If you're wrapping up the estate of a Wisconsin resident who died with an estate that's worth less than a certain dollar amount, you won't have to go through a formal probate court proceeding. 

It doesn't matter whether or not the deceased person left a will; what matters is the value of the assets left behind. If the estate's value is under the "small estates" limit in Wisconsin, you can take advantage of a simplified probate procedure, often called a "summary probate." Instead of having a court hearing in front of a judge, you may need only to file a simple form or two and wait for a certain amount of time before distributing the assets.

In some states, it can be even easier: Inheritors can use a simple affidavit to claim assets. (An affidavit is a statement you sign in front of a notary, swearing something is true.) If you live in one of those states, you just have to wait a required period of time, then sign a simple, sworn statement that no probate proceeding is happening in your state and that you are the person entitled to inherit a particular asset--a bank account, for example. 

When you are trying to determine whether or not an estate's value is below the Wisconsin small estates limit, the first thing to do is make a list of the assets. A simple spreadsheet or list will do. Not everything a person owns counts, though. For this list, include only the things that pass to heirs and beneficiaries by will or, if there's no will, by Wisconsin intestacy laws, which determine who inherits if there is no will.

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Until a child is eighteen years old, they can't inherit property in their own name.  Instead, an adult needs to manage that property until the child can manage it for themselves.

A child can inherit property in several ways. If a person dies, and leaves behind a Will or a trust, and names that child as the beneficiary, then it will be the Trustee's job to manage that child's property according to the terms of the document. If a person dies and makes a gift to a child under that person's state's Uniform Transfers to Minors Act, the child's money will be placed in a custodial account for that child's benefit to a certain age. Finally, if a person dies and leaves money to a child directly, or names that child as a beneficiary of a life insurance policy or a retirement account, a court will need to appoint a property guardian to manage that child's money to age eighteen.

Child as Trust Beneficiary

If a child is the beneficiary of a trust, the Trustee will need to get a tax identification number for that child's trust, open up a bank or brokerage account in the name of the trust (using that new tax id number), and then distribute the assets to the child as directed by the trust.  

For example, if a child is the beneficiary of a trust to age twenty-five, and the trust directs the Trustee to distribute the money for that child's, "health, education, maintenance, and support," (which would be a typical distribution standard), it will be the Trustee's job to distribute money to that child until the child turns 25. After that, the trust would terminate, and the child would be in charge of managing and distributing the money themselves.

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If you are serving as the executor or trustee of a deceased person's estate or trust, you are going to have to get a taxpayer identification number for the estate or the trust. You cannot use the deceased person's Social Security number, or use your own. There is one exception to this rule: if you are the surviving spouse, and everything is left to you either outright or in a revocable living trust, you can continue to use your own Social Security number for these assets, but that's because, essentially, they are your assets.

This ID number, called an EIN ("employer identification number"), is like a Social Security number for the estate or trust. You'll need it to open a bank or brokerage account, and it's what the bank or other financial institution is going to use to report the interest earned on those accounts until they are distributed to the estate's or trust's beneficiaries.

The easiest way to apply for an EIN is on the IRS website, www.irs.gov. The process just takes a few minutes and, when you are done, the site gives you the EIN that you'll use for the estate or the trust. If you don't have access to a computer, you can fax in an application to this number: (859) 669-5760.

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Wills and trusts get a lot of attention in the movies when it comes to inheritances, but in real life, life insurance often is the source of the biggest cash benefit to families and loved ones. And who gets that money usually has absolutely NOTHING to do with either a Will or a trust, instead, it is the policy's beneficiaries who will receive that death benefit.

When someone purchases a life insurance policy, they have to name primary and secondary beneficiaries.  The primary beneficiary receives the death benefit if they survive the insured party; the secondary beneficiaries will receive that benefit only if the primary beneficiary does not survive the insured party.

In order to claim these benefits you'll need to know the following things:

• Whether the decedent owned any life insurance
• Who the beneficiaries are for those policies
• What kind of policy it is
• How to make a claim for the benefits

Read on to find out how to do each of these four things.

For example, if a husband, Sam, names his wife, Lani, as the primary beneficiary of his $1 million policy, and then his three adult children, in equal shares, as the secondary beneficiaries of that policy,

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Retirement accounts, unlike almost any other asset that a person can inherit, are subject to income tax. That means that if you inherit an IRA or a 401(k), when you withdraw the money, you'll have to pay income tax on these withdrawals.

From the government's point of view, this makes a certain amount of sense.  These are, after all, tax-deferred accounts. The decedent saved that money while he or she was working, didn't pay taxes on that money, and would have had to pay income tax on the assets when they withdrew them. So, if someone leaves you an IRA, and you withdraw the money, the government doesn't want to lose out on that deferred tax revenue. (This is a slight simplification of a complicated set-up, and some plans also hold after-tax contributions, which are not taxed upon withdrawal, but that's not the usual scenario.)

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Property held in joint tenancy passes automatically to the surviving joint tenant (or tenants) when a joint tenant dies. It is probably the most common way that people own property together. No probate is necessary, just some paperwork. This is called "right of survivorship" and it makes the transfer of property upon death really easy.

Married couples can own most of their property this way: homes, cars, bank accounts, and brokerage accounts. Unrelated partners can own property as joint tenants, and sometimes parents will own property with their children this way, as well.

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Capital gains taxes are taxes that you need to pay when you sell an asset that has gone up in value. You are taxed on the difference between what you bought the asset for (called "basis") and what you sold it for. Every piece of property has a tax basis. Generally, its the amount a person paid for the property. When you inherit an asset, you need to know what basis that asset has, so that, later, if you go ahead and sell it, you can calculate the capital gains taxes that will be due. (Currently, the federal long-term capital gains rate is 15% for most people; 20% + a 3.8% (23.8%) Medicaid surcharge for high earners.)

Generally, an asset is inherited with a basis equal to its date of death value. This is called a stepped-up basis, because an asset's basis is increased to reflect its value at the date of death. A step-up in basis is a big tax advantage, because it reduces the capital gains taxes due upon sale of an inherited asset. The higher the tax basis, the lower capital gains upon the sale of that property.

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What's New for 2019 for Federal and State Estate, Inheritance, and Gift Tax Law

Here's a quick summary of the new gift, estate, and inheritance changes that came along in 2019. Spoiler alert: very few people now have to pay these taxes.

1. The federal estate and gift tax exemption has been increased from $5,000,000 in 2017 to $10,000,000 in 2018, indexed to inflation. In 2019, that is $11,400,000. This higher federal exemption means that fewer people will be subject to the estate tax, since only estates with assets that exceed that exemption are required to file a federal estate tax return. (Surviving spouses of decedents with estates less than this exemption may still decide to file an estate tax return to request portability, which is the ability to use their deceased spouse's unused exemption at their own death, but they are not required to do so.) Click here to find out more about when an estate tax return does, or doesn't, need to be filed.

2. Several states have increased their state estate tax exemptions, either because they were already indexed for inflation or because they changed their state laws, either way this means that fewer residents of those states will be subject to estate tax.

1. New Jersey and Delaware have eliminated the estate tax altogether.
2. Connecticut, Maine and Hawaii match the federal exemption and allow the surviving spouse to make sure the deceased spouse's unused exemption, just like the feds do.
3. Washington D.C. and Maryland have set their exemption levels to $5 million. Washington D.C.'s exemption is indexed to inflation, Maryland's is not.
4. Rhode Island's exemption will be indexed for inflation ($1,537,656 million for 2018).
5. Washington state's exemption will be indexed for inflation ($2.193 million for 2018).
   
6. New York is increasing it's estate tax exemption to $5.25 million.
7. Minnesota increased it's exemption to $2.4 million. 
8. Massachusetts and Oregon have an exemption of $1 million per person.

There are three main federal tax returns that you'll need to consider filing in the year after someone has died, but it's unusual to file all three. In addition, you'll have to file an individual state income tax return for the decedent, and, in some states, a state estate or trust income tax return, or a state inheritance or estate tax return.

The person who files the return is called the Personal Representative. If there's a probate, that's the executor. If there's no official executor, the person who has taken responsibility for distributing the person's property will be in charge of paying the taxes.  If there's a trust, and that's where the assets are, this is the Trustee. Basically, the IRS will deal with the person responsible for distributing the decedent's property, however that's going to happen.

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If your spouse or parent dies without a Will, Wisconsin law determines who will inherit his or her property. These laws, called intestacy laws, are essentially state-written Willls that determine who gets the decedent's property.  The word "intestate" describes a person who dies without a will.  A person who dies with a Will is said to die "testate."

Generally, in intestate succession, property goes to close family members, starting with a surviving spouse and children, and then gradually widening out to parents, siblings, nieces and nephews, grandparents and their legal descendants, and more distant relatives after that. If absolutely no relatives can be found, then a decedent's property goes to the state.

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