# Hostak, Henzl & Bichler, S.C.: full reference > The complete public text of https://hhb.com, in the order a reader would want it: who the firm is, who the attorneys are, what each practice area covers, and the Family Vision Experience articles in full. A Racine, Wisconsin law firm serving Southeast Wisconsin for more than 50 years. Generated 2026-09-12 from the same data the pages render from. ## Firm identity - **Legal name:** Hostak, Henzl & Bichler, S.C. - **Also known as:** HHB, Hostak Law; formerly associated with the hostaklaw.com domain - **Site:** https://hhb.com/ - **Detailed file:** https://hhb.com/llms-full.txt - **Short file:** https://hhb.com/llms.txt - **Citation policy:** https://hhb.com/ai.txt - **Phone:** (262) 632-7541 - **Fax:** (262) 632-1256 - **Office:** 840 Lake Avenue, Suite 300, Racine, WI 53403 - **Hours:** Monday to Friday, 8:00 a.m. to 5:00 p.m. - **Counties served:** Racine, Kenosha, Milwaukee, Walworth, Waukesha counties, Wisconsin - **Recognition:** AV Preeminent (Martindale-Hubbell) - **Not practiced here:** criminal law, patent law ## The Firm Source page: https://hhb.com/about/ ### The Firm Hostak, Henzl & Bichler, S.C. is a Wisconsin law firm focusing on the practice areas of real estate, family law, estate and tax planning, business law, probate and elder law. Our attorneys offer the expertise and high-quality legal services of a large law firm, with the personal attention and competitive value of a small firm. We have been located in Racine, Wisconsin for more than 50 years and continue to serve the community with integrity. ### Martindale-Hubbell AV Rating Martindale-Hubbell Law Directory, regarded as the primary research source for information about attorneys and law firms, recognizes Hostak, Henzl & Bichler for its high professional legal standards and ethics. The firm has earned an AV Rating in the Martindale-Hubbell Law Directory, therefore, ranking the attorneys high among its peers. The "A" signifies the highest level of legal ability, while the "V" denotes "very high" adherence to the professional standards of conduct, ethics, reliability and diligence. ### Robert R. Henzl (1936 - 2024) Bob practiced law for more than 60 years. He practiced in the areas of real estate transactions and development, estate planning, business transactions and tax matters. Bob's proudest achievement was drafting documents that clearly represented the intentions of the firm's clients and lead to a successful conclusion of the transaction. Bob had a reputation as a kind, generous person with a brilliant mind and fostered wonderful relationships with clients, some of which have lasted decades. Bob was a wonderful teacher and mentor to younger lawyers and staff. He approached every day with a positive "why not?" attitude. Bob loved the law and worked full-time until his death. Bob will be remembered for his great love for his family, his steady and calm demeanor, his sense of humor, and his dedication to his community. ### Kenneth F. Hostak (1930-2005) Ken loved the challenge of municipal law but beyond his competence in the law was a solid human being. As Dennis Kornwolf, former Racine County Executive, said at the time of Ken's retirement, "He's a man with probably the highest degree of integrity I've ever met. And I don't throw those comments out loosely." That's the Ken Hostak we all know and will always remember. A devoted husband, father, and grandfather, an outstanding professional, a man of the highest ethical standards, and a friend. ## Attorneys The roster page is https://hhb.com/about/. Each attorney below has a full biography at their own address. ### Jessica A. Grundberg, Shareholder Page: https://hhb.com/our-attorneys/jessica-a-grundberg/ Focus: Estate Planning, Charitable Planning, Family Law, Divorce, Child Custody. Jessica A. Grundberg joined Hostak, Henzl & Bichler, S.C. in February 2005. She spends about half of her time in family law and the other half in estate planning work. Her family law practice includes divorce, maintenance and alimony, legal separations, paternity, child support, child custody, visitation, adoption, grandparents’ rights, premarital agreements, post-judgment collections, and limited scope representation. Jessica understands that family law matters are often difficult and emotionally charged. She works to help clients move toward a more positive future through a practical, results-based approach, including calm negotiated resolutions when possible and determined courtroom advocacy when needed. In her estate planning practice, Jessica uses the Family Vision Experience tools to help clients create a meaningful vision for their future and build a legacy for future generations. She helps clients understand their current position, identify dangers and opportunities, clarify goals, and develop understandable plans crafted to implement those objectives. Jessica earned her J.D. cum laude from the University of Wisconsin Law School in Madison in 2004 and her B.A. in Environmental, Population and Organismic Biology from the University of Colorado in Boulder in 1999. Her professional memberships include the State Bar of Wisconsin, Racine County Bar Association, and American Bar Association. She has also served as a past member and past board member of Family Service of Racine. **Current Employment Position** - Shareholder **Areas Of Practice** - Estate Planning - Charitable Planning - Family Law - Divorce - Maintenance/Alimony - Legal Separations - Paternity - Child Support - Child Custody - Visitation - Adoption - Grandparents Rights - Premarital Agreements - Post Judgment Collections - Limited Scope Representation **Bar Admissions** - Wisconsin, 2005 **Education** - University of Wisconsin Law School, Madison, Wisconsin, 2004, J.D., cum laude - University of Colorado, Boulder, Colorado, 1999, B.A. - Environmental, Population and Organismic Biology **Professional Associations and Memberships** - State Bar of Wisconsin - Racine County Bar Association - American Bar Association **Family Service of Racine** - Past Member, Past Board of Directors **Background** ### Stephen J. Smith, Shareholder Page: https://hhb.com/our-attorneys/stephen-j-smith/ Focus: Estate & Tax Planning, Business Succession Planning, Charitable Planning. Steve Smith created The Family Vision Experience so clients can genuinely understand their estate planning choices and make good decisions. His work uses carefully structured steps, simple diagrams, tailored client articles, and screen-side working sessions to help clients complete projects quickly and confidently. The wills, trusts, succession plans, charitable tools, and related documents Steve develops are based on original planning concepts refined through real-world client experience. His process is designed to help clients pull the full picture together, see the tradeoffs, and own the plan they choose. Steve’s work often centers on trusts, estate planning, charitable planning, and family business succession planning. He combines legal judgment with practical tools that make complex planning easier to understand. Before law school, Steve worked from 1971 to 1973 in the Chicago office of Arthur Andersen & Co., auditing large corporations and financial clients. He earned his J.D. cum laude from Northwestern University Pritzker School of Law in 1976 and his B.A. magna cum laude from Luther College in 1971. Steve also created The Senior Estate Planning Clinic for seniors who need basic estate-planning documents but might not otherwise meet with a lawyer because of cost. Through the clinic, HHB prepares simple wills, health care powers of attorney, and financial powers of attorney for a nominal flat fee, then donates the fee to The Fund for Seniors at the Racine Community Foundation. **Current Employment Position** - Shareholder **Areas Of Practice** - Estate Planning - Business Succession Planning - Charitable Planning **Bar Admissions** - Wisconsin, 1976 **Education** - Northwestern University Pritzker School of Law, Chicago, Illinois, 1976, J.D., cum laude - Luther College, Decorah, IA, 1971, B.A., magna cum laude **Background** **The Family Vision Experience** **Pro Bono** ### Susan M. Perry, Shareholder Page: https://hhb.com/our-attorneys/susan-m-perry/ Focus: Family Law, Elder Law, Estate Planning, Adoption. Sue Perry brings a unique combination of professional and life experiences, education, and training to the practice of law. Her work includes family law, elder law, estate planning, and adoption matters. Her family law practice includes divorce, legal separation, paternity, child custody, placement and visitation, child support, maintenance, post-judgment matters, pre-divorce planning, third-party visitation or placement, marital property agreements, and limited scope representation. Her elder law and estate planning work includes Title XIX and medical assistance planning, planning for the later stages of life, guardianships, wills and trusts, alternatives to probate and trusts, health care powers of attorney, and durable financial powers of attorney. Sue earned her J.D. cum laude from Marquette University Law School in 1986, a Master of Social Welfare from the University of Wisconsin-Milwaukee in 1978, and a B.S. in Liberal Arts and Sciences from the University of Illinois with a psychology major and math minor. For more than 20 years, Sue has used her legal training, social welfare background, and continuing education to help clients navigate complex life transitions. Her professional memberships include the American Bar Association, State Bar of Wisconsin, and Racine County Bar Association. Her community board memberships have included the American Red Cross Lakeshore Chapter, Big Sisters, Center for Community Concerns, Dispute Settlement Center, Family Service of Racine, Homeward Bound of Racine, Racine Literacy Council, and Women’s Resource Center. She also served on the editorial board for the State Bar of Wisconsin Family Law Systems Book in 2010-2011. **Areas of Practice** - Family Law - Divorce - Legal Separation - Paternity - Child Custody/Placement/Visitation - Child Support - Maintenance/Spousal Support/Alimony - Post Judgement Matters (Enforcement of and Revisions to Current Orders) - Pre-Divorce Planning/Consultation - 3rd Party Visitation/Placement, including Grandparent Rights - Pre- and Post-Marital Agreements/Marital Property Agreements - Limited Scope Representation - Elder Law - Title XIX/Medical Assistance Planning - Planning for the Later Stages of Life - Guardianships - Estate Planning - Wills/Trusts - Alternatives to Probate and Trusts - Health Care Powers of Attorney - Durable Financial Powers of Attorney - Adoption **Current Employment Position** - Shareholder **Background Summary** **Education** - Marquette University Law School, Milwaukee, Wisconsin, 1986, J.D., cum laude - University of Wisconsin-Milwaukee, 1978, Master of Social Welfare (MSW) - University of Illinois, Urbana, B.S. in Liberal Arts and Sciences, Major: Psychology; Minor: Math **Additional Relevant Training and Experiences** - Collaborative Divorce Training - Mediation Training - Advocate and Case Manager in the area of Developmental Disabilities **Bar Admissions** - Wisconsin, 1986 - U.S. Federal Court, 1986 **Professional Associations and Memberships** - American Bar Association - State Bar of Wisconsin - Racine County Bar Association **Community Board Memberships Have Included** - American Red Cross (Lakeshore Chapter) - Big Sisters - Center for Community Concerns - Dispute Settlement Center - Family Service of Racine - Homeward Bound of Racine - Racine Literacy Council - Women’s Resource Center **Additional Information** - Editorial Board Member, State Bar of Wisconsin Family Law Systems Book, 2010-2011 ### James W. Hill, Of Counsel Page: https://hhb.com/our-attorneys/james-w-hill/ Focus: Corporate Law, Probate, Estate Planning, Creditor’s Rights, Guardianship. James W. Hill is of counsel to the firm, with a practice that includes corporate law, probate, estate planning, creditor’s rights, guardianship, and selected litigation matters. He was admitted to the Wisconsin bar in 1973. He attended Harvard University Law School in Cambridge, Massachusetts, and earned his B.A. from Luther College in Decorah, Iowa. James was born in La Crosse, Wisconsin, in 1944. His board memberships have included Careers Industries. **Current Employment Position** - Of Counsel **Areas Of Practice** - Corporate Law - Probate - Estate Planning - Creditor’s Rights - Guardianship **Litigation Percentage** - 10% of Practice Devoted to Litigation **Bar Admissions** - Wisconsin, 1973 **Education** - Harvard University Law School, Cambridge, Massachusetts - Luther College, Decorah, IA, B.A. **Board Memberships** - Careers Industries **Birth Information** - 1944, La Crosse, Wisconsin, United States of America ## Practice areas The practice index is https://hhb.com/our-practice/. ### Business Law Page: https://hhb.com/our-practice/business-law/ The business law attorneys at HHB work with organizations of all sizes on a wide range of legal issues. The firm combines the expertise of a large firm with the value and timely service found in a smaller firm. **What this area covers** - Entity formation and governance - Corporations, limited partnerships, and LLCs - LLC operating agreements and by-laws - Board representation - Business agreements and contracts - Employment, severance, non-compete, licensing, distribution, confidentiality, non-disclosure, and supply agreements - Letters of intent - Supervision of due diligence - Contract negotiation - Secured transactions, including UCC Article 9 - Purchases, transfers, mergers, and acquisitions - Business succession - Financing **Entity Formation and Governance** We not only help you achieve limited liability, we help you keep it. HHB attorneys guide for-profit and non-profit business entities from creation to dissolution, and advise owners, directors and managers on all aspects of organizational governance. - Corporations - Limited Partnerships - Limited Liability Companies (LLCs) - LLC Operating Agreements - By-laws - Board Representation **Business Agreements / Contracts** The business law attorneys at HHB view contracts as the best way to help our clients make order out of chaos. We provide practical advice and solutions on both routine contract matters and unique business opportunities. Review & Drafting of: - Employment Agreements - Severance Agreements - Non-Compete Agreements - Licensing Agreements - Operating Agreements - Distribution Agreements - Confidentiality Agreements - FTC Compliance (Franchise Agreements) - Non-Disclosure Agreements (NDA) - Letters of Intent - Supply Agreements - Supervision of Due Diligence - Contract Negotiation - Secured Transactions, including UCC Article 9 **Purchases and Transfers** Our attorneys have significant experience in mergers and acquisitions, guiding hundreds of clients through the acquisition or sale process. HHB attorneys have been involved in transactions ranging from $10,000 to $100 million, so we know that no two deals are alike. Let us show you how we can add value to your transaction team. - Mergers & Acquisitions - Asset Purchase Agreements - Stock Purchase Agreements **Succession** A smooth transition is essential to the continued success of a business, and this can only be accomplished through proper planning. Through our succession planning services, we provide individualized structures for organizations that are looking inward to find their next generation of leaders. - Business Succession - Ownership Succession - Management Succession - Employee Ownership - Stock Transfer Agreements - Buy-Sell Agreements **Financing** Our attorneys represent both borrowers and lenders in drafting and reviewing commercial loan documentation. When companies desire to expand or strengthen their financial position without looking to the conventional loan market, we work with both private equity investors and companies seeking those capital infusions. When our clients’ customers and borrowers stop paying, we assist in the collection process. And we do all of this with the service and value you expect from a smaller firm. - Banking - Financing - Commercial Lending - Private Equity Financing - Business Collections ### Elder Law Page: https://hhb.com/our-practice/elder-law/ HHB elder law attorneys assist families with the legal planning issues that arise in the later stages of life, including benefit eligibility, long-term care planning, guardianship, and protective planning. **What this area covers** - Title XIX and medical assistance planning - Medicaid - Planning for the later stages of life - Medicare - Divestment and gifting - Social Security planning - Elder abuse - Guardianships **Elder Law Services** Our Elder law attorneys can assist in the following areas: - Title XIX/Medical Assistance Planning - Medicaid - Planning for the Later Stages of Life - Medicare - Divestment (Gifting) - Social Security Planning - Elder Abuse - Guardianships ### Estate & Tax Planning Page: https://hhb.com/our-practice/estate-tax-planning/ In guiding clients through the estate planning process, HHB brings deep experience and practical tools to help visualize the potential "what ifs" that may not have been considered. We listen carefully to concerns and goals before recommending next steps and tailoring the tools we have developed to each client’s needs. **What this area covers** - Wills and trusts - Other estate planning tools - Durable powers of attorney - Health care powers of attorney - Marital property agreements - Disposition of remains - Advanced tax and other planning - Advanced charitable planning - Business succession - Probate and other post-death administration **Articles on Estate Planning** As estate planning attorneys, we have developed a unique, user-friendly process called The Family Vision Experience. We help you create and implement a vision to enrich and empower your family and to build a legacy for future generations. - The Family Vision Snapshot/Timeline - Protecting a Child (or Grandchild) in the Event of Divorce - Perspective on Estate Taxes for Wisconsin Residents **Wills & Trusts** Many clients can handle their estate planning needs in economical fashion with a will. Wills, sometimes called pour-over wills, are also used in conjunction with revocable trusts. Increasingly we use revocable living trusts as the main engine of estate planning, and we always use them in the case of larger estates. We are experienced with their creation and funding, and we work closely with the client’s other advisors to ensure effective coordination. **Other Estate Planning Tools** We never create a will or trust for a client without also considering other tools which we routinely use to help the clients maximize their control over their unique situation. - Durable powers of attorney - Health care powers of attorney - Marital Property Agreements - Disposition of Remains **Advanced Tax and Other Planning** - Multi-Trust Provisions - Total Return Trusts - Family Limited Partnerships - Life Insurance Trusts - Generation-Skipping Trusts - Lifetime Gifts **Advanced Charitable Planning** - Charitable Remainder Trusts - Designating the Right Asset to Pass to Charity at Your Death - Family Foundations and Creating Funds within a Community Foundation **Estate Business Succession** - Management Succession - Ownership Succession **Probate & Other Post Death Administration** Transfer of property at death, even under a will, does not necessarily require a full probate. Often other, more summary court procedures allow us to help the client minimize the time and cost. In other cases, where clients have used revocable living trusts and followed our instructions, there is no probate, but what is still to be done, for example closing out the trust and filing final tax returns, is handled as post-death administration or trust administration. ### Family Vision Experience Page: https://hhb.com/our-practice/family-vision-experience/ As estate planning attorneys, HHB developed a unique, user-friendly process called The Family Vision Experience. The process helps clients create and implement a vision to enrich and empower their family and build a legacy for future generations. **What this area covers** - Total Return Trusts - Estate Planning - Inheritances - Loose Trusts - WisPACT - Charitable Remainder Trusts (CRUTs) - Family Vision Snapshot/Timeline - Protecting a Child (or Grandchild) - Estate Taxes for Wisconsin Residents **Family Vision Experience Articles** Steve J. Smith has developed a unique, user-friendly process called The Family Vision Experience. We help you create and implement a vision to enrich and empower your family and to build a legacy for future generations. - Thinking About Doing Estate Planning - The Family Vision Snapshot Timeline - The Inheritance Hypothesis - Perspective on Estate Taxes for Wisconsin Residents - Protecting a Child or Grandchild in the Event of Divorce - Charitable Remainder Trusts (CRUTs) - Total Return Trusts - Why Some Clients Are Using LOOSE Trusts - Why I Prefer WisPACT for Special Needs Trusts ### Family Law Page: https://hhb.com/our-practice/family-law/ The family law attorneys at HHB understand that few experiences are more stressful than divorce and other family law matters. We provide caring, professional service aimed at helping clients leave in a better position than when they came, with a realistic understanding of the case and potential outcomes. **What this area covers** - Divorce - Legal separation - Paternity - Maintenance and alimony - Child support - Child custody and placement - Visitation - Property division and division of debt - Adoption - Grandparent rights - Pre- and post-nuptial agreements - Post-judgment enforcement and revision - Mediation - Limited scope representation - Cohabitation agreements **Family Law Services** The family law attorneys at HHB understand that few experiences in life are more stressful and difficult than divorce and other family law matters. That’s why we provide caring, professional service aimed at helping you leave in a better position than when you came. We navigate challenging decisions with skill and dedication, from uncontested divorces with few assets and no children to complex property divisions involving significant assets, contested placement or custody issues, maintenance, support, or any combination. At HHB, we work to provide you with a realistic understanding of your case and potential outcomes to help you make informed decisions and move forward with confidence. - Divorce - Legal Separation - Paternity - Maintenance / Alimony - Child Support - Child Custody / Placement - Visitation - Property Division / Division of Debt - Adoption - Grandparent Rights - Pre- and Post-Nuptial Agreements - Post Judgment Enforcement / Revision - Mediation - Limited Scope Representation - Click Here for Sample LSR Forms - Cohabitation Agreements ## The Family Vision Experience articles These are the firm's own estate-planning essays, published under https://hhb.com/our-practice/family-vision-experience/ and reproduced here in full. ### Charitable Remainder Trusts (CRUTs) Page: https://hhb.com/our-practice/family-vision-experience/charitable-remainder-trusts-cruts/ By Stephen J. Smith. Key learning over a career of estate planning: almost everyone should consider a charitable remainder trust as part of their estate plan. In creating well defined rules, Congress created highly useful planning opportunities: In 1969 Congress passed legislation meant to reform an area of abuse – where one creates what I like to call a split interest trust – one that benefits a private individual and then the remainder passes to charity or one that benefits a charity and then the remainder passes to a private individual. Congress believed that in reality, the taxpayer often overstated the benefit accruing to the charity and understated the benefit to the private individual, so it made up a new rule. What follows is an oversimplification to give you the main idea. The new rule was that to create a split interest gift, you have to fit within well-defined requirements, the most widely used one of which is the charitable remainder trust. A charitable remainder trust benefits one or more people by providing that they will receive a defined distribution, most typically a % of the value of the trust computed as of the beginning of each year. The % must be at least 5%. There is no averaging – each year is computed based only on its beginning market value. Another requirement added a few years ago is that the present value of the charity’s benefit must be at least 10% of the value of the trust when it is created. The charitable remainder trust may run for the life of one or more people or for a term of up to 20 years. Instead of a 5% or greater payout (charitable remainder unitrust or “CRUT” for short), it is also permissible to lock in a flat, never-changing dollar amount to be paid each year (charitable remainder annuity trust or “CRAT” for short), The rest of this section discusses the charitable remainder unitrust. If the charitable remainder unitrust distributing the minimum of 5% can be invested to earn a total return exceeding 5%, after all expenses, then it will gradually grow, and the recipient will receive a greater distribution each year. If the investments decline in value, so would the distribution the next year, and so forth, making the trust self-adjusting. Here are the two economic anomalies of charitable remainder trusts: Even though nothing is paid to the charity until after the lifetime beneficiary has died, you (the person creating the CRUT) still receive an immediate income deduction for that part of the total value of the property contributed to the CRUT equal to the present value of the charity’s right to eventually receive the remainder. The anomaly is there is no charitable benefit until after the lifetime recipient dies, but the deduction is obtained immediately. Even though nothing is paid to the charity until after the lifetime beneficiary has died, the income of the CRUT itself is, with certain exceptions, reported and tracked but not subject itself to income tax. As distributions are made to the lifetime recipient, they are treated as income according to the income inside the trust, starting first with ordinary income, ultimately capital gains and so forth. The anomaly is that although the present value of the non-charitable interest in the CRUT could be well more than half (up to 90%) of the total value, NONE of the income inside the CRUT is ordinarily taxed at the CRUT level – only the distributions to the lifetime recipient. These anomalies are the “gimmick” aspect of the CRUT that makes it especially attractive, after considering taxes. We could almost fill a small book on its own about the uses and strategies of charitable remainder trusts and related trusts, but here are a few key ideas. Starting a CRUT During Lifetime One key use of a charitable remainder unitrust is to transfer property to it during your lifetime and reserve the right to the 5% distribution until you (and your spouse) have died, with the remainder passing to the charity(ies) you designate. You often can be your own initial trustee (designating a back-up for when you die), if you prefer. Sometimes you will transfer to it an investment where you anticipate that the investment be sold by the CRUT after the contribution (as a separate, independent transaction), avoiding tax on the gain and deferring gain at the CRUT level (only the distributions from the CRUT are taxed). If you are planning to leave a large part of your estate to charity when you die, starting with a CRUT during your lifetime gives you the ability to transfer a portion of your estate to a trust to pay you 5% for life and harvest an income tax deduction for the present value of the charity’s remainder interest, something you are planning to do anyway. You can add a special provision giving you the right to change your mind which charities are to receive the remainder when you die and in what proportions. I have clients who have done this and revise the beneficiary designation each time they change their main estate plan. Starting a CRUT at Death When you follow this approach, your will or trust contains the CRUT provisions in it, and you inherently retain the right to change your mind. One use might be to put part of an adult child’s inheritance in a CRUT as the ultimate safety net, since the amount to be distributed is fixed (5% – or whatever % you select – no more, no less), and a third party charity exists to block any invasion of principal. Another use might be where you are, say, 75 years old and want to make a generous gift to a contemporary such as a friend or sibling, and a good portion of the rest of your estate will pass to charity. Instead of leaving the money outright to your contemporary, you leave it to a CRUT to pay the beneficiary a lovely stream of payments for life, and then the remainder (hopefully more than what was there when you died) passed to the charity you designate. You even receive a charitable deduction from estate taxes for the present value of the charity’s remainder interest. CRUTS have a kissing cousin – the charitable gift annuity. A CRUT is always a free-standing trust, and the lifetime beneficiary can only look to the CRUT for payment. Some larger charities offer a charitable gift annuity, where there is no separate trust and the donor pays a certain amount to a charity and receives a contractual right to an annuity for life. Here the charity is acting just like a life insurance company (and is typically regulated by the state), but the annuity is typically less than what an insurance company would pay (the difference being the charitable component for which a deduction is obtained when the charitable gift annuity is created. Because the donors will be a general (unsecured) creditor of the charity, depending on its full faith and credit for the their receipt of the annuity in their retirement years, they should look into the financial condition of the charity. Typically, smaller amounts are involved in setting up a charitable gift annuity, less than what would be needed for a CRUT to make sense. It is not unusual for a retiree to purchase more than one charitable gift annuity from the same charity over the years. Example: John, age 75, is thinking about leaving $200,000 to each of three cousins, and the rest of his estate passes to a charity which he deeply loves and wants to benefit as much as possible. Instead he leaves $600,000 to a CRUT to pay 5% to the three cousins (all of whom happen to be his age) for life, remainder to his charity. He can change his will , but if this plan is in force at his death and he died in March, 2012, the estate tax deduction for the plan would be about $260,000. The cousins are stunned by the generous gift. After they have all died, the charity receives whatever the $600,000 has grown to, money it would never otherwise have seen. Example: A married couple has $3 million in assets and a son, age 50. They have helped him over the years. The cycle of help seems to repeat. He has been employed but is currently “looking.” The existing wills leave everything to him in trust until he reached certain ages, all of which he has now passed. From the $3 million he stands to inherit they carve out $1 million and provide in their wills for a CRUT of that amount to pay him 5% for life, remainder to a charity. They can always change their mind before they die. When they die, the trust cannot be invaded, and the charity is there to defend its interest. If the investments in the CRUT do well, the distribution will gradually grow, we hope keeping pace with inflation. The result is the ultimate safety net for part of the son’s inheritance, giving the parents peace of mind. © 2014 ### Perspective on Estate Taxes for Wisconsin Residents Page: https://hhb.com/our-practice/family-vision-experience/perspective-on-estate-taxes-for-wisconsin-residents/ By Stephen J. Smith. In 1976, the lifetime exemption from Federal estate taxes was $60,000. By 1987 the exemption was $600,000. By the time President George W. Bush had taken office, it was scheduled to increase to $1 million by 2006, but in the summer of 2001, Congress enacted scheduled increases in the exemption to $3,500,000 by 2009. That legislation also called for a one-year repeal of the estate tax in 2010, after which there was a sunset provision taking us back to the $1 million exemption. We spent the entire decade trying to figure out where federal estate taxes were headed. At the very end of 2010, Congress kicked the can down the road two more years, with a surprising increase in the exemption to $5 million. More significantly, for the first time in the history of the estate tax, Congress tied the amount of the exemption to inflation. Congress also added portability. Portability means that in the case of a married couple, if one spouse dies and does not use all of his or her exemption, then the surviving spouse may use it at his or her subsequent death, provided that he or she has not remarried. The problem was that the 2010 legislation expired at the end of 2012, once again potentially taking us back to the $1 million exemption and all the other “old rules.” As you can see, from 2001 through the end of 2012, uncertainty reigned. In the opening days of 2013, a new law was enacted which essentially made permanent the changes that had been made at the end of 2010, such that each person has an exemption which, taking into account inflation since 2010, is $5,340,000 for 2014, portability for married couples is made permanent, and everything over the exemption amount is taxed at 40%. In 1976, Wisconsin had an inheritance tax which often applied to persons with estates smaller than the amount at which the federal estate tax would apply. Later, Wisconsin followed the lead of almost every other state in switching to a Wisconsin estate tax which only applied to the extent there was a federal estate tax, and then only to the extent that there was a credit, dollar for dollar, on the federal return for the amount of the Wisconsin estate tax. This meant that once the Wisconsin ESTATE text was enacted, there was never any net out-of-pocket cost to the Wisconsin tax. When the major changes were in acted in the federal tax in 2001, the credit for Wisconsin tax was phased out, effectively eliminating any estate tax in the State of Wisconsin. Although Wisconsin extended the Wisconsin estate tax for a few years with a temporary patch, that provision has now expired, and because of the structure of the federal estate tax law, as a practical matter there is no Wisconsin tax, and there is nothing on the horizon to indicate that this will change anytime soon. As a result of these important changes which are finally made permanent, we can once again work on estate planning from a tax perspective with a degree of certainty not possible during the prior 12 years. Also, many clients will no longer need to take federal estate tax into account when doing their estate planning, often resulting in simpler documents. One very significant impact of the higher exemptions and portability is that in the case of married couples where one spouse has a very large IRA, or it is now much easier to take full advantage of the exemptions of both spouses than before portability. Very little has been written about this key advantage under the new law. The real net effect of these changes in the estate tax laws is that clients can focus their attention where it always should have been: on nontax aspects of planning for their loved ones. © 2014 ### Protecting a Child (or Grandchild) in the Event of Divorce Page: https://hhb.com/our-practice/family-vision-experience/protecting-a-child-or-grandchild-in-the-event-of-divorce/ By Stephen J. Smith. In a hypothetical case, imagine that a married couple has a 25-year-old son living in Wisconsin. The son has a girlfriend and is in a stable relationship with her. Marriage is not on the immediate horizon. The girlfriend has career aspirations that could require significant investment. She also has significant student loans. From the perspective of the parents of the son, there is the danger, if they suddenly died, leaving $1 million outright to the son or in a trust for a relatively short term based on achieving ages like 25 or 30, that a significant part of the inheritance might be lost, one way or the other. Dangers in order of likelihood could include: the son could quit his job or studies in reliance upon receipt of the inheritance the son could blow the money or see a significant part diverted to the girlfriend the son, later married, could be divorced and lose half of what’s left in a divorce although least likely to occur, the son could at some future time incur debtor/creditor problems and lose the money in a bankruptcy or the like Before Marriage. Under Wisconsin Law, the mere fact that the son is living with his girlfriend would not cause the girlfriend to have a legal interest in the son’s money, so long as he kept it titled in his own name. Individual Property . . . To Start. If the son were later to marry, assets which the son inherits start out as his individual property (not marital property), such that he would be entitled to receive 100% of his individual property in the event of a divorce, absent a hardship on his spouse or the children of the marriage. The problem is that under Wisconsin law, the general rule is that income from individual, inherited property is marital property. Unless the son were careful to segregate the income from the original principal (rather than letting the income compound in the same account), the son will have commingled the income (in which his wife has an interest) with the principal. Under Wisconsin Law, unless you can prove by tracing which is income and which is principal, everything is converted to marital property. Who keeps adequate records to go back and figure this out after a number of years have passed? An additional concern is that over time, the son might re-title his inherited property to include his spouse or might invest a significant portion of his inherited property in a joint asset, such as a marital home or jointly owned brokerage account. This re-titling or other evidence suggesting the son intended to make a gift of the inherited property to his wife could convert the inherited property to marital property. With respect to appreciation of inherited property, for example, the appreciation of an inherited vacation home, the appreciation is marital property to the extent the appreciation is attributable to the effort of the son or his spouse (for example, if they put in their own labor or jointly owned funds to remodel it). To the extent it is marital property, the wife could be entitled to half of it in a divorce, and the son could only dispose of his one-half of the marital property at his death (the other half belonging to his wife). Unilateral Declaration. One technical solution which the son could implement would be to give his wife a prospective unilateral declaration in writing stating that he has chosen to treat the income from his individual property as also being his individual property. We are only talking about how to classify the INCOME from the property; the unilateral declaration has no impact on whether a particular asset is the son’s individual property. Its sole use is to provide a way for the son to take property which for purposes of this discussion is admittedly his individual property and declare to his wife in writing that the INCOME from that particular property shall not be marital property (as it would be, ordinarily, under the statute) but rather shall be classified as his individual property, as well. In all my years of practice, I have never seen a client actually do this, and one wonders what impact that declaration would have upon the relationship of the son and his wife! While it seems none of us has seen actual cases involving the statute, the statute is nonetheless there as a theoretical option. Marital Property Agreement. The son and his wife, of course, could at any time under Wisconsin law sign a marital property agreement, which would classify property according to their wishes. In order for this marital property agreement to stand up in the event of a divorce, however, it would be necessary for the son and his wife to each be represented by separate legal counsel, for them to have made full and fair disclosure to each other of all their assets and liabilities, and the marital property agreement must be fair at the time it was entered into and at the time of the divorce. How likely is it that the parents can count on their son and his wife to (a) do this after their death, and, (b) for them to be able to actually reach agreement (since it takes two to tango)? Furthermore, most married couples tend to disregard the marital property agreement over time and end up converting property originally classified as individual property under the marital property agreement into marital property by actions such as purchasing a home with the inherited money and titling it as marital property or other form of joint ownership. (See “Individual Property . . . To Start,” above.) Parents Create Trust. The easiest and most effective way the parents can insulate an inheritance of their son from the dangers described above is to put it in trust. There are really two kinds of dangers that need to be addressed by the trust. The first one is the danger of the son blowing the money improvidently. This requires a third party trustee, almost by definition. The second danger is attack by a third party on the money, such as a divorcing spouse or a creditor. This does not necessarily require a third party trustee, but the protection is greater if you do have a third party trustee. With that as background, there are two continuums to be considered: The first continuum is who will be the trustee: the son is sole trustee perhaps there is a friendly individual trustee perhaps a bank is trustee but the son is Trust Protector (has the right to unilaterally replace one bank as trustee with a different bank as trustee) a bank is trustee and no right of the son as Trust Protector to change banks The second continuum is what will be the terms of the trust (as to the level of flexibility in the payouts): the trustee has complete discretion to decide how much income and principal to distribute the trustee has discretion as to how much income and principal to distribute, but ascertainable standards are given such as health, education, support and maintenance the trust allows for distribution of income but no distribution of principal, except perhaps only a very narrow provision for genuine emergencies of a an extreme nature the trust calls for a flat payment of income and no discretion to distribute principal under any circumstances same as (d) except instead of distributing income, a fixed percentage of the market value of the trust is distributed each year (say anywhere from 3% to 5% per year), remainder to family (total return trust) the trust pays out 5% or more as the market value each year to the son for life, remainder to charity (charitable remainder trust) It is very important to realize that you don’t have to do just one approach. Perhaps the best approach is to diversify your approaches by layering several different approaches. Example. Assume the parents die suddenly and their 25-year-old son described above stands to inherit $1 million. Again, the dangers they face are: the son could quit his job or studies in reliance upon receipt of the inheritance the son could blow the money or see a significant part diverted to the girlfriend the son, later married, could be divorced and lose half of what’s left in a divorce although least likely to occur, the son could at some future time incur debtor/creditor problems and lose the money in a bankruptcy or the like Consider a simple layering strategy: outright gift to the son of – $100,000 “private” total return trust of – $500,000 charitable remainder trust of – $400,000 Total = $1,000,000 Here is how we arrived at the three-way split. The outright part would be a nice initial gift, and it could easily be used, for example, to help with the purchase of a home, and yet it is not big enough to be an incentive to quit a job. As for the portion to go into a trust, the other two parts were designed so that each was big enough to justify naming a bank as trustee of the trust. We did two trusts rather than one because each of the two trusts has certain advantages. The total return trust can be made more flexible, allowing for discretionary distributions of principal if there are true emergencies or otherwise compelling reasons. If the trust runs for the son’s life, it also has the benefit of growing and then potentially passing tax free to the next generation. The charitable remainder trust has its own advantages. The big advantage is that the charitable remainder trust is the ultimate safety net. The key is the presence of a third party (the charity) and the strict IRS rules on the requirements to set up a charitable remainder trust. As a result, there is no ability to invade the trust. No creditor of the son, for example, could invade the trust. There is nothing the son could do to attempt to force the trustee to make other distributions beyond the 5%. There should be a modest charitable deduction for the present value of the charity’s right to eventually receive the remainder. Total Return Trust. The total return trust would pay 4% of the market value each year (average of the last three years) to the son for life, such that the trust would escape estate taxes when he dies (generation-skipping trust). Principal could not be distributed from the trust except perhaps to leave a safety valve for emergencies, but it would be a narrow exception, or in some cases, the parents may decide it’s better not to have an exception. If the trust were to allow the son to withdraw principal beginning at some point (reaching a certain age, for instance) and the son died before the trust had been completely withdrawn, the trust would provide default provisions for who would inherit the property at the son’s death (for example, a sibling who survives the son). However, you would probably want to give the son a broad “power of appointment” whereby the son has the right to redirect how and when the property passes at his death. All of the same would be equally true if the trust were a generation-skipping trust which ran for the life of the son. Optional End of Trust During Son’s Lifetime. Finally, the parents might decide not to have the trust run for life but rather just run for an extended period of time, say, 30 years, after which, say, the son could withdraw up to one-fourth of the principal every five years, beginning 30 years after the parents have died. The parents might conclude that by that time, many of the dangers will have significantly attenuated. Charitable Remainder Trust. The charitable remainder trust is defined largely by statute and requires by statute that the payout be at least 5% per year, I do not recommend a payout of more than 5%, because I worry about the purchasing power of the payout from the trust diminishing each year due to inflation, if the starting percentage payout is too high. Here, the payout would be for life, there would be a charitable deduction from the estate tax for the present value of the remainder interest payable to the charity (not large, in the case of a 25 year old), and the parents would designate the charity, but if they wanted to do so, they could give their son the power to change the identity of the charitable remainder man. The charitable remainder trust is the ultimate safety net from creditors, because the presence of the charity as remainder man makes it impossible for creditors to attack the principal of the trust. Lots of Ways to Layer an Inheritance. The example as to the split among these three pieces is simply illustrative of a three layer strategy. There is an infinite number of variations on these ideas, and there certainly is no requirement that there be a charitable remainder trust as part of the entire package, but at least this illustration allows the reader of this article to begin to imagine the possibilities. For further exploration: We can illustrate, by spreadsheet, the growth over time of the assets and payout from a total return trust, again based on assumptions you approve. We have the ability to run a computer program which models a charitable remainder trust based on assumptions you approve. © 2014 ### The Family Vision Snapshot/Timeline Page: https://hhb.com/our-practice/family-vision-experience/the-family-vision-snapshot-timeline/ By Stephen J. Smith. Explanation of Concept The goal is to create a simple tracking tool to avoid losing sight of the big picture. Think horizontal timeline, with hash marks representing various points in time. At certain intervals which you select, you enter the date, draw a line up from the date, and enter a few notations about the situation as it then exists. Then you return at the next interval, show the date, enter notations about the changed situation, and chart your progress. Imagine a timeline charting your progress chipping away at the projected estate tax burden at your death – are you making any progress? Have you measured your progress? Imagine a timeline charting your investment progress and your plans for beneficiaries when you die net of taxes and debts, if any, after illiquid assets, if any, have been liquidated – Do you have a concise picture of what each beneficiary will receive and how? Have the projected benefits changed over time? How comfortable are you with what each receives? Imagine that you have decided to make special provisions for a beneficiary, such as your spouse or a child, to address special concerns, and that you have created a timeline to chart your progress over time. Are you gradually making your estate plan more effective or less? Have you kept track of and measured your progress? Is there a way to help make systematic progress – to be reassured that you are in fact moving forward, not falling behind? The Family Vision Snapshot – as of a given date, show: assets and liabilities projected estate taxes as of that that date projected liquidity diagram: estate plan overview your Family Vision Statement and what you identified as the greatest dangers you are facing as of that date, as well as what you identified as your top goals or opportunities Then set a future date to re-run the analysis and measure progress. Changes can result from: asset growth (or decline) changes in tax laws changes in how you plan to dispose of your assets (affecting the marital and/or charitable deductions) changes you have made in how beneficiaries are provided for (from creation of new strategies to benefit children, for example, or charitable endeavors) MOST IMPORTANTLY, actions you have taken, intending to make progress, such as a program of gifts to children aimed at reducing estate tax, or initiating a charitable fund, allowing you to test your ideas while you are still alive and see if your unique charitable plans make sense or should be revised and enhanced in light of your lifetime experience with initial efforts Create a binder which is highly focused on this overview analysis. Dynamic tool – we keep it updated for you We keep a parallel binder for ourselves, so we can help you make sure yours is always updated and “thinned out.” Option to create one for third parties: other members of your financial/estate planning team, key family members, key successor who you want to keep in the loop. Liberal use of diagrams and very simple top level tables, supported by financial spreadsheets. This binder is separate from your One Source Book™, which manages documents, including estate planning documents, assets, beneficiary designations. Option to track progress in closely held business interests or other special assets: One of a kind criteria selected by you Gathering and cataloging key documents describing your ownership rights: articles of incorporation, bylaws, stock/ownership certificates, LLC operating agreements, partnership agreements, stock transfer agreements and other restrictions on transfer as well as contractual market for your stock or other investment upon certain events, such as your death or disability ownership ledgers charting your % share and progress in moving ownership to the next generation lists of directors and officers3.) Tracking debt of the entity guaranteed by you and arrangements for your indemnification as well as your inter-creditor agreements with others who are liable with you as guarantor.4.) Summaries of the strategic position and plans for growth or resolution of a business5.) Ownership succession plans and charted progress6.) Management succession plans and charted progress Option to track progress in providing for a special situation such as a child, where there is concern: Example #1: to provide a certain measure of safety net record your statement of the situation AND THEN REVISIT, noting changes, so you can document why you set things up as you did and note the often inevitable changes in the situation over time diagram your plan for a child, recap all trusts and other gifts, including outright and those completed during lifetime, and summarize in one diagram, with numbers, the projected benefits for the child (cumulative total) AND THEN MONITOR PROGRESS OVER TIME Example #2: where you anticipate friction among surviving children creation of separate trusts during lifetime intended to minimize the further division following your death steps to use a third party as trustee monitor ownership and management succession plans (closely held business) review durable powers of attorney, health care powers of attorney and other successor provisions Option to track progress in special provisions for your spouse (after your death): Example #1: out of concern for your spouse’s well being due to financial (investment) inexperience Example #2: out of concern for your spouse’s status as a second spouse versus your children by a prior marriage and your goal of keeping very clean, separate provisions for each Option to track life insurance and related trust: vigilance over ”Crummey” notices so that premium payments do not accidentally eat up lifetime exemption from estate tax monitor regular review of policy performance by a life insurance professional – the very typical danger of failure to monitor a policy (especially variable policies with investment component and ability to borrow automatically) monitor original need for the coverage and on-going adequacy or necessity of coverage © 2014 ### The Inheritance Hypothesis Page: https://hhb.com/our-practice/family-vision-experience/the-inheritance-hypothesis/ By Stephen J. Smith. This hypothetical is a well disguised composite of several actual cases. A couple had three sons in their mid-40s when we met them. The couple had achieved very significant wealth from a successful business and other investments, and they were staring at a 7-figure estate tax at death. They had been advised to make annual gifts not exceeding the annual exclusion (which is now $15,000 but was a little less at the time). They were giving each son $24,000 per year (half from each spouse). The kicker was they were making the gifts in monthly installments of $2,000 that felt like a paycheck. Compared to a paycheck, each gift of $2,000 was deceptive: no income tax withheld, no Social Security or similar payroll tax paid. Based on this plus other trust income from a grandparent, one of the sons had already “retired.” The other two had jobs to some extent, but it felt like neither of them was employed full time, full throttle, the way one would be if he were supporting a family and had no other source of income. As we were planning for after the couple died, I came to realize it is possible to receive too much of a good thing. Have you ever heard the phrase, Trust Fund Baby? With the annual gift program, while the parents were probably having an adverse effect on their children’s incentive, they at least had the power to turn it off or throttle it back. As we were planning for after the couple had both died, the clients were in danger of creating trusts that might have an irrevocably adverse impact on the sons and their children. Conventional estate planning focuses primarily on maximizing the wealth that passes to the next generation (or other beneficiaries) with the lowest estate taxes (Tax Planning). A further emphasis of conventional estate planning is protecting assets from attack in the event a beneficiary has financial problems or suffers a catastrophic lawsuit (Asset Protection Planning). Conventional estate planning often stops here. All of us want what is best for those we love. It makes us happy to think that what our children or designated beneficiaries receive from us will make their lives better. An inheritance can create many opportunities such as: Money for a grandchild’s college education. Resources to acquire a cottage where the family can build shared experiences, a family retreat. Opportunity for more extensive travel. A more secure retirement some day. You can make your own list. The Inheritance Hypothesis acknowledges that circumstances vary from family to family and person to person, yet it recognizes that, sometimes, there is some amount of inheritance, beyond which more harm than good may result. Many clients will never be in danger of reaching the point of leaving “too much” money to a child, but for those who are, the danger is that as the size of the inheritance continues to increase, the results may turn negative. We have created a tool, inspired by the Laffer Curve, to illustrate the dilemma with a diagram to help clients clarify their goals. The analysis will vary, depending on your values and the particular facts. This analysis may evolve. The danger is that if you have significant wealth and fail to consider the potentially negative impacts of wealth on your beneficiaries, you risk doing more harm than good. If you are creating multiple-generation trusts with significant amounts to benefit generations not yet come of age, you could be playing with fire. The opportunity is to use our process to help you optimize an inheritance plan, typically with multiple layers or approaches, which gives you peace of mind in knowing you have done the best you can by the one you intend to benefit, and perhaps mix in philanthropic goals, once you have first provided generously for your family and other beneficiaries. © 2019 ### Thinking About Doing Estate Planning Page: https://hhb.com/our-practice/family-vision-experience/thinking-about-doing-estate-planning/ By Stephen J. Smith. Introduction You have contacted us and made an appointment for estate planning. We are mailing (with this article) our Starter Kit, including hints on filling it out. This article is intended to give you quick overview of our unique way of doing estate planning, which we call The Family Vision Experience. The Starter Kit has three parts: Information about you and your loved ones What’s in a name? We urge you to make sure your name is as it is shown on your driver’s license and that all other names you give us are correct (not nicknames or informal versions, for instance). Our experience has been that since 9/11, banks really want to see your name as on your driver’s license and see that name match what is on your trust and other documents. We save everyone a lot of hassle if we get fussy about getting your name right from the beginning. Asset information The Dangers Checklist. Hint: be sure to “fill it out.” This could mean just circling the dangers you relate to in your life, but feel free to add notes to help us understand how a particular danger is a concern. Filling this out could make the meeting go faster because you give us an advance idea of your particular concerns. We need to receive your completed Starter Kit before our initial meeting, so we can assess your probable needs and plan the initial meeting, You also have the option to ask us to give you a call after we have reviewed your Starter Kit to discuss the probable scope of our work and receive an estimate the cost. At the initial meeting we go in this order: Finish the process of gathering information about you. Teach you what you need to know about what happens without planning and teach you about appropriate tools we use to help you (will, trust, powers of attorney and so forth). We will make recommendations and map out, usually in a set of diagrams, the results of your decisions as you make them during the meeting. Many clients when calling to make an appointment say they “want a will.” You can see that decision (what you decide you need) comes in step 3, above. Every client for whom we do estate planning gets a will. Many will also benefit from a trust, and if that is true for you, then by the end of our meeting you will know that and, more importantly, why. Powers of attorney are important to plan for the chance of your incapacity. After the meeting we usually send you a message with a fee quote, once we know the scope of the work. For initial work, we almost always are able to make it a flat amount, so you have certainty. By this point if not at the very beginning, we have also set a signing date. We send drafts, along with an explanatory cover letter, enough ahead of the signing meeting so you can read everything and let us know if you have questions or changes, and while we stress giving all names in the Starter Kit in the form you want to see them in your will and other documents, if you discover a name or contact information in a draft documents is wrong, please let us know before the signing meeting so we can have the document ready for you to sign. At the signing meeting we always make sure you are comfortable with the documents before you sign. Then you sign. If you are doing a trust, then there is a key further part of this meeting to teach you how to implement the trust, and we have a unique approach contained in what we call The One Source Book ® which provides a unified solution for your estate planning. Clients tell us they really love the book. Finally, we ask clients to see this all as a process, not a once-in-a-lifetime transaction. Circumstances change. Tax laws change. Wisconsin’s laws affecting estate planning have changed a lot in the last 10 years, for instance. People you have named (or had been waiting to name because they were too young) get older, a common driver of revising your plan. We don’t let you leave without telling us when you next want us to check in with you to see about a review meeting. We focus not only on planning for your death but also on the risk of your becoming incapacitated before you die. Our clients express a real sense of satisfaction when they finish our process. Our goal is to ensure you become a full participant, understanding the process and feeling like you own the result! © 2019 ### Total Return Trusts Page: https://hhb.com/our-practice/family-vision-experience/total-return-trusts/ By Stephen J. Smith. Introduction Sometimes clients conclude they cannot leave an adult child’s inheritance outright, perhaps because the child cannot manage money. Hypothetical example: One of Adam and Mary’s children, Tom, age 28, has had mental health issues since he was an adolescent. There is concern about his long term employment prospects, and they have twice had to bail him out from credit card debt. They know that if they leave his share (an estimated $800,000) outright to him, it will not last. Traditional Trust Based on discussions with trust officers and over 40 years of practice in estate planning, most lawyers (virtually all, from what we hear) would draft a trust which provides: Hold the $800,000 in trust with a third party trustee (bank or individual) Distribute the income to Tom each year Allow the trustee to invade principal for Tom, but only for specified purposes Remainder at Tom’s death to his family Issues for the Traditional Trust The trustee is in a structural conflict: Tom may want to see the trust invested to maximize current income, to maximize what he receives. Potentially, his children want to see the trust invested to maximize long term appreciation and, hence, what they receive when he dies This issue leads to the trustee trying to balance out both interests in a compromise investment mix driven as much by income expectations. A better goal would be for the trustee to select an investment mix driven by the goal of maximizing total investment return (both income and capital appreciation). To the extent the trust is invested to achieve income, it is all distributed to Tom; nothing is reinvested to help the trust keep pace with inflation. Real Life Tom A while ago someone in Tom’s situation came to us 25 years after his parents had died and had left his inheritance in a traditional trust. He was not gainfully employed and depended on the trust for his support. He was vulnerable, because since he was not employed, he was not paying into Social Security and could not look to it as a safety net if all else failed. 25 years earlier he had persuaded the bank trustee to focus on bonds so he could maximize his income distribution, rather than investing in stocks paying a much lower percentage out as a dividend. All was invested in bonds, and all interest was paid out to Tom each year. For the reasons Tom’s parents left his share in trust in the first place, Tom spent all that he received each year from the trust. 25 years later he compared notes with his brother’s trust. They had started out with equal amounts. Tom’s brother’s trust had not distributed as much to begin with, as it was invested in a balanced portfolio with a significant stock component paying a much lower rate of dividend than the bonds in Tom’s trust. 25 years later Tom’s brother’s trust was worth more than double Tom’s trust and by this time was paying out more each year than Tom’s trust, due to the growth of the stocks. Total Return Trust Let’s roll back the clock 25 years and re-do Tom’s trust. If all investment return is distributed to Tom each year, with none of it reinvested, then the trust will not grow in value. If it does not grow in value, it will not keep pace with inflation, and so the real value of the trust will gradually but definitely go down. We have seen that the traditional trust, distributing accounting income to the beneficiary, fails to adequately compel a responsible approach. How it Works In a Total Return Trust, accounting income is irrelevant. Tom’s parents designate a percentage (I will use 4% as an example). The trustee shall calculate the market value of the trust each January 1 and multiply that total times 4%. This amount is distributed over the coming year. The investment return of the trust would be a combination of interest and dividends (income) and also capital gains (the investments have gone up in value and may have been realized by selling them or be increased “on paper.”). If the total return for the year is greater than 4%, then the calculation the next January 1 will cause a larger amount to be distributed to Tom over the coming year. Goal of a Total Return Trust The primary goal is to build in a system seeking to assure Tom’s parents that the trust is hard wired to gradually increase in total value, and if it gradually increases in value (because it is distributing less than its total investment return), then Tom can look forward to receiving more each year than the year before. How does the Total Return Trust benefit Tom? The percentage of market value is set low enough that Tom’s parents can reasonably expect that the trust, over the long haul, will normally generate total investment return at a higher rate. If the rate of investment return is greater than 4% in this case plus an assumption about inflation, then the distributions to Tom will grow over the years, even after considering inflation, a real advantage. Over the long term, stocks will earn a higher total rate of return than bonds, but they typically start out paying a smaller rate of income as dividends. In a traditional trust, the goal is to have enough invested in primarily income-producing assets, such as bonds, to ensure the current distribution to the beneficiary seems adequate. Doing this can hold down the potential of the trust to maximize total return. In a Total Return Trust, it is unnecessary to earn enough income to cover the 4% distribution in Tom’s example. Suppose it were invested in mutual funds focusing on stocks. Cash could be raised (at a capital gains tax rate) by selling off a little of it to make the 4% distribution. IN OTHER WORDS, THE TRUSTEE COULD AFFORD TO PUT MORE IN INVESTMENTS PAYING LITTLE OR NO CURRENT INCOME BUT OFFERING HIGHER LONG TERM RETURN PROSPECTS. What about the traditional trust’s tension between the needs of the current income beneficiary and the needs of the successor beneficiaries who receive the remainder when “Tom” dies ? This is where the Total Return Trust shines. The greater the long term total return of the trust, the more the trust grows in value. The more the trust grows in value, the greater the distribution of 4% is to Tom the greater the remainder is to his family when he dies By its structure, there is no conflict of interest. This article is intended to only be an introduction to the topic. There are more details and choices in designing a Total Return Trust which Tom’s parents could explore. The longer the period time, if not Tom’s complete lifetime, which Tom’s parents believe the trust will last, the more compelling the Total Return Trust is as an option to be explored. In my practice over the years I have honed a Total Return Trust exhibit that not only follows the above reasoning but carefully lays out the investment thinking behind the idea, so that in a given case, perhaps a generation from now, the trustee will have the flexibility needed to implement the Total Return Trust to achieve the long term goal. In The Family Vision Experience ™, we stress an approach where the clients genuinely understand and feel like they own their plan for their loved ones. The Total Return Trust is just one tool we recommend to our clients where it stands a chance to make a lifetime of difference. © 2019 ### Why I Prefer WisPACT for Special Needs Trusts Page: https://hhb.com/our-practice/family-vision-experience/why-i-prefer-wispact-for-special-needs-trusts/ By Stephen J. Smith. My approach in recent years has been to work with WisPACT for when a parent is contemplating a special needs trust for a child. They have created two master trusts, one where a person is putting his own money into such a trust (often referred to in legal circles as “self-settled”), and the one I focus on, where parents want an efficient way to create a trust for what is or will become an adult child with special needs. It’s not so much the special needs as the goal of providing for the child without disturbing the child’s eligibility for valuable government-provided benefits. WisPACT’s nomenclature is: The Self-Funded Trust The Third-Party Trust This article refers to what WisPACT calls the Third-Party Trust. I see two options: Historically lawyers like to create free-standing trusts, generating greater fees to the lawyer. It also offers the ability to fine tune. I prefer to recommend the client contribute to create a component subtrust under WisPACT – which is a master trust designed to flexibly apply the money for the child’s benefit to the greatest extent without risking eligibility for government benefits, and you can provide for remainder beneficiaries (perhaps the other children of the parents) after the special needs child dies. There are thousands of such trusts being administered under the WisPACT master trust. The eligibility rules for government benefits are constantly changing (tightening ), making it a crap shoot to pick option 1 and hope that what you have drafted works against not only present rules but also unknown future rules. In that environment I believe strongly that: There is something to be said for safety in numbers – if the government in the future goes after eligibility for beneficiaries of WisPACT, it is going after many people – that’s where I want my client to be. The people who administer the WisPACT subtrusts and are in contact with the beneficiaries are living and breathing special needs situations all day every day and are the people most likely to efficiently and thoughtfully apply the money to genuinely benefit the special needs child. To learn more about WisPACT, please [click here](http://www.wispact.org/). It is possible to wait until the parents have died to set up a subtrust under WisPACT. A better way is to set up a small one during lifetime and then refer to it in the clients’ main revocable trust. This also gives the parents a chance for real world experience on a small scale while they are still alive and could change their mind if they do not like what they see. © 2015 ### Why Some Clients are Using Loose Trusts in their Estate Plans Page: https://hhb.com/our-practice/family-vision-experience/why-some-clients-are-using-loose-trusts-in-their-estate-plans/ By Stephen J. Smith. Although not an actual case, it is inspired by many cases we have handled. Our clients put their daughter through college; she graduated debt free. She has a stable job with bright prospects, working for a fine employer. She is in good health and is careful with money: not living beyond her means and already beginning to learn about investing for her retirement. She is living with a wonderful young man who graduated with major educational debt, and he is thinking about going back for a Master’s degree in his chosen field, adding to his debt. They will probably get married sooner rather than later. Our clients have asked what happens if they die, leaving the daughter’s share outright to her. They do not believe she needs protection from herself, so they would be inclined to leave her share outright to her. What if their daughter’s relationship ends after they have died but before marriage? What if they are married when she inherits her share and they are later divorced? Will part of it be divided in a divorce and pass to him? What if they are married and later find themselves in a credit stew, perhaps flowing from the husband’s educational debt, perhaps from medical or similar expenses not fully covered by insurance? We have a number of options to help protect the daughter which involve putting the inheritance in the hands of a third party and controlling access to the inherited wealth. However, in this case the goal is not so much to protect her from herself as to preserve the identity of these assets as her inheritance, at least so long as she wishes to do so. This is not a world of absolutes – but we can improve significantly on an outright bequest to her. What we have come to call a Loose Trust refers to a plan which leaves the daughter’s inheritance to her as trustee of a trust for her own benefit. Typically it has the feel, in practice, of an IRA: that is, it is a separate account, not commingled with the daughter and her husband’s joint account or other assets. It has a separate status, and it was created by a third party (the parents), not the daughter. I like to say, “You (the parents) can legally do for her what she cannot do for herself: set aside money that will benefit her but not belong to her in a way that exposes it to a divorcing spouse or creditors the same as it would if she herself put it into a separate trust for her own benefit. I call the idea a Loose Trust because the result is intended to produce a real benefit (non-absolute but real protection of the assets from creditors or a divorcing spouse) without making the daughter feel like she is unduly restricted and without incurring outside trustee fees, at least at the outset. The plan would be that if there were storm clouds on the horizon (financial or marital trouble), the daughter would step aside as trustee in favor of an independent third party trustee to strengthen the trust from attack. Suppose the daughter received the inheritance outright and wanted to preserve it under Wisconsin law as her separate (not marital) property? She could do so. However, if she put the inheritance in a separate account, while the amount going in would be her separate property, the income from the account would under Wisconsin law be marital property. If she let the income accumulate, then eventually the entire account would be converted to marital property and subject to division in a divorce. A little known aspect of the Wisconsin Marital Property Law is that if her parents had left the property to a trust for her benefit (such as a Loose Trust), then the income from it would also be the daughter’s separate property. This is a significant advantage. It’s not that assets will be fully protected in all situations, it’s that they are better protected than if the parents had left these hard-earned assets outright to the daughter. The trust would be flexible enough that there would be practical ways to end it later, if desired, but so long as the daughter controlled the trust as trustee, why would she? This article is not meant to be legal advice in a specific situation, and it does not describe all the terms of a Loose Trust, but by reading it we hope you see there is a good case to be made for going beyond merely leaving an inheritance outright to an adult child. © 2019 ## Common questions These are the questions the practice pages answer, with the firm's own answers. ### Does Hostak, Henzl & Bichler, S.C. handle business law in Racine? Yes. Our attorneys handle business law matters throughout Racine, Kenosha, Milwaukee, Walworth, Waukesha counties. Call (262) 632-7541 to discuss your situation. Cite https://hhb.com/our-practice/business-law/ ### Does Hostak, Henzl & Bichler, S.C. handle elder law in Racine? Yes. Our attorneys handle elder law matters throughout Racine, Kenosha, Milwaukee, Walworth, Waukesha counties. Call (262) 632-7541 to discuss your situation. Cite https://hhb.com/our-practice/elder-law/ ### Does Hostak, Henzl & Bichler, S.C. handle estate & tax planning in Racine? Yes. Our attorneys handle estate & tax planning matters throughout Racine, Kenosha, Milwaukee, Walworth, Waukesha counties. Call (262) 632-7541 to discuss your situation. Cite https://hhb.com/our-practice/estate-tax-planning/ ### Does Hostak, Henzl & Bichler, S.C. handle family vision experience in Racine? Yes. Our attorneys handle family vision experience matters throughout Racine, Kenosha, Milwaukee, Walworth, Waukesha counties. Call (262) 632-7541 to discuss your situation. Cite https://hhb.com/our-practice/family-vision-experience/ ### Does Hostak, Henzl & Bichler, S.C. handle family law in Racine? Yes. Our attorneys handle family law matters throughout Racine, Kenosha, Milwaukee, Walworth, Waukesha counties. Call (262) 632-7541 to discuss your situation. Cite https://hhb.com/our-practice/family-law/ ### How do consultations work? 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