Irrevocable Trust for Wisconsin Estate Tax

This article discusses “Irrevocable Trust for Wisconsin Estate Tax (Gifting Strategies).”

Irrevocable trusts in Wisconsin enable beneficiaries to escape probate and various forms of taxes after the grantor passes away. If the grantor is still alive, his properties are passed to a trustee. The trustee is in charge of the assets' management. In most cases, once assets are deposited in a trust, they cannot be taken out, according to Wisconsin law.  

Asset Security  

According to Wisconsin law, if an asset is held in an irrevocable trust, it ceases to be the grantor's property. Land, securities, bonds, pension plans, and life insurance policies are examples of properties. This ensures that creditors are unable to seize the funds held in the trust. The assets of the grantor will not be publicly reported until the grantor dies and the estate will not go through probate. So no one would know what assets the individual had but the beneficiaries and the trustee. 

Implications for Taxation  

In Wisconsin, the grantor's estate is not subject to estate taxes. The grantor does not legally own any assets or have any assets in his possession when he dies. Properties are also exempt from capital gains taxes, which are levied on income made from the sale or trade of assets. Probate and the courts will not be included in the administration of the estate. Those properties can be considered gifts when they are transferred to the trust. Gift taxes apply to gifts worth more than $1 million.    

Independent Trustees  

Irrevocable trusts in Wisconsin are based on the idea of entrusting properties to the care and control of independent trustees. Trustees are bound by strict rules under Wisconsin law. The trustee is not permitted to use the trust for personal benefit, either directly or indirectly. She has to act in the grantor's and beneficiaries' best interests. She must take good care of the trust and supervise it, as well as behave prudently at all times. If she fails to do so and the trust fund causes damages, she will be held liable for breach of trust and will be required to reimburse the beneficiaries. 

Some Things to Think About  

Many people are apprehensive about handing over ownership of their properties to a third party. To discourage trustee mismanagement, Wisconsin requires grantors to apply a protection to their trust funds. To supervise the trustee, the grantor may nominate an impartial trust guardian. The trust guardian has the authority to appoint and dismiss trustees at any time. Without the trust protector's signature, the grantor can restrict how much the trustee can spend. For more information on setting up a trust in Wisconsin, read these 5 essential considerations at Setting Up a Trust in Wisconsin - 5 Things to Know.

Grandchildren's Estate Planning and Trusts  

Some of our grandparent clients want to assist their grandchildren in starting off on the right foot by assisting them with estate planning. When the gifted funds will not be used immediately for specific things such as a house purchase, a wedding, or college tuition and fees, trusts are often the chosen form of gifting. Setting up a revocable or irrevocable trust that the grandparent manages, or a Medicaid trust that would be safe from long-term care expenses after 5 years, is our preferred solution.  

The trust is then used to receive any future substantial gifts for a grandchild. The funds will be held in trust by the trustee of your choosing, who will be able to use them as you wish. A trust, for example, may require that the gifted funds be used for education or health-care expenses.  

If the grandchild has drug, creditor, or other vital problems, any funds left in trust will be distributed to the grandchild when he or she reaches a certain age, such as 25 or 30. In those cases, the trustee has the option of deferring the funds to a later date.

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For our article titled “Irrevocable Trusts for Estate Tax Planning, Gift Tax And Gifting Strategies Explained,” click here.

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