One of the most important facets of Wisconsin estate planning law is the Marital Property Act. This Act governs the property rights of married persons, both during life and at death.
The Wisconsin Marital Property Act provides that married persons may agree that upon the death of a spouse, either or both spouse’s property – including any after-acquired property – may be transferred without probate to a designated person, trust, or other entity. As a result, a Marital Property Agreement which directs how a married person’s assets are to be distributed can protect those assets from probate, if the asset is located in Wisconsin.
Perhaps the most effective way to make use of this type of provision (sometimes called “Washington Will Provisions” because a more limited version of the concept originated in the State of Washington) is to direct that such assets be transferred to a living trust upon death. Wisconsin is the only state in the nation which permits a living trust to be funded after the Grantor’s death while still avoiding probate.
Avoiding Capital Gains Tax
Under the Internal Revenue Code, the basis of property received from a deceased person receives an adjustment in basis (called a “step-up” if the value of the asset has increased since the date of acquisition) equal to the property’s fair market value at the date of death.
In Wisconsin, all marital property receives a full adjustment equal to the value of the property on the date of death of either spouse. Accordingly, marital property can help a surviving spouse avoid both state and federal capital gain taxes.
Unfortunately, this double step-up in basis is not automatic for Wisconsinites by mere fact of residence; spousal assets must actually be classified as marital property or survivorship marital property. Wisconsin’s marital property law took affect on January 1, 1986. Property owned by a married couple prior to that date is not necessarily classified as marital property. Likewise, property owned prior to marriage or received after marriage by gift or inheritance may not be treated as marital property. In most cases, the solution is to have a detailed and coordinated Marital Property Agreement to “opt-in” to the Martial Property Act that will allow the double step-up in tax basis.