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    Vol. 79, No. 11, November 2006

    Figure 1

    Steps to Avoid a Legal Challenge

    When designing an estate plan for an unmarried couple, these steps will help to avoid an undesirable challenge to the plan of disposition:

    • Always use a self-proving affidavit in wills.1
    • Take extra care in selecting witnesses. A witness called in especially for the occasion may be more likely to remember the specifics of the will-signing ceremony. Also, consider using three witnesses instead of two.
    • Put your office's will-signing formalities in writing and faithfully abide by them. If questioned, you will always have the written protocol and can attest that it was followed.
    • Keep a file of evidence that the testator acted competently and without influence.
    • When appropriate, a will may acknowledge the intentional omission of blood relatives, made after careful consideration. In limited situations, it may be wise for the testator to further explain his or her intent in the will, in his or her own words. Note that such a statement may invite a claim of testamentary libel. Generally, any explanation of intent should be a positive statement about persons included rather than a negative statement concerning persons excluded.
    • A "no contest" (or in terrorum) clause will be enforced in Wisconsin if the contestant lacked probable cause for the challenge.2 For the clause to be a true disincentive to a potential challenger, however, the testator must leave bequests to potential contestants.
    • Advancements and lifetime gifts are more difficult for family members to challenge than are testamentary bequests. Gifting may be especially appropriate for items of sentimental value.
    • Advise clients to consider a revocable living trust for its inherent advantages over a will in averting a legal challenge.

    1See Wis. Stat. § 853.04.

    2Wis. Stat. § 854.19.

    Figure 2

    Issues in Cohabitation Agreements

    When drafting a cohabitation agreement, attorneys should consider the following:

    • Is it possible for one attorney to jointly represent both partners or should there be separate representation?
    • What is the consideration supporting the agreement?
    • What are the assets and liabilities of the parties? Each party should be fully aware of the other's financial situation.
    • Will assets be co-owned?
    • Are there any coparenting issues?
    • How will the parties handle living expenses (mortgage payments, food, utilities, and so on)?
    • What happens when one of the parties dies or the relationship ends?
    • How will disputes be resolved? Is mediation or arbitration appropriate?
    • How do the parties feel about confidentiality, especially as to their respective assets and liabilities?
    • What happens if circumstances change? For example, what if one party gets a large inheritance, loses a job, or becomes disabled?

    Figure 3

    Cohabitation Agreement Scenario: "A Taxing Trade-off"

    The following example highlights the trade-off between income-tax and gift-tax liability.

    Heather is a high wage earner with many assets. Heather's partner, Larry, is a low wage earner with fewer assets. Heather and Larry pool their incomes and share living expenses in part to prevent Larry from drawing down his estate. Their arrangement creates gift-tax liability for Heather. They execute a cohabitation agreement based on mutual and adequate consideration. It obligates Heather to provide ongoing support to Larry in exchange for household and business services. Larry will owe income tax on payments received; however, Heather's obligation alleviates much of her gift-tax burden (subject only to questions as to the valuation of Larry's services). The agreement also defines Larry's property rights in the event of a dissolution or on Heather's death or disability. Meanwhile, acknowledgements made in the agreement reduce the likelihood that either party could raise a claim to invalidate its provisions, such as a claim of unjust enrichment1.

    1See Richard J. Langer & Linda Roberson, "Marital Property Agreements" § 9.135 (form cohabitation agreement), in Eckhart's Workbook for Wisconsin Estate Planners (State Bar CLE Books 4th ed., 2005 supp.).

    Figure 4

    Investment Property Scenario: "Larry the Landlord"

    In the example in Figure 3, rather than Heather paying income to Larry in exchange for services, the couple purchases an apartment building in Larry's name. Heather would play only an initial role. She could use some of her lifetime exemption to give Larry funds to buy the building, or perhaps guarantee the loan used to pay for it. Thereafter, the building would remain in Larry's estate, earning him both income and equity over time. Depreciation deductions could offset Larry's income-tax liability. Any unjust enrichment claim by Larry (based on his provision of services) would likely fail because of Heather's assistance in purchasing the building.