Real Property Probate and Trust Law Blog | State Bar of Wisconsin

Why Your Clients' PODs at Banks May Be Ineffective

Jeff Goldman — 2021-11-23 00:00:00

For years, by including language in account agreements, banks have been able to apply funds deposited at their institution – funds that would otherwise be controlled by the account holder’s payable on death (POD) designation – directly to a decedent’s outstanding debt owed to that institution, without any need to file a claim (in court or in otherwise).

The following is an example of such a set-off provision, which may be found in an account agreement:

Upon the occurrence and during the continuance of any Event of Default the Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Lender to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under any Loan Document, irrespective of whether or not the Lender shall have made any demand under such Loan Document and although such obligations may be unmatured. The Lender agrees promptly to notify the Borrower after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Lender under this section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Lender may have (italics added).

Now, under new legislation being proposed in the State Assembly and State Senate (AB 596/SB 596), banks would be able to take such funds at the decedent’s death and apply them to the depositor’s debt at their institution even without contract language with the depositor.

Section 8 of Assembly Bill 596/Senate Bill 596 would create new Wis. Stat. section 705.06(2m), providing as follows:

705.06 (2m) If a financial institution has any lien right, right to setoff, or security interest in a P.O.D. account resulting from the financial institution's loan or other extension of credit to an original payee, on the death of the original payee or the survivor of 2 or more original payees, the financial institution may retain control of all sums on deposit in the P.O.D. account to the extent necessary to exercise its lien right or right to setoff or to protect its security interest or may tender such sums to a court and seek a court determination, but shall pay any remaining balance of the sums on deposit to the P.O.D. beneficiary or beneficiaries as provided in s. 705.04 (2). This subsection applies notwithstanding any limitation on the rights of creditors under s. 705.07 (1).

Impact on Estate Plans

Whether under existing contract language or under the proposed legislation (if enacted), obviously this could have a significant negative and unforeseen effect on a coordinated estate plan.

Jeff A. Goldman, U.W. 2002, is chair of the Estate and Trust Practice Group at DeWitt, L.L.P. in Madison. His practice focuses on estate planning, trust and estate administration, and trust and estate litigation. He is currently treasurer of the State Bar Real Property, Probate, and Trust Section.

For example, it is not uncommon to fund revocable trusts, credit shelter trusts, marital trusts, special needs trusts, or just outright gifts at death by using PODs as part of an overall plan. But imagine, for example, that instead of a client’s $50,000 certificate of deposit passing to a special needs trust for a disabled beneficiary as expressly designated in a POD, the bank decides to simply apply those funds in whole or in part to satisfy a loan or credit card balance owing to that bank, rather than having such debt satisfied through a claim filed with the client’s estate – where the debt may have been borne equally by all of the estate beneficiaries, as opposed to just by the beneficiary of the POD account.

And all because of a provision in an account agreement that the client almost certainly wasn’t aware of, or a new law that may be enacted years after the account in question was established and the POD designation made.

RPPT Section Opposes the Proposed Legislation

The State Bar of Wisconsin Real Property, Probate and Trust Law Section (RPPT) board opposes this proposed legislation.

Section members can review the RPPT section’s position on this legislation on the section’s page on WisBar.org (log in required).

RPPT section members should contact their state elective officials and advocate for the removal of this unnecessary POD legislative change. Many of our legislators don’t understand the unintended consequences of the propose change and the policy implications for their constituents.

Avoiding Unforeseen Results

Fortunately, such an unforeseen result can be avoided by taking a few simple, affirmative steps:

review the client’s existing PODs and how they fit in the overall estate plan (e.g., funding trusts);
determine whether the client has outstanding loans or balances at the same institution; and
if so, have the client consider whether moving the POD accounts to a different financial institution makes sense to ensure the proper, intended implementation of his or her coordinated estate plan at death. By not being held at the same institution as the debts, the set-off provision would not apply (whether by contract or by statute).

This article was originally published on the State Bar of Wisconsin’s Real Property, Probate and Trust Law Blog. Visit the State Bar sections or the Real Property, Probate and Trust Law Section web pages to learn more about the benefits of section membership.

Dealing with the Expiring Perpetual Easement Problem

Jessica J. Shrestha — 2021-02-23 00:00:00

Easements can and do expire in Wisconsin as a matter of law. Even if they are “perpetual.” Even if they are in use. Even if they provide access.

Consider This Scenario

Jill owns Parcel A on First Street. The neighboring parcel on First Street, Parcel B, is owned by Frank. Jill’s driveway is located primarily on Parcel B, pursuant to a perpetual driveway easement. The driveway is the only means of accessing Jill’s garage, located behind her house.

The driveway easement was created when Frank subdivided his property and sold Parcel A to Jill in 1978. Jill and Frank are friendly, and have never had any dispute as to the driveway.

On Oct. 1, 2020, Frank sells Parcel B to Eric “subject to easements and restrictions of record,” but without any specific reference to Jill’s easement. Jill continues to reside on Parcel A using her driveway on Parcel B. A few months later, Eric does some research and decides he wants to get rid of Jill’s driveway.

Jill has a problem.

Applying Wis. Stat. Section 893.33

Wis. Stat.section 893.33, for better or for worse, acts to clean up title by eliminating old interests as a matter of law.

Jessica J. Shrestha, U.W. 2009, is a shareholder with Wheeler, Van Sickle & Anderson, S.C. in Madison. She practices in real property and environmental law.

The statute generally provides that, if notice of a real estate interest does not appear on the record (recorded in the office of the register of deeds) within a certain period of time, the interest terminates.

As described in more detail below, Jill’s interest terminated when Eric purchased Parcel B in 2020, because Jill’s interest was not specifically re-recorded within 40 years of that purchase.

In fact, the original grant of easement in 1978 was the only recorded instrument expressly referencing the easement. The easement expires even though Eric knew Jill had a driveway easement and even though Jill actively used the easement.¹

Limitations

Limitation periods:

Recorded easements and restrictive covenants – 40 years.²
Other recorded instruments – 30 years.³
Prescriptive easements and other unrecorded claims – 30 years.⁴

Limitation only applies where there is a purchaser for a valuable consideration. The statute is limited, in that it only acts to terminate property interests if, after the applicable time period has passed, there is a purchaser for a valuable consideration.

In the example above, even though Jill’s easement could have expired as early as July 1, 2020,⁵ it did not actually expire until Eric purchased the property for valuable consideration on Oct. 1, 2020.

Had Jill adequately re-recorded her interest prior to Eric’s purchase, her easement would have been preserved. Likewise, had Frank gifted Parcel B to his daughter Whitney rather than selling to Frank, Jill’s easement would not have expired, because there was no purchaser for a valuable consideration.

Exceptions to Section 893.33

The statute does not apply to:

owners in possession, including owners by adverse possession;⁶
recorded interests of various utilities and railroads;⁷
recorded interests of the state or a political subdivision or a municipal corporation of the state;⁸ and
conservation easements.⁹

What Constitutes Re-Recording or Notice

Under section 893.33, an interest is deemed to have been preserved or saved from expiration if the claim or defense based on the interest is “expressly referenced” or if notice of the instrument is set forth in the record. Under section 893.33(2), the notice has to include:

the name of the claimant;
a statement of the claims made;
a description of the real estate affected; and
a description of the instrument, transaction, or event on which the claim or defense is founded.
- If the claim or defense is founded on a recorded instrument, the date the instrument was recorded, the document number of the instrument and, if the instrument is assigned a volume and page number, the volume and page number where the instrument is recorded.

To determine if an easement has expired under 893.33, a title examination is usually required, to see if any such express reference or notice can be located.

Examination of both the burdened and benefited parcels is relevant and may be necessary. In our example above, no such express reference or notice existed within 40 years of Eric’s purchase in either chain of title, because the original instrument was recorded in 1978 and the reference to “easements of record” in Eric’s deed would not satisfy the statutory requirements.

Related: Application of Wis. Stat. section 706.09: Although this article focuses on the application of section 893.33, attorneys should also be aware of section 706.09, and its related impacts. Sometimes called the “Innocent Purchaser Statute,” this statute protects purchasers for value from claims and interests of which the purchaser had no notice. “Notice” under this statute can be either record notice or affirmative notice (actual or constructive) from use or occupancy of the real estate at the time of the purchase.

With respect to easement interests, a purchaser is deemed to have notice from the real estate record if a recorded instrument provides affirmative and express notice of the easement within 30 years prior to the purchase.

In the above example, Eric did not have recorded notice, because no such instrument was recorded in the prior 30 years. However, Eric had affirmative notice under section 706.09, because he would have seen the driveway and was aware of Jill’s use.

Specifically, section 706.09(2)(a) provides that a purchaser for value has affirmative notice of a use or occupancy where

due and diligent inquiry of persons using or occupying such real estate would, under the circumstances, reasonably have disclosed such prior outstanding interest; nor unless such use or occupancy is actual, visible, open, and notorious.

This affirmative notice would not have saved Jill’s driveway easement from expiration under section 893.33, but it is important to be aware of the differences when evaluating possible issues and working to preserve your clients’ easements under both statutes.

Preserving Client Easements and Other Interests

To preserve client easements and other real estate interests, a form of notice should be recorded in the office of the register of deeds for the appropriate county.

Where the instrument was previously recorded, it can be effectively re-recorded by recording a document that includes adequate information to identify the instrument under 893.33(2). Best practice is to attach to the notice document a copy of the previously recorded instrument including the recording stamp.

Where the instrument was not previously recorded or where the interest is unwritten (i.e., prescriptive easement), a thorough description of the claim will be required, including the events on which it is based, dates, names, and property descriptions.

To aid in this process, two examples are linked below for reference. These examples are intended to preserve interests under both section 893.33 and section 706.09. Attorneys can adapt these examples for their own use or create their own format.

In the examples, my client signs the notice. There is no express requirement in section 893.33 that the present interest holder sign the notice – but it seems prudent to do so, in the event signature is deemed required by law, required for recording under Wis. Stat. section 706.05, or otherwise required by the register of deeds.

I advise my clients that they will need to re-record at least every 30 years, even though recorded easements have a 40-year limitation period under section 893.33. This is because other issues (lack of notice under section 706.09 or prescriptive rights) could result in a shorter 30-year limitation period.

Example A: This example could be used to re-record a basic easement instrument where there is no other or related issue.

Example B: This example includes language that could be used for several different scenarios. First, the example describes an easement that was granted in a deed of conveyance rather than in a separate instrument. The example further assumes the deed was given in satisfaction of a land contract. Depending on how the easement was originally created, the language describing that interest will need to be adapted.

Example B also addresses the very common situation where the location of an access drive is not the exact location described in the recorded easement. In this situation, the easement holder may have a prescriptive right to use the drive in its present location – or perhaps there is a claim for an implied easement, or reformation. Whatever the claim might be, it needs to be preserved in addition to preserving the deeded easement. In addition to considering the location of the easement, attorneys should consider whether the use has been expanded, extended to other properties, or any other issue that might not match the original instrument.

Because this example has the client reciting facts in support of its claim beyond the recording information for the original instrument, I treat the instrument as an affidavit, and include a statement that it is made under oath. Ideally, this instrument may later help the client in proving its prescriptive easement claim.

What Else Can Be Done?

I recommend an exception for easements under section 893.33 for situations such as Jill’s. An exception could be created where a purchaser has affirmative notice (actual or constructive) based on use or occupancy, in the same manner as defined under section 706.09(2)(a).

Another option would be to add the exception provided in the Uniform Marketable Title Act. As described in TJ Auto LLC:

Under the model act, the statute of limitations does not apply to ‘a restriction the existence of which is clearly observable by physical evidence of its use’ or ‘a use or occupancy inconsistent with the marketable record title, to the extent that the use or occupancy would have been revealed by reasonable inspection or inquiry.’¹⁰

For a better understanding of how to define, create, amend, and terminate easements and covenants, Wisconsin Law of Easements and Restrictive Covenants from State Bar of Wisconsin PINNACLE^® is your guide.

Endnotes

¹ TJ Auto LLC, v. Mr. Twist Holdings LLC, 2014 WI App 81, 355 Wis. 2d 517, 851 N.W.2d 831 (holding that notice is irrelevant under the statute.) TJ Auto LLC leaves open the possibility that a prescriptive easement may arise after expiration of the recorded easement. Likewise, a court could possibly find an easement of necessity where there is no other access to the parcel. In this example, Jill’s use did not last for more than 20 years following expiration, and she would not have an easement of necessity due to having frontage on a public road.

² Wis. Stat. § 893.33(6). The limitation period was reduced from 60 to 40 years in 1979 – as of July 1, 2020, only the 40-year limitation period applies.

³ Wis. Stat. § 893.33(2).

⁴ Wis. Stat. § 893.33(2); Schauer v. Baker, 2004 WI App 41, 270 Wis. 2d 714; 678 N.W.2d 258.

⁵ The limitation did not run in 2018 because the 40-year limitation, as opposed to the prior 60-year limitation, started to apply in 1980.

⁶ Wis. Stat. § 893.33(5); O’Neill v. Reemer, 2003 WI 13, 259 Wis. 2d 544, 657 N.W.2d 403.

⁷ Wis. Stat. § 893.33(5).

⁸ Id.

⁹ Wis. Stat. § 893.33(6m).

¹⁰ TJ Auto LLC ¶ 22 (quoting, Unif. Marketable Title Act § 7(1), (2) (1990).)

Determining the Inflation Adjusted Amount for Termination of an Uneconomic Trust

Philip J. Miller, David J. Fenlon — 2020-03-27 00:00:00

Every fall most estate planning professionals start looking for the release of the annual Revenue Procedure that announces federal inflation-adjusted numbers for the coming year. These include the estate tax applicable exemption amount, the gift tax annual exclusion, and the income tax rates, among others.

For the first time, this past year also brought us a state number to look for.

July 1, 2019, marked the fifth anniversary of the effective date of our new trust code, Wis. Stat. chapter 701. Wis. Stat. section 701.0414 addresses the termination of an uneconomic trust, and the threshold for determining which trusts fall within this statute is an inflation-adjusted number.

Specifically, sub. (2) provides that the trustee of a trust consisting of trust property having a total value of less than $100,000 or a revised applicable figure as determined under sub. (3), may terminate the trust if the trustee concludes that the value of the trust property is insufficient to justify the cost of administration.

Consent of interested parties is not required, but the trustee is required to give notice to the settlor, if living, each trust protector, each directing party, and the qualified beneficiaries. Sub. (3) contains the instructions for calculating the inflation adjustment and provides that an adjustment becomes effective on July 1, 2019, and every five years thereafter.

Sub. (3) is technical but well laid out. Step 1 is to calculate the percentage change between the base reference number (per sub. (1)(b) the consumer price index for all urban consumers, as published by the United States Bureau of Labor Statistics, in effect on Jan. 1 of the base year, i.e., 2014) and the adjustment reference number for the year in which the adjustment is being made (per sub. (1)(a), the same consumer price index for January 2019 in this case).

David Fenlon, U.W. 2002, is an attorney with Ruder Ware in Green Bay, where he focuses on estate and business planning.

Philip J. Miller, Marquette 1987, is an attorney with Husch Blackwell in Milwaukee, where he focuses on estate and business succession planning.

Consulting the Bureau of Labor Statistics published tables, the base reference number is 233.916 and the adjustment reference number is 251.712, a positive difference of 17.796. The percentage change is calculated as 17.796/233.916 = 0.07607859.

Step 2 is to multiply that percentage by $100,000 (0.07607859 x $100,000 = $7,607.86), and Step 3 is to round the product to the nearest $1,000, which in this case is $8,000.

Finally, Step 4 is to add the rounded product to $100,000, which gives us an inflation-adjusted threshold for an uneconomic trust of $108,000. Note that if the difference between the adjustment reference number and the base reference number is a negative number, sub. (3)(b)2 provides that the rounded product is to be subtracted from $100,000, so it is possible for the number to fluctuate in both directions over time.

What does this adjustment mean? Simply put, from July 1, 2019, through June 30, 2024, if the trustee concludes that the value of a trust having a total value of less than $108,000 does not justify the cost of administration, and provided that the trustee gives notice to the settlor, if living, each trust protector, each directing party, and the qualified beneficiaries, the trustee can terminate the trust as being uneconomical.

If a trust perceived as uneconomical equals or exceeds $108,000, sub. (4) provides that a court may modify or terminate the trust, or remove the trustee and appoint a different trustee.

Section 701.0414 provides a method for terminating a trust that is in addition to the methods provided by 0.0411 (by consent) and 0.0412 (unanticipated circumstances or inability to administer trust effectively).

Because it only requires notice but not consent, and because the numerical threshold is objective and easy to identify versus determining what circumstances the settlor did or did not anticipate, it is perhaps the easiest method of terminating a trust under the trust code.

Copyrights in the Estate? Termination Right Planning a Must

Elizabeth T Russell — 2019-05-13 00:00:00

“Transferring your copyrights to this living trust will activate the copyright termination right.”

Estate planning professionals who have never uttered those words may inadvertently have thwarted their clients’ objectives.

The copyright termination right (17 USC 203) can be little known among lawyers who don’t practice copyright law, yet it can alter the course of estate and marital property plans. Simply put, the termination right permits authors to terminate lifetime grants of any right under a copyright, and reclaim ownership of the rights so transferred.

Elizabeth T Russell, Pace 1986, maintains a solo practice with Russell Law, Middleton, concentrating on copyright, trademark, arts, and digital business law.

We’re talking about any lifetime grant. It could be a grant of copyright from the author to a publisher. It could be a grant from the author personally to the author’s corporation. (The term “author,” by the way, refers to anyone who creates copyrightable works.) It could be a nonexclusive license to use the work for a limited purpose.

It could also be the transaction that happens every day, in estate planning offices everywhere: the transfer of a client’s assets to a living trust. The copyright termination right springs into existence, at the moment that lifetime grant is made. Later, if the termination right is properly exercised, all copyright rights under the grant revert back to the author or the author’s statutory heirs. The result: copyrights that transfer into trust during the author’s life might not stay there.

Grants and Rights

The author’s act of making the lifetime grant activates the termination right: automatically and irrevocably. Before the grant, there was no termination right. As soon as the author makes the grant, however, the termination right springs into existence and it cannot be reversed.

The right will still have to be exercised, properly, for termination to occur. But the act of making the grant is the pivotal event that puts everything else in motion. If an estate planner merely lumps all of the client’s assets together and facilitates a lifetime transfer to trust, that professional causes the client to activate the termination right and, possibly, create a scenario whereby the copyright assets end up in the hands of unintended beneficiaries.

If the author is not living, the author’s “statutory heirs” may exercise the termination right and reclaim the copyright rights for themselves. Copyright law (not state law) specifies who qualifies as a statutory heir for purposes of the termination right (17 USC 203[a][2]). Section 203 trumps state law and it trumps the client’s plainly expressed intent. For example: “beloved neighbors” are not section 203 statutory heirs. Even if the client’s trust document specifies that a beloved neighbor should ultimately receive the copyright rights, an actual section 203 statutory heir could reclaim those copyright rights by properly exercising the termination right.

Copyright Knowledge is Key

Termination right counseling requires the estate planner either to acquire fundamental copyright expertise or to affiliate with a copyright practitioner. The team must understand what copyright protects and what it does not; how copyrights may be owned and acquired during life; and how they may be transferred. Intake and inventory procedures must account thoroughly for every single work of authorship and for every lifetime grant the author may have made. (Even if there hasn’t been a lifetime transfer to trust, the client’s other lifetime transfers must be analyzed.)

Practitioners must know how to calculate the permissible window of time during which each termination right may be exercised, and they must navigate a complicated process for effecting (or defending against) termination.

The termination right is not an issue for other types of intellectual property. For every client whose estate contains (or might contain) copyright assets, however, the representation must include termination right planning.

Elizabeth T Russell is the author of Copyright Conversations: What Estate Planners Need to Know (Ruly Press, 2019). The book is available in paper and e-book formats.

Who Is Your Neighbor? Buyers Should Beware When Purchasing Rural Property

Steven J. Frassetto — 2019-03-19 00:00:00

When is a cow not a cow? When it is part of a herd at a Concentrated Animal Feeding Operation (CAFO), which means that the cow is actually 1.4 “animal units.”

A CAFO generally involves a farm operation with more than 500 animal units. CAFOs are mega farms, and have more in common with industrial uses than family farm operations.

CAFOs create large volumes of animal waste that needs to be stored, transported and disposed of. Housing so many animals can create offensive odors and attract flies. CAFO operations also require intense truck traffic to transport feed, bedding sand, animal waste, and the raw milk produced by the operation.

The Livestock Facility Siting Law

Over the past several years, I have been contacted by developers and property owners who argued that the CAFO operations constitute a nuisance or should be located in an industrial zoning district.

The property owners’ first line of attack is to go to the local government body to solve the problem. Unfortunately, under Wisconsin law, the deck is stacked against these property owners.

Steve Frassetto, Marquette 1986, is shareholder with Menn Law Firm, Ltd., Appleton. He concentrates his practice in real estate, business, and corporate matters.

The livestock facility siting law became effective April 28, 2004, and was codified at Wis. Stat. section 93.90. The Wisconsin Department of Agriculture, Trade, and Consumer Protection (Datcp) adopted administrative rules for the siting of livestock facilities, which can be found at Chapter ATCP 51. The DATCP rules apply to all towns, villages, cities, and counties.

The purpose of the law was to provide uniform regulation of livestock facilities throughout the state. The siting law bars local governments from enacting regulations governing CAFOs within the subject areas that the state regulates, with limited exceptions.

The state law regulates setbacks, wells for livestock facilities, air emissions, nutrient management, and standards for regulation of waste storage facilities (although application of the manure storage and handling plan is controlled by the county).

Local Governments and CAFOs

Local governments may regulate CAFOs through licensing and/or zoning.

However, local governments may not adopt standards that are more stringent than state standards, unless they are able to support the stricter standard with

reasonable and scientifically defensible findings of fact adopted by the political subdivision, that clearly show that the requirement is necessary to protect public health or safety.¹

Most local governments defer to the various state agencies for control of these facilities. The state agencies made it clear that, if a CAFO operator meets the state standards, the state agencies will grant the right to operate as a CAFO.

To compound matters, Wisconsin also has one of the strongest right-to-farm laws, as set forth in Wis. Stat. section 823.08.

The legislative determine that “the law should not hamper agricultural production or the use of modern agricultural technology,” and that local zoning authority is a more appropriate alternative than a nuisance action to prevent conflicts between uses.²

This law goes on to prohibit the use of a nuisance action against an agricultural use or practice conducted on land that was in agriculture use

without substantial interruption before the Plaintiff began the use of property that the Plaintiff alleges was interfered with by the agricultural use or agricultural practice (and) the agricultural use or agricultural practice does not present a substantial threat to public health or safety.³

Awareness Is Key

In light of the above facts, prospective purchasers of rural land should be aware of adjacent land uses prior to consummating any purchase, or they purchase at their peril.

Interested in writing for the State Bar of Wisconsin Real Property, Probate, and Trust Law Blog? You may quality to receive $249 in credit with State Bar of Wisconsin PINNACLE® for each published article. For more information, email Rachael Schaefer, State Bar of Wisconsin section liaison.

Endnotes

¹ Wis. Stat. §93.90(3)(ar)2

² Wis. Stat. §823.08(1)

³ Wis. Stat. §§823.08(3)(a) 1 and 2

ABLE Accounts: Saving for Children with Disabilities

Amy J. Krier — 2018-12-12 00:00:00

Many parents worry about how their children are going to be able to afford college. Therefore, it has become relatively common for parents to fund 529 plans in order to save for their children’s college education.

Parents can receive a Wisconsin income tax deduction for their contributions to Wisconsin’s 529 plan, limited to $3,200 per year per child for 2018. In addition, any distributions from a 529 plan that are used for qualified education expenses can be taken out tax free.

Saving for a Child’s Future

Parents with a disabled child may also wish to save money for their child’s future expenses. While they are likely not concerned with funding their children’s college education, they do not want to disqualify their child from receiving government benefits.

Amy J. Krier, U.W. 2003, is an attorney with Certus Legal Group, Ltd. in Milwaukee, where she concentrates her practice on estate planning, trust and estate administration, and estate, gift, and fiduciary tax and compliance matters.

In the past, parents have generally relied on funding special needs trusts to save for the future expenses of their disabled child. However, creating a special needs trust can be costly, there is no state income tax deduction for contributions to a special needs trust, and distributions from a special needs trust are not tax-free.

Achieving a Better Life Experience – ABLE

Hence, ABLE (Achieving a Better Life Experience) accounts were born under the Stephen Beck, Jr. Achieving a Better Life Experience Act of 2014, also known as the ABLE Act, on Dec. 19, 2014, which was codified under Internal Revenue Code Section 529A.¹

Wisconsin has also adopted the law and provided that although Wisconsin will not create its own ABLE account, Wisconsin residents may open an ABLE account in other states.² In addition, Wisconsin residents may receive a state income tax deduction for contributions to an ABLE account opened in another state.³

Since ABLE accounts are fairly new, they are still evolving, and we could see additional legislation on them.

Requirements

Currently, there are a number of requirements for ABLE accounts. First, an ABLE account may only be established for an “eligible individual.” In order to qualify as an “eligible individual,” he or she must have been blind or disabled prior to reaching age 26 and either:

1) be entitled to benefits for such blindness or disability under Title II or XVI of the Social Security Act, or

2) the individual or the parent or guardian of the individual must file a “disability certification” stating that the individual has a medically determinable physical or medical impairment, which results in marked and severe functional limitations, and which can be expected to result in death or which has lasted or can be expected to last for a continuous period of at less 12 months or is blind, and includes a copy of the individual’s diagnosis relating to his or her impairment, signed by a physician meeting the criteria of Section 1861(r)(1) of the Social Security Act.⁴

The “eligible individual” is the account owner and is also referred to as the “designated beneficiary.” Each designated beneficiary may only have one ABLE account.⁵

Contributions

Annual contributions to the ABLE account by all contributors during the taxable year are limited to the sum of:

1) the federal annual gift tax exclusion amount ($15,000 for 2018), plus

2) before Jan. 1, 2026, if the designated beneficiary is working and does not participate in an employer sponsored retirement plan, the lesser of the designated beneficiary’s compensation for the taxable year or an amount equal to the poverty line for a one-person household for the prior year ($12,060 for 2018).⁶

The designated beneficiary (or the person acting on his or her behalf) is responsible for maintaining records to ensure these requirements are met.⁷

Therefore, an employed disabled individual may contribute up to $27,060 to an ABLE account for 2018.

ABLE accounts do not affect a designated beneficiary’s qualification for government benefits so long as the account value does not exceed $100,000.

Distributions

Distributions from an ABLE account to a designated beneficiary for “qualified disability expenses” are excluded from income, including any earnings on the account.

Qualified disability expenses are expenses related to the individual’s blindness or disability which are made for the designated beneficiary, including expenses for the following: education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative expenses, legal fees, expenses for oversight and monitoring, and funeral and burial expenses.⁸

If distributions from an ABLE account are not used for qualified disability expenses, such distributions are taxable and subject to an additional ten percent tax.⁹

In addition, ABLE accounts are subject to a payback provision requiring any assets remaining in the ABLE account after the designated beneficiary’s death to be paid back to the government for benefits received.¹⁰

An ABLE account may be rolled over into another ABLE account for the same designated beneficiary or an eligible individual who is a member of the designated beneficiary’s family within 60 days of distribution, limited to one rollover every 12 months.¹¹

Also, if a parent establishes a 529 plan for a child and later determines that the child has a disability that will likely prevent him or her from going to college, the Tax Cuts and Jobs Act signed into law Dec. 22, 2017, allows the 529 plan to be rolled over into an ABLE account for the child, subject to the maximum contribution amount.¹² States are currently considering the state tax treatment of such rollovers.

Special Needs Trusts versus ABLE Accounts

In summary, parents of a disabled child should continue to consider a special needs trust to provide for their child’s future expenses, but may now also consider whether an ABLE account could be beneficial.

There are advantages and disadvantages to both tools. For instance, it may be cheaper to establish an ABLE account and distributions from the ABLE account for qualified disability expenses are tax-free.

However, unlike a third party special needs trust, contributions to an ABLE account are limited in amount, and ABLE accounts are subject to a payback provision upon the beneficiary’s death.

Therefore, it will depend on each family’s situation as to whether an ABLE account, special needs trust, or a combination of both may prove to be valuable.

Endnotes

¹ Achieving a Better Life Experience Act of 2014, H.R. 647 – 113th Congress (2013-2014).

² 2015 Wisconsin Act 55 (July 12, 2015).

³ Wisconsin Assembly Bill 731 (2016), 2015 Wisconsin Act 312 (March 30, 2016).

⁴ 26 U.S.C. §529A(e).

⁵ 26 U.S.C. §529A(b)(1)(B).

⁶ 26 U.S.C. §529A(b)(2) and (b)(7).

⁷ 26 U.S.C. §529A(b)(2).

⁸ 26 U.S.C. §529A(e)(5).

⁹ 26 U.S.C. §529A (c)(3).

¹⁰ 26 U.S.C. §529A (f).

¹¹ 26 U.S.C. §529A (c)(1)(C).

¹² Tax Cuts and Jobs Act, Public Law 115-97, 131 Stat. 2054 (2017).

Charitable Planning after the 2017 Tax Act

Bradley J. Kalscheur — 2018-07-13 00:00:00

On Dec. 22, 2017, the Tax Cut and Jobs Act (Act) was signed into law.

Two major changes made by the Act impact charitable contributions for tax years between Dec. 31, 2017, and Jan. 1, 2026 (the effective period for the Act):

The standard deduction was increased to $24,000 for married couples (filing jointly) and to $12,000 for individuals.
Itemized deductions for state and local taxes (SALT) are limited to $10,000 per year.

Brad Kalscheur, Marquette 1995, is a partner with Michael Best & Friedrich LLP in Milwaukee, where he has more than 22 years of experience in estate and business succession planning.

This means that, to benefit from itemizing deductions, married couples will need to have $14,000 of non-SALT itemized deductions including charitable contributions. Individual taxpayers have a lower bar to hurdle of only $2,000 of non-SALT itemized deductions.

These changes will not impact most taxpayers who make charitable contributions for reasons other than tax benefits or who may or may not have been itemizing deductions; nor will it impact most high-income taxpayers who already make annual charitable contributions over $14,000.

But for those who want to make tax efficient charitable contributions, the following may be useful techniques.

Bunching Contributions

To benefit from itemizing in light of the SALT limitation of $10,000 for married filing jointly, consider bunching charitable contributions in one year, then use standard deduction in other years.

Exhibit A below shows the increased power of bunching two years of charitable contributions in one year, while still meeting the donors’ charitable intent of having the same amount of money go to their favorite charities over the four year period.

Exhibit A: The effect of bunching two years of charitable contributions into one year. Images used with permission of Tim Steffen, CPA/PFS, CFP^®, CPWA^®, Director of Advanced Planning, Baird Private Wealth Management.

For taxpayers who bunch charitable contributions, establishing a donor advised fund (DAF) at a local community foundation is an alternative to making the contributions directly to the charities.

Charitable contributions in the year of bunching could then be made into the DAF in one year, but then distributions can be made from the DAF in years where the taxpayer does not itemize in order to keep the taxpayers’ charitable contributions to various charities level throughout the years.

Finally, if taxpayers are bunching charitable contributions in one year, make sure they let the charities know that they are bunching, for instance, two years of annual fund giving in one year, so the charity knows not to hit the donor up for an annual fund gift in year two.

Attorneys who advise charities and/or sit on charitable boards should alert the development departments to be mindful of bunching for good donor relations.

Qualified Charitable Distributions

If a taxpayer is over age 70½, they must take required distributions from qualified plans, like an individual retirement account (IRA). Those distributions are included in the taxpayer’s adjusted gross income (AGI), and other items on tax returns are impacted by the level of a taxpayer’s AGI. They could then turn around and make a charitable contribution with those funds, but under the new environment, those contributions may not be fully deductible.

Instead, a taxpayer could make a qualified charitable distribution directly from an IRA to a public charity. The taxpayer does not receive a charitable contribution, so it doesn’t matter if they are able to itemize deductions, but the distribution is also excluded from the taxpayer’s AGI. Taxpayers must be over age 70½, the distribution can only come from an IRA (not a 401(k)), it is limited to $100,000 per year, and the distribution must be made to a public charity, which cannot include a donor advised fund of which the taxpayer is the donor advisor or the donor’s private foundation.

Gifts of Appreciated Property

If capital gain property is appreciated, its sale will result in capital gain recognition. If that property is contributed to a public charity, the tax on the appreciation most likely could be avoided and the charitable contribution would be at fair market value.

So, even if a taxpayer is not itemizing deductions in one year, the income tax avoidance of the tax on appreciated securities could be a significant savings.

Handling Firearms in an Estate or Trust Administration

Philip J. Miller, John Pernice — 2018-04-26 00:00:00

Firearms require special consideration in an estate or revocable living trust administration, especially for a personal representative or trustee who does not own or have a general familiarity with firearms. This article is intended as a practical guide for the uninitiated.

For sake of brevity, subsequent references to executor include a personal representative and the trustee of a revocable living trust.

Step 1. Check and Secure

This is second nature to most firearm owners, but its importance cannot be understated.

Firearms should always be stored unloaded and in a different location from the ammunition, although guns kept by a decedent in the home for self defense may be loaded and stored in a closet or drawer, and many a person who caused an accidental discharge of a firearm later explained “I didn’t know it was loaded.”

Rather than assume that the deceased owner followed all of the rules of firearm safety, the executor should check all of the decedent’s firearms to make sure that they are unloaded and stored securely. If a gun safe or cabinet is not available, gun cases should be used for storage, and the firearms kept in a dry area with low humidity.

If the executor is not familiar with common firearm actions, he or she should be accompanied by someone who is.

Step 2. Identify, Inventory, and Value

Type

Firearms generally fall into one of three categories under Federal law: Type I or Non-NFA (National Firearms Act), Type II or NFA, and antiques.

Philip Miller, Marquette 1987, is a partner with Husch Blackwell’s Private Wealth practice group in Waukesha County, where his practice includes estate, tax, and business succession planning, and estate and trust administration.

John Pernice is an experienced firearm appraiser who advises individuals on the purchase, sale, and shipping of firearms.

Type I accounts for the vast majority of firearms owned by the average hunter, target shooter, or other non-collector. These are not registered under Federal law, but may be required to be registered under state or local law.

Type II, or NFA firearms, generally include fully automatic firearms, short-barreled rifles and shotguns, and noise suppressors. These are registered with the Federal Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), and are documented by the possession of ATF Form 4. While most NFA firearms are likely already owned in a separate gun trust due to the evolution of the law, a 2016 change in ATF regulations has made it easier for individuals to own these types of firearms outright.

If an estate or revocable living trust holds NFA firearms, it is extremely important that they not be removed from the premises until the executor locates the Form 4. The Form 4 should accompany the NFA firearm at all times, as well as the personal representative’s domiciliary letters or a copy of the trust and proof of the trustee’s authority as trustee.

It is worth noting that, every now and then, one encounters unregistered NFA firearms – most often because the decedent made them himself, such as by making a regular shotgun a short-barrel shotgun by sawing off part of the barrel or by making a homemade suppressor. These are illegal and cannot be registered or possessed by anyone. The only legal option for the executor is to turn them in to local law enforcement or the ATF. An executor should consult legal counsel if unregistered NFA firearms are discovered as part of an estate or trust.

Antiques are defined as any firearm manufactured prior to 1899, replicas of the same if they cannot use modern or readily available ammunition, and muzzle loaders. The Federal law definition of a firearm specifically excludes antiques. By Federal definition, firearms also do not include pellet and BB guns which use compressed air rather than gunpowder to propel the ammunition (state law may differ).

History and Provenance

The greater the number or variety of firearms held by the decedent, the more likely it is that the decedent maintained a log, journal, or other records of their acquisition and history. The executor should look for these at the outset of the administration process.

Together with the executor’s own investigation, these records may suggest a history or provenance that increases the value of the firearm from a collector or historical perspective. This, in turn, might dictate a sale at auction or other special consideration for sale.

Even where firearms will be retained and distributed to the decedent’s beneficiaries, the preservation of these records can increase their appreciation and sentimental value in the hands of the beneficiaries.

Value

There is a long-standing joke among men who own firearms that says “my biggest fear is that when I die my wife will sell all my guns for what I told her I paid for them.”

To avoid costly mistakes, appraisals should be obtained whenever firearms will be sold, donated, or distributed in a manner that requires an equalization of value between beneficiaries. This is especially important in cases where the firearms are obviously part of a collection. Copies of any documentation of history or provenance should be provided to the appraiser.

An experienced and independent appraiser should be selected where possible. Gun shops or individuals who have an interest in buying the decedent’s firearms may not have the expertise to recognize the historical or collector value of particular firearms, and have an obvious bias against providing a true fair market value.

Step 3. Sell or Distribute

Depending on the decedent’s instructions as expressed in the will, trust, or other separate writing, the executor will either distribute the decedent’s firearms to beneficiaries, or be charged with selling them and obtaining a fair value for the estate or trust.

If the decedent died intestate, or the governing instrument is silent with regard to firearms, the executor should check with the beneficiaries to see if any of them are interested in acquiring some or all of the decedent’s firearms.

The executor needs to be cognizant of two to four sets of laws governing the transfer of firearms:

the law of the jurisdiction in which the decedent resided (state and local),
the Gun Control Act of 1968,
the National Firearms Act of 1934, and
if the transferee is located in a different state than was the decedent, the laws of the jurisdiction in which the transferee is located (state and local).

Federal Law

Ownership or possession of NFA firearms cannot be transferred to another person until the firearm has been registered to that person with the ATF. This requires the submission of a new Form 4, the payment of a $200 stamp tax, the transferee’s submission of photo identification and fingerprints, and a background check.

The transfer of non-NFA firearms to a transferee in the same state as the decedent is generally subject only to the restriction that the recipient cannot be a “prohibited person” under Federal law. This includes convicted felons and persons convicted of a misdemeanor related to domestic violence, persons under age 18 with respect to rifles and shotguns, persons under age 21 with respect to handguns, noncitizens, persons adjudicated mentally defective, and users of controlled substances.

With respect to this last category, it should be noted that, while the recreational use of marijuana has been legalized in a number of individual states, it is still a controlled substance under Federal law and those who use it are prohibited persons under the Gun Control Act (18 U.S.C. §922(g)).

Background checks are not required for intrastate transfers of firearms, though they are available to any executor who wants to confirm that the transferee is not a prohibited person.

Interstate transfers of firearms, both NFA and non-NFA, must go through a Federal Firearms Licensee (FFL) on either the shipping or receiving end of the transaction, and on both ends of the transaction if the firearm is a handgun.

The United States Post Office will ship handguns and long guns subject to certain restrictions, but some private carriers will not, so the executor should check before attempting to ship any firearm interstate.

State and Local Law

Wisconsin law contains a list of prohibited persons that is largely similar to Federal law, but does not otherwise restrict the transfer of firearms. Wisconsin also has a preemption statute that prohibits local regulation from being any more restrictive than state law.

By contrast, a growing number of other states have state-level registration requirements and/or restrict the type of firearms that may legally be owned in that state. States that do not have preemption statutes may have cities, towns, or counties which also have restrictions with which the transferee, and possibly the transferor, need to comply.

An executor should seek the advice of legal counsel, an FFL, or someone experienced in shipping firearms before shipping them out of state.

Conclusion

With proper care and assistance as needed, an executor can safely and legally transfer ownership and possession of a decedent’s firearms to buyers and beneficiaries alike, and can preserve or maximize their value to the estate or trust beneficiaries.

Legislature Enacts New Standards for Conditional Use Permits

Mary Beth Peranteau — 2018-03-19 00:00:00

In 2017 Wisconsin Act 67 (effective Nov. 28, 2017), the legislature has enacted new statutory provisions affecting local governments’ consideration of conditional use permit (CUP) applications.

Background

These provisions appear to have been adopted as a response to the Wisconsin Court of Appeals’ 2016 decision in AllEnergy Corp. v. Trempealeau County Environmental & Land Use Committee, which upheld the county’s denial of a CUP for the mining and transport of silica sand used for hydraulic “fracking.”

Mary Beth Peranteau, U.W. 1996, is a shareholder with Wheeler, Van Sickle & Anderson, S.C., in Madison, in its land and water and energy law practices. She concentrates her practice on navigable waters law, zoning, and land use litigation.

The Wisconsin Supreme Court upheld the appeals court decision in 2017, but a split decision signaled that legislation was needed to clarify this area of the law.¹

During a hearing on the CUP application, members of the public expressed concerns regarding adverse impacts to air quality, water quality, and natural habitat from the operation of the mine. The applicant took issue with the committee’s reliance on public comments, and argued that it was entitled to the CUP as a matter of law because it “met the conditions of the ordinance and agreed to be bound by the additional 37 conditions of approval adopted by the committee.”

The court upheld the county’s denial of the application, deferring to the county’s findings and rejecting the applicant’s arguments that it had offered substantial evidence in support of the ordinance criteria and that it was entitled to the CUP.²

Conditional Use Provisions

While unsuccessful on appeal, AllEnergy’s appellate arguments apparently gained traction with the Legislature.

The new conditional use provisions in Act 67 mandate that a CUP must be issued where the applicant meets, or agrees to meet, standards specified in a local ordinance. Such standards must be “reasonable” and “measurable.”

In addition, the new law requires that there be “substantial evidence” in the record to support the denial of a CUP. The definition of “substantial evidence” excludes evidence deemed to be merely the “personal preference” or “speculation” on the part of a person opposing the CUP.

It remains to be seen whether the new statute preserves the flexibility of CUPs as a versatile tool of local land use regulation, or whether the statute essentially establishes a mandate for local governments to approve most CUP applications.

But it is clear that the new standards confine the exercise of local discretion over conditional uses, and provide new grounds for appeal by the applicant or opponent of a proposed land use.

New Statutory Standards and ‘Conditional Use’

Local Wisconsin governments are authorized to adopt a zoning ordinance under Wis. Stat. sections 60.61 (towns), 62.23(7) (cities and villages) and 59.694 (counties). Statutory authority to approve “special exceptions” to the zoning ordinance is widely recognized by case law as the basis for local zoning authorities to grant CUPs.

Prior to the 2017 legislation, however, the statutes made scant reference to “conditional uses” as such. 2017 Wis. Act 67 amends the zoning enabling statutes for towns, cities, villages, and counties, respectively, to establish the definition of a “conditional use” and to specify standards for the grant or denial of a CUP.

In the case of town zoning, Wis. Stat. section 60.61 has been amended to create new sub. (4e), which provides in pertinent part:

Conditional use permits. (a) In this subsection:

1. “Conditional use” means a use allowed under a conditional use permit, special exception, or other special zoning permission issued by a town, but does not include a variance.

2. “Substantial evidence” means facts and information, other than merely personal preferences or speculation, directly pertaining to the requirements and conditions an applicant must meet to obtain a conditional use permit and that reasonable persons would accept in support of a conclusion.

(b) 1. If an applicant for a conditional use permit meets or agrees to meet all of the requirements and conditions specified in the town ordinance or those imposed by the town zoning board, the town shall grant the conditional use permit. Any condition imposed must be related to the purpose of the ordinance and be based on substantial evidence.

2. The requirements and conditions described under subd. 1. must be reasonable and, to the extent practicable, measurable and may include conditions such as the permit's duration, transfer, or renewal. The applicant must demonstrate that the application and all requirements and conditions established by the town relating to the conditional use are or shall be satisfied, both of which must be supported by substantial evidence. The town's decision to approve or deny the permit must be supported by substantial evidence.

Identical language is codified in newly created Wis. Stat. section 59.69(5e) for counties, and Wis. Stat. section 62.23(7)(de) for cities and villages. The legislature’s specifications for CUP conditions and the evidentiary standard for grant or denial of a CUP, are explored below.

Conditions Specified in a Local Ordinance

The Act creates two requirements for CUP conditions. A condition (whether appearing in an ordinance or sought to be imposed as a condition of a particular application) must be “reasonable” and “to the extent practicable, measurable.”

The new subsections provide examples of “reasonable and measurable” conditions, including “the permit's duration, transfer, or renewal.” The use of the phrase “such as” preceding the list of example conditions signals that these categories are not exhaustive. The Act does not expressly invalidate broad and general public welfare-type standards for the grant of a CUP, such as a requirement that the proposed conditional use “preserves the uses, values and enjoyment of other property in the zoning district.”

By introducing the “reasonable” and “measurable” requirements for CUP conditions, along with the requirement that conditions imposed on an applicant must be based on “substantial evidence,” the Act expands the potential bases for challenging the denial of a CUP. For example, denial of a CUP based on a generic finding that the proposed conditional use is “contrary to the public welfare” could be challenged on the basis that the requirement is too vague to be reasonable or that it has no objective yardstick for compliance.

The ‘Substantial Evidence’ Standard

Under the Act, a CUP must be granted if an applicant “agrees to meet” the conditions of the local ordinance or imposed by the local zoning board. This language provides substantial, additional grounds to challenge the denial of a CUP, and indeed could be interpreted as establishing a statutory presumption in favor of CUP issuance based on the applicant’s stated agreement to meet application-specific requirements. However, a local zoning board remains free to determine that the applicant – while “agreeing to meet” conditions – has not provided “substantial evidence” that the conditions are or will be satisfied.

The Act provides that “[t]he applicant must demonstrate that the application and all requirements and conditions … relating to the conditional use are or shall be satisfied which must be supported by substantial evidence.” The Act defines “substantial evidence” to mean “facts and information, other than merely personal preferences or speculation, directly pertaining to the requirements and conditions an applicant must meet to obtain a conditional use permit and that reasonable persons would accept in support of a conclusion.” Thus, it is the applicant’s burden to objectively demonstrate its ability to comply with the requirements and conditions of a CUP.

The Act also provides that the local zoning board’s decision to approve or deny the permit must be supported by substantial evidence. Under the common law definition, “substantial evidence” is “evidence of such convincing power that reasonable persons could reach the same decision as the board.”³ Under that standard of review, courts will not substitute their judgment for that of the zoning board. “If any reasonable view of the evidence would sustain the [zoning board’s] findings, they are conclusive.”⁴

Under the new statutory language the definition of “substantial evidence” is modified such that the local zoning authority may not rely on “personal preferences” or “speculation.” These terms have the potential to result in less deferential review by courts, particularly if a CUP is denied on the ground that the applicant cannot meet broad public welfare type standards. For example, a finding that a proposed use does not “preserve the values, uses and enjoyment of existing properties in the district,” if based solely on opinion testimony of neighbors, may be deemed to fall short of the substantial evidence test. A court might conclude that this finding, if not supported by a “measurable” criterion such as an appraiser’s opinion of property values, is merely the neighbors’ expression of a “personal preference.”

Zoning Authority’s New Burden

Act 67 preserves the discretion of zoning boards to deny a permit application upon a finding that the applicant cannot meet or agree to meet the standards imposed by the ordinance.

However, by requiring that a local zoning authority’s decision to deny the permit must be supported by “substantial evidence,” the new statute arguably establishes a presumption that a CUP should be issued if the applicant “agrees to meet” applicable conditions.

The statutory changes place a burden on the zoning authority to show that any condition imposed is supported by substantial evidence, reasonable and “measurable,” to the extent practicable.

While the burden of proof remains on the applicant to prove that all CUP requirements and conditions will be satisfied, the new statutory standard creates new opportunities for an applicant to successfully appeal the denial of a CUP or to appeal particular conditions of a grant of a CUP, based on the quality of the evidence cited by the zoning authority.

Endnotes

¹ See AllEnergy Corp v. Trempealeau Cty. Env. & Land Use Comm., 2017 WI 52, 375 Wis. 2d 329, 895 N.W.2d 368; See also Joe Forward, Splintered Supreme Court Upholds Denial of Sand Fracking Permit, WisBar News (May 31, 2017).

² AllEnergy Corp. v. Tempealeau Cty. Env. & Land Use Comm., ___ WI App ___, ¶ 8, 370 Wis. 2d 261 (Ct. App.2016).

³ AllEnergy Corp., at ¶ 9 (quoting Oneida Seven Generations Corp. v. City of Green Bay, 2015 WI 50, ¶ 43, 362 Wis. 2d 290, 865 N.W.2d 162).

⁴ AllEnergy Corp., at ¶ 8 (quoting Clark v. Waupaca Cty. Bd. of Adj., 186 Wis. 2d 300, 304, 517 N.W.2d 782 (Ct. App. 1994)).

Imperative: Succession Planning for the Family Property

Melissa S. Kampmann & Shanna N. Yonke — 2017-11-30 00:00:00

Benjamin Franklin is credited with the oft-repeated saying, “If you fail to plan, you are planning to fail.”

This statement is very realistic in its application to the long-term ownership and management of family properties. Many clients have fond memories of time spent with their families at the family property, whether that property is farmland, hunting land, or a cottage. Clients envision their children continuing the traditions that they formed together at the family property.

Melissa S. Kampmann, U.W. 2003, is a shareholder in Ruder Ware’s, Trusts & Estates Practice Group, where she concentrates her practice in the areas of family business succession planning, estate planning, estate and trust administration, and tax exempt organization planning. She also serves as trustee of family trusts through Ruder Ware’s Fiduciary Services Department.

Shanna N. Yonke, Minnesota 2012, is an associate attorney in Ruder Ware’s Trusts & Estates Practice Group, where she concentrates her practice in the areas of family business succession planning, estate planning, and estate and trust administration. She also serves as trustee of family trusts through Ruder Ware’s Fiduciary Services Department.

However, many problems arise if families do not create a plan for the future ownership and management of the family property.

The Result of Failing to Plan

What happens if you fail to plan for the future ownership and management of the family property?

A family member’s interest in the property may be subject to the claims of his or her creditors. A family member may transfer his or her interest in the property to a nonfamily member, free of any restriction. A family member may fail to pay for his or her share of property expenses, and the only recourse may be to sue the family member in order to recoup expenses. Multiple people means multiple income and asset levels, tastes, preferences, and personalities. This often leads to discourse when decisions arise.

In any conflict involving co-owners of property, the most commonly-employed legal remedy is a partition action if prior negotiations fail. Under Wis. Stat. chapter 842, a partition action involves one or more co-owners suing the remaining co-owner(s) and requesting a physical division of the property or a sale of the property. Oftentimes, physical division of the property in an equitable manner is impossible, leaving a forced sheriff’s sale of the property as the only option. Either result is unwelcome and undermines the intent of maintaining the family property.

Succession Planning for the Family Property

If your clients are intent on maintaining the family property for many generations, it is imperative to engage in planning for the future of the ownership and management of the property. Clients should include any family member in the future generations who wishes to be involved in maintaining the family property.

The most common form of ownership is a limited liability company (LLC). Depending on the goals of a particular family, a trust may be the better selection but most often LLCs are used for their flexibility. Each family situation will dictate the terms of the LLC’s operating agreement. Families should consider and incorporate rules governing the management of the LLC, the process for making decisions and who the decision makers are, transferability of an owner’s interest and the price to be paid for an owner’s interest on transfer, payment of annual expenses, and processes for scheduling use of the property.

When clients engage their families in a planning process that results in the creation of an LLC to hold their family property, they are readied for success in the long-term ownership and management of the family property. A well-reasoned plan, coupled with the enrollment of future generations of family members in the plan, eliminates or minimizes the risks associated with the common ownership of property.