s children. This is not the result that many surviving spouses expect upon death of their spouse who had children from a prior marriage, particularly, if they have been married for a lengthy period of time.
If, on the other hand, the parties had entered into a Will, the parties could decide objectively what assets they want to go to the surviving spouse and what assets should go to the decedent’s children from the prior marriage. Oftentimes, a trust is established on the death of the first spouse so that income and principal for health, education, maintenance and support can be paid to the surviving spouse and to the children of the deceased spouse and that only after the death of the surviving spouse do the assets then go to the children from the prior marriage. A well thought out distribution plan prevents surprises due to the intestate succession laws.
In addition to being able to direct where your assets go at death irrespective of the intestate succession laws, if proper planning is done through Marital Property Agreements and titling assets properly, the parties can prevent all of the cost, expense and publicity that comes along with a probate of assets. For married couples, a Marital Property Agreement can transfer assets just like a Will or Trust and totally avoid probate. We use Marital Property Agreements extensively for our married clients as an effective tool to transfer assets free of probate expenses. In addition, Marital Property Agreements are a way to classify assets as marital property so that there is a step-up in tax basis at death of the first party to die irrespective of how the asset is titled.
In addition to avoiding intestate succession and probate, parties doing estate planning should be aware that any time they want to direct retirement type plan assets to go to a beneficiary other than their spouse, they should obtain the spouse’s consent first. If the spouse’s consent is not obtained, they may find that by law the assets in the retirement plan do not go to the intended beneficiaries even though they might be children of one of the spouses but, instead, the surviving spouse may claim those assets due to the fact the surviving spouse did not consent to the beneficiary designation.
In summary, some simple estate planning employing Wills, Marital Property Agreements and Trusts can avoid the cost and expense of probate and also prevent unintended surprises that can occur under the intestate succession laws.