Nov. 1, 2023 – To truly help clients with estate planning needs, attorneys do more than fill in the blanks. Following through on funding trusts and customizing forms are among the steps recommended by Dera Johnsen-Tracy and John Horn, two experienced estate planning attorneys.

Funding the Trust

“Often, if the person is going to be incapacitated for any significant period time, that statutory power of attorney does not contain all the powers that you’ll need to keep the family out of court.” Dera Johnsen-Tracy, shareholder and co-founder of Horn & Johnsen, S.C.

Dera Johnsen-Tracy, shareholder and co-founder of Horn & Johnsen, S.C. has worked in estate planning for 30 years, first as a paralegal and then as an attorney.

“When I started working in estate planning as a paralegal, I thought ‘Wow, this is fantastic, this is what I want to do,’” Johnsen-Tracy said. “I’ve been focused on it ever since.”

Johnsen-Tracy said estate planning attorneys often create a trust for a client but don’t follow through on funding the trust.

“They’ll send the client home with 20 pages of instructions saying ‘OK, now go put everything in the trust,” Johnsen-Tracy said. “In our experience, that doesn’t work very well. It’s complicated to work with the banks and the financial advisors and the life insurance company.”

Johnsen-Tracy likens an effective estate plan to a completed jigsaw puzzle. Setting up a trust without funding it leaves the puzzle missing some pieces.

“When you have a trust and it’s not funded, well now we have to go through probate anyway to get the assets into the trust after death through the pour-over will, but the whole point was to avoid probate,” Johnsen-Tracy said.

Johnsen-Tracy recommends that estate attorneys help their clients with the paperwork necessary to fund a trust – changing the beneficiaries on the titles to real property and vehicles, on bank accounts, and on other forms of property.

For personal property, Johnsen-Tracy recommends executing a blanket assignment to the trust, to remove that property from the decedent’s estate. Doing so will help keep the value of the estate below $50,000, the threshold that triggers the requirement that an estate go through probate.

“As long as you have that blanket assignment of personal property in place, personal property doesn’t count against that $50,000 at all,” Johnsen-Tracy said.

Customizing POAs

Another common misstep, said Johnsen-Tracy, is relying on the basic power of attorney (POA) form contained in state statute.

“Often, if the person is going to be incapacitated for any significant period of time, that power of attorney does not contain all the powers that you’ll need to keep the family out of court,” Johnsen-Tracy said.

As an example, Johnsen-Tracy cited an incapacitated widow in a nursing home down to her last $50,000. As long as the widow owns that money, she won’t qualify for Medicaid, which means the government won’t pay for her nursing home care.

In that situation, Johnsen-Tracy said, what’s needed is a special needs trust, to be funded with the $50,000. That way, the widow qualifies for Medicaid, can remain in a nursing home, and has the $50,000 available for other expenses.

“The statutory power of attorney doesn’t give the agent the power to set up that type of trust,” Johnsen-Tracy said. “So now, since mom is incapacitated, you’d have to go to court [to set up a trust].

“That whole process could be avoided with a more comprehensive financial power of attorney that specifically grants the agent the power to set up an irrevocable trust.”

One option for such a trust is WisPACT, a private non-profit that administers pooled special needs trusts for people with disabilities.

Attorneys can establish a private special needs trust for the same purpose, Johnsen-Tracy said. But under Medicaid regulations, you must do so at least five years before you apply for Medicaid, which requires advance planning.

“With a WisPACT trust, it can be set up right away – there’s no Medicaid time limit,” Johnsen-Tracy said. “There’s also no age limit, so it’s something that we use often for individuals with special needs to keep them qualified for their benefits.”

HIPAA Authorizations

Imagine that your spouse or your adult child is involved in a bad wreck. You race to the hospital, only to learn that the staff at the front desk won’t tell you whether your loved one has been admitted.

It happens all too often, Johnsen-Tracy said. The culprit is the lack of a HIPAA authorization form on file with the hospital’s health system.

HIPAA is a federal law that protects personal health information. A HIPPA authorization form authorizes a health care provider to disclose information about the person who signed the form.

Many people sign HIPAA authorization forms at the doctor’s office. But those authorizations are usually limited, Johnsen-Tracy said.

“If you read the fine print on those HIPAA forms, you’ll see in every case that they’re valid only for that network and typically, they expire every year,” Johnsen-Tracy said.

“So, if you don’t go in at the right time every year, then there’s a period of time where nobody has access to the information, or if you’re out of network no one has access to the information, which can be a major problem.”

Another problem with HIPAA authorization forms is that people only list their spouse or one adult child as the person to whom disclosure is authorized.

Johnsen-Tracy recommends that attorneys draft a more comprehensive HIPPA authorization form – one that authorizes disclosure to multiple people, applies anywhere in the U.S., and is good for two years after the death of the decedent.

The two-year period is important, Johnsen-Tracy said, to allow an attorney to access health records if a lawsuit arises from the death of the person who signed the authorization.

“Again, this is where more comprehensive estate planning really is important because of things people don’t think about,” Johnsen-Tracy said. “You think about HIPPA until it’s an issue, and then suddenly it’s a major issue.”

Attorneys should give their clients a copy of the HIPAA authorization and advise them to provide a copy of the form, as well as a copy of the POA. She also suggests that clients carry copies of those documents on a flash drive.

“Some of our clients carry that flash drive when they travel,” Johnsen-Tracy said. “Sometimes, they give copies to their kids.”

Procrastination is Common

“Waiting to transfer a family business is a big mistake. It can be a mistake on the attorney’s part not to encourage that discussion when they see the client.” John Horn, shareholder and co-founder of Horn & Johnsen, S.C.

The most common problem that John Horn confronts in his estate planning practice is procrastination. Some clients even put off estate planning until their cancer treatment is finished.

“That’s crazy,” said Horn, also a shareholder and co-founder of Horn & Johnsen, S.C. “The best time to do this is before things get worse than anticipated, so you have the power of attorney in place and the trust in place.”

“I’ve had people wait until just a few months or even days before they die to put a trust plan or another type of plan in place, and we wind up going to a bedside to do the signing.”

One client was on her deathbed deciding who the guardian of her minor children would be.

“Instead of concerning herself with family and grief, she has to go through all these legal machinations,” said Horn. “What a bad time. I feel terrible for people who wait that long.”

‘It Just Makes it Worse’

Horn, who’s been practicing estate planning since 1998, has personal experience with that type of procrastination, on the part of his brother.

“He died in 2003 at age 35, and his estate was such a mess,” Horn said of his brother. “He’d never come to me and talked about it. I said to myself, ‘I’ve got to help people do better than this for their family.’”

Horn’s brother left no written records about his property and bank accounts.

“It took us months to figure out what he had and where it was located, and then using various tools to get at the assets,” Horn said.

“And you’re going through a grieving process at the same time, which just makes it worse to be in the court system and trying to figure out those realities when it could have been much simpler for the family.”

Attorneys Procrastinate Too

Attorneys are often guilty of procrastination too, Horn said.

“I have people come into our office who say, ‘I hired you because I started with this other attorney and he never got back to me, and it’s been a year,’” Horn said.

Clients often fail to tell others about their estate plans. Horn said that can make it less likely the clients’ estate planning goals will be realized.

Horn cited his own parents, who did their estate plan in the early 1990s, as an example.

“They refused to tell me anything about it,” Horn said. “I had no idea where this thing was kept or what they intended to do or what I was supposed to do, if I was even named a participant in some way. They didn’t tell me anything until 2013.”

Special Needs Trusts

Too often, Horn said, a client excludes a relative with special needs from his or her will, on the assumption that because of the person’s incapacity, he or she won’t be able to access or control any money or other property.

The way to handle that situation is by setting up a special needs trust. But Horn said he’s seen more than one client with a special needs child bring him a will with no provision for a special needs trust.

“I can only conclude that the attorney was not really engaged fully in estate planning or didn’t know that there’s an option for a special needs trust or how to draft it,” Horn said.

Additionally, naming a special needs relative as an heir in a will can cause problems if that relative is receiving government benefits, because the inheritance can imperil the relative’s eligibility for benefits.

“Then, we have to go into court after the fact and do a WisPACT trust or a third-party trust,” Horn. “But that’s much harder and more expensive and more stressful and the outcome is not guaranteed.”

Another common mistake regarding heirs with special needs is leaving money to a different relative with instructions to use the money to benefit the heir with special needs.

“Well, if there’s a divorce, the person who received that money, that money is subject to the divorce, especially if they put it in a joint account,” Horn said.

He Who Hesitates May Be Lost

Estate planning clients with family businesses present special problems, Horn said.

“Waiting to transfer a family business is a big mistake,” Horn said. “It can be a mistake on the attorney’s part not to encourage that discussion when they see the client.”

Clients need to decide if they plan to close the business when they retire from running it or pass it along to a family member. Horn said that’s a decision that’s best made sooner rather than later.

“If you wait until you’re in your 70s, you’re probably already tired when you’re working on that business and it’s probably already losing some of its value and it will be harder to find a buyer,” Horn said. “Or maybe it’s growing in value, and now you’ve got an estate tax problem.”

Horn said that estate planning attorneys should also be aware of strategic planning issues posed by family businesses.

For instance, let’s say one child has been working in the business for a long time and the client’s only other main asset is their house. The client plans to leave the business to the child who’s been working in it but also wants to leave something for their other children. The client should consider taking out a life insurance policy to provide a source of income for the other children’s inheritance.

A strategic approach to that situation would have had the client buy life insurance long before they reach their golden years, Horn said.

“At age 77, the premiums on a life insurance policy are going to be crazy,” Horn said.

“But, if they’d come in at age 50, we could have said ‘If this is your only asset and you want to pass it along to your daughter and you want to pass an equal amount on to your son, we use liquid assets and we can create the liquidity with life insurance.”

Experience is Essential

Horn advises against dabbling in estate planning because of the complexities involved.

“No attorney can be a jack of all trades, and it’s silly to try and do something in an area of law that you don’t practice in frequently,” Horn said.

Horn pointed out that last year, estate planning cases were the biggest source of claims made to Wisconsin Lawyers Mutual Insurance Company, making up 26% of claims (plaintiff-side personal injury cases were next, at 13%).

“You need someone who really makes a study of estate planning,” Horn said.

CLE on Beneficiary Designations

Looking for more estate planning tips? Check out “Top 10 Mistakes Made with Beneficiary Designations 2023,” presented by State Bar of Wisconsin PINNACLE^®. John Horn and Dera Johnsen-Tracy are the presenters. 

The webcast program runs on select dates through January.