Madison WI Estate Taxes Lawyer

There are two types of death taxes that you should be concerned about: the federal estate tax and state estate tax. The federal estate tax is computed as a percentage of your net estate. Your net taxable estate is comprised of all assets you own or control minus certain deductions. Such deductions can be for administrative expenses such as funeral and burial costs as well as charitable donations. The federal estate tax currently taxes estates with net assets of $11,400,000 or greater.

Even if you believe that that you may not be affected by the federal estate tax, you still need to determine whether you may be subject to state estate and inheritance taxes. Further, you may have a taxable estate in the future as your assets appreciate in value. You should regularly review your estate plan with an estate planning attorney to ensure your estate plan takes into account changes in the tax laws as well as shifts in your individual circumstances.

Your taxable estate comprises of the total value of your assets including your home, other real estate, business interests, your share of joint accounts, retirement accounts, and life insurance policies minus liabilities and deductions such as funeral expenses paid out of the estate, debts owed by you at the time of death, bequests to charities and value of the assets passed on to your U.S. citizen spouse. The taxes imposed on the taxable portion of the estate are then paid out of the estate itself before distribution to your beneficiaries.

The federal government allows every married individual to give an unlimited amount of assets either by gift or bequest, to his or her spouse without the imposition of any federal gift or estate taxes. In effect, the unlimited marital deduction allows married couples to delay the payment of estate taxes at the passing of the first spouse because at the death of the surviving spouse, all assets in the estate over the applicable exclusion amount ($5,120,000 ) will be included in the survivor’s taxable estate. It is important to keep in mind that the unlimited marital deduction is only available to surviving spouses who are United States citizens.

A Credit Shelter Trust, also known as a Bypass or A/B Trust is used to eliminate or reduce federal estate taxes and is typically used by a married couple whose estate exceeds the amount exempt from federal estate tax.

Because of the Unlimited Marital Deduction, a married person may leave an unlimited amount of assets to his or her spouse, free of federal estate taxes and without using up any of his or her estate tax exemption. However, for individuals with substantial assets, the Unlimited Marital Deduction does not eliminate estate taxes, but simply works to delay them. This is because when the second spouse dies with an estate worth more than the exemption amount, his or her estate may be subject to estate tax on the amount exceeding the exemption. Meanwhile, the first spouse’s estate tax credit was unused and, in effect, wasted. This could be avoided by ensuring that after the passing of the first spouse, an estate tax return is filed even if no taxes are due. The purpose of a Credit Shelter Trust is to ensure preservation of both spouses’ exemptions. Upon the death of the first spouse, the Credit Shelter Trust establishes a separate, irrevocable trust with the deceased spouse’s share of the trust’s assets. The surviving spouse is the beneficiary of this trust, with the children as beneficiaries of the remaining interest. This irrevocable trust is funded to the extent of the first spouse’s exemption. Thus, the amount in the irrevocable trust is not subject to estate taxes on the death of the first spouse, and the trust takes full advantage of the first spouse’s estate tax credit. Special language in the trust provides limited control of the trust assets to the surviving spouse which prevents the assets in that trust from becoming subject to federal estate taxation, even if the value of the trust goes on to exceed the exemption amount by the time the surviving spouse dies.

There is a common misconception that life insurance proceeds are not subject to estate tax. While the proceeds are received by your loved ones free of any income taxes, they are countable as part of your taxable estate and therefore your loved ones can lose over forty percent of its value to federal estate taxes. An Irrevocable Life Insurance Trust keeps the death benefits of your life insurance policy outside your estate so that they are not subject to estate taxes. There are many options available when setting up an ILIT. For example, ILITs can be structured to provide income to a surviving spouse with the remainder going to your children from a previous marriage. You can also provide for distribution of a limited amount of the insurance proceeds over a period of time to a financially irresponsible child.

A Family Limited Partnership (FLP) is simply a form of limited partnership among members of a family. A limited partnership is one which has both general partners (who control management) and limited partners (who are passive investors). General partners bear unlimited personal liability for partnership obligations, while limited partners have no liability beyond their capital contributions. Typically, the partnership is formed by the older generation family members who contribute assets to the partnership in return for a small general partnership interest and a large limited partnership interest. Then the limited partnership interests are transferred to their children and/or grandchildren, while retaining the general partnership interests that control the partnership.

The FLP has a number of benefits: transferring limited partnership interests to family members reduces the taxable estate of the older family members while they retain control over the decisions and distributions of the investment. Since the limited partners cannot control investments or distributions, they can be eligible for valuation discounts at the time of transfer which reduces the value of their holdings for gift and estate tax purposes. Lastly, a properly structured FLP can have creditor protection characteristics since the general partners are not obligated to distribute earnings of the partnership.

A disclaimer plan builds flexibility into your estate documents so that, after death, a surviving spouse or other beneficiary can refuse (disclaim) part or all of an inheritance and redirect it according to the plan. This lets your family adjust in real time to tax laws, asset values, health and long‑term care risks, and beneficiaries’ circumstances—rather than locking in assumptions made years earlier. To be valid under federal and Wisconsin law, a disclaimer must be in writing, made within nine months of death, irrevocable, and completed before the beneficiary accepts the asset. Used thoughtfully, it’s a way to fine‑tune outcomes when you finally have all the facts at death, not guesses made during life.

The chief advantage is post‑death flexibility. A survivor can evaluate actual financial needs, market conditions, and family considerations and then decide whether to keep assets outright or disclaim into a trust the plan provides. This approach also creates opportunities for estate tax planning when relevant: although Wisconsin has no state estate tax, federal estate tax may apply to larger estates, and disclaimers can fund a bypass/credit‑shelter trust, preserve exemptions, and reduce exposure at the second death based on real asset values, not projections. Beyond taxes, disclaimers can enhance asset protection and remarriage planning; if a spouse disclaims into trust, those assets may be better shielded from creditors, protected in the event of remarriage or divorce, and preserved for children from a prior marriage—benefits that are especially valuable in blended families. Disclaimers can also integrate with long‑term care and Medicaid planning by allowing assets to be redirected into a trust structure that preserves resources for family while addressing future care concerns, provided timing and structure are handled correctly. For children and other beneficiaries, a disclaimer can prevent outright, ill‑timed inheritances by redirecting assets into protective or special needs trusts, spendthrift provisions, or other structures tailored to their maturity and risks. Because tax laws change, a disclaimer framework lets families adapt to future federal exemption levels, portability rules, and income‑tax basis considerations; for example, sometimes it is better not to fund a bypass trust to preserve a second step‑up in basis at the survivor’s death. With disclaimers, you can make that call later, informed by current law, unrealized gains, and actual appreciation potential.

Disclaimer planning shines for married couples with moderate to large estates, blended families, uncertain future tax exposure, potential long‑term care concerns, or a desire to protect children without committing to complex lifetime structures. It may be less necessary for very small estates, simple family situations, single individuals, or estates clearly below federal thresholds. Compared to a mandatory bypass trust that funds automatically (and may create unnecessary complexity if not needed), a disclaimer‑based plan funds the trust only if it’s beneficial, simplifying administration when circumstances don’t call for additional structures. That said, disclaimers have strict timing and formalities, cannot be made partially after benefits are accepted, and must be coordinated with tax and legal advice to align with your overall plan.

Bottom line: in Wisconsin, a disclaimer plan provides post‑death flexibility, tax and basis planning opportunities, asset‑protection and remarriage safeguards, options for Medicaid and long‑term care, and the ability to adjust to changing laws and family circumstances—all while keeping your estate plan nimble and practical when it matters most.

Your gross estate is the total value of all property and certain financial interests you own or control at death—before deductions—and it is the starting point for assessing federal estate tax exposure and calculating marital and charitable deductions, even though Wisconsin has no state estate tax. It generally includes assets held in your name alone (such as bank and investment accounts, real estate, vehicles, personal property, and business interests) and assets you placed in a revocable living trust, because you retained control during life; avoiding probate does not remove these from the gross estate. Jointly owned property is also counted: with a spouse, typically one‑half is included, while with a non‑spouse, the portion you contributed is included.

Because Wisconsin is a marital property state, your half of survivorship or other marital property is included as well. Retirement accounts like IRAs and 401(k)s, pensions, annuities, and life insurance proceeds are included if you owned the policy or named your estate as beneficiary, even when beneficiaries are otherwise designated. Transfer‑on‑death and payable‑on‑death accounts pass outside probate but are still part of the gross estate.

Certain lifetime transfers can be drawn back into the estate—such as gift tax paid within three years of death and some life insurance transfers—and property you transferred but from which you retained income, use, occupancy, or control can also be included (for example, giving away a home but keeping the right to live there). Interests in closely held businesses are included and may require professional valuation, and certain annuities, survivor benefits, and property subject to a general power of appointment may also be counted.

Typically excluded are assets truly owned by others, irrevocable transfers where you retained no control, life insurance owned by others, and properly structured irrevocable trusts.

Assets are generally valued at fair market value on the date of death, although an alternate valuation date six months later may be elected if it reduces federal estate tax. Understanding the distinction between the gross estate (used for tax calculations) and the probate estate (assets subject to court administration) is important: many assets included in the gross estate—such as a home held in a revocable trust, IRAs with beneficiaries, life insurance you own, a joint bank account (50%), or a TOD brokerage account—may avoid probate yet still count for federal estate tax purposes.

The size of your gross estate matters most when your estate may exceed the federal exemption or when planning for marital and charitable deductions, portability, or valuation discounts. Planning tools that can reduce the taxable estate include irrevocable trusts, strategic lifetime gifting, charitable planning, life insurance trusts, and relinquishing retained interests.

Bottom line: your gross estate in Wisconsin encompasses what you own or control at death—including individually owned property, revocable trust assets, retirement accounts and life insurance (when you retain ownership), certain jointly owned property, TOD/POD accounts, and assets tied to retained control—and it drives federal estate tax exposure and related planning outcomes.