Anaya Nolan
Trusts are a versatile tool for protecting and distributing assets, and can be used to avoid probate after death. Wisconsin's trust law is governed by Chapter 701 of the Wisconsin State Statutes, which outlines how trusts are created, changed, enforced, and contested. While there were no updates to Wisconsin trust law in 2023, it is important to understand the basics of trust law in the state. Trusts in Wisconsin are required to file specific documentation with the Department of Financial Institutions, and there are rules in place regarding the transaction of business and the acquisition, holding, or disposal of property within the state.
| Characteristics | Values |
|---|---|
| Common law trusts in Wisconsin | Governed by Chapter 701 of the Wisconsin state statutes |
| Trusts in general | Legal documents that allow a third party to hold assets for beneficiaries |
| Trust creation in Wisconsin | Requires assistance from an experienced Wisconsin trust attorney |
| Trust contest in Wisconsin | Petition filed with the court alleging the trust is invalid due to force, intimidation, fraud, unsound mind of the settlor, or other reasons |
| Common law trust filing requirements in Wisconsin | Declaration of trust, amendments, and certificate of the department of financial institutions filed with the register of deeds |
| Trust transactions in Wisconsin | Prohibited until the declaration of trust or a verified copy is recorded and reported to the department of financial institutions |
| Trustee duties in Wisconsin | Managing trust investments and adhering to legal requirements |
| Trust accounts in Wisconsin | Subject to overdraft reporting requirements and safeguarding of funds by lawyers |
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What You'll Learn
Common law trusts and business
Trusts are a legal relationship in which the owner of a property or any transferable right gives it to another party to manage and use solely for the benefit of a designated person. The party who entrusts the property is known as the "settlor", the party to whom it is entrusted is known as the "trustee", and the party for whose benefit the property is entrusted is known as the "beneficiary". Trusts are commonly used to manage and protect one's assets, avoid probate, reduce taxes, and ensure healthcare wishes are honored.
In Wisconsin, there are specific requirements for establishing a common law trust. The trustees named in the declaration of trust must file the original declaration of trust, or a true copy, and all amendments with the Department of Financial Institutions. This includes filing the name of a resident trustee who can accept service of process in the state. Trusts must also record the declaration with the register of deeds of the county where the trust has its principal office or place of business. This process ensures that the trust can transact business and deal with property in Wisconsin.
Common law trusts can be used for various purposes, including business and commercial objectives. Statutory business trusts, for example, are created under state business trust statutes for primarily commercial purposes. The Delaware business trust and Massachusetts business trust are commonly used variants. Trusts can also be used in complex business arrangements, particularly in the finance and insurance sectors, to partition and shield assets from the trustee, beneficiaries, and their creditors.
When setting up a trust in Wisconsin, it is important to consider your goals and the assets you want to fund the trust with. While there are platforms that allow you to create a trust online for free, consulting an experienced Wisconsin estate law attorney is recommended for comprehensive advice and to ensure your trust aligns with your objectives.
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Trustees' fiduciary duties
In Wisconsin, a common law trust must file with the Department of Financial Institutions before transacting business or acquiring, holding, or disposing of property in the state. The trust must provide the original declaration of trust or a true copy, along with any amendments, verified by the affidavits of two signers. The Department of Financial Institutions then issues a certificate showing the filing date, which must be recorded with the register of deeds of the county where the trust has its principal office or place of business. The register of deeds is entitled to a fee for recording the declaration, which must be paid by the person presenting the papers. If the trust has designated multiple trustees, it must file the name of a trustee resident in Wisconsin upon whom service can be made on behalf of the trust. If none of the trustees reside in Wisconsin, the trustees must appoint the Department of Financial Institutions as the agent to accept service of process in the state.
Now, onto the topic of a trustee's fiduciary duties. Trustees have several fiduciary duties and responsibilities when managing a trust. Here are some key duties:
- Duty to Administer Trust: Trustees have a legal duty to administer the trust in good faith, following the trust's terms and purposes and acting in the best interests of the beneficiaries.
- Duty of Loyalty: Trustees must act in the best interests of the beneficiaries and refrain from acting contrary to their interests.
- Duty of Impartiality: In trusts with multiple beneficiaries, trustees must treat all beneficiaries equitably, regardless of their class (e.g., present or future beneficiaries).
- Duty to Act Prudently: Trustees must exercise reasonable care, skill, and caution when administering the trust, treating the assets as if they were their own. This applies to investments, sales, and distributions.
- Duty to Protect Trust Assets: Trustees are responsible for taking control of and protecting the trust's assets. This may include purchasing insurance, diversifying assets, or using safety deposit boxes.
- Duty to Use Special Skills or Expertise: If a trustee is appointed due to their special skills or expertise, they must utilise those skills or expertise in their administration of the trust. For example, a trustee who is a CPA is expected to apply their accounting and tax knowledge.
- Duty to Delegate: Trustees may delegate tasks as appropriate.
These duties ensure that trustees manage the trust with the beneficiaries' best interests in mind and protect the assets held in the trust. It is important to note that the specific fiduciary duties of trustees may vary slightly depending on the state and applicable laws.
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Beneficiaries' rights and disputes
Trusts are a strategic way to manage your estate and ensure your assets are distributed according to your wishes. They can also help you avoid probate, reduce taxes, and ensure your healthcare wishes are honored. While trusts can be created online free of charge, it is recommended to consult a professional for comprehensive advice.
In Wisconsin, common law trusts are required to file with the Department of Financial Institutions. The trustees named in the declaration of trust must file the original declaration of trust, or a true copy of it, and all amendments to the declaration. This must be verified by the affidavits of two signers of each amendment. Trusts must also file the name of a trustee or trustees, and if none reside in the state, they must appoint the Department of Financial Institutions as the agent to accept service of process.
Beneficiaries of a trust have rights and can take steps to enforce them. While beneficiaries should receive their inheritance without having to do anything, issues can arise during the administration of the trust. Beneficiaries can sue a trustee to compel them to litigate in the case of a property dispute. They can also bring a claim to recover lost property or damages if trust property has been damaged, lost, or misappropriated by another party. To prevent disputes, it is important to have clear and open communication between trustees and beneficiaries, and for the grantor's intentions to be clearly expressed.
Trust disputes in Wisconsin can arise due to different interpretations of trust provisions, identifying beneficiaries, or valuing trust assets. In these cases, the court may need to interpret the trust document and make decisions based on the grantor's intent and state laws. The Wisconsin Trust Code, which came into effect on July 1, 2014, outlines the duties of a trustee, including the duty to provide certain information to beneficiaries. The Wisconsin Trust Code Trailer Bill, which came into effect on March 23, 2024, made adjustments to the Trust Code, including changes to the trustee's duty to provide information to beneficiaries. For example, a settlor may restrict the right of a beneficiary to receive information relating to the trust.
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Trust creation and funding
Trusts are legal documents that allow a third party to hold assets on behalf of a beneficiary. The beneficiary is the named individual or company that benefits from the assets held in the trust. Trusts are highly versatile and useful tools that can be used to protect, grow, and distribute assets. They are also handy for avoiding the probate process in the event of the trustor's death.
Trusts in Wisconsin are governed by Chapter 701 of the Wisconsin State Statutes. This chapter outlines how trusts can be created, changed, enforced, and contested. It also dictates the trustee's duties and how trust investments should be managed.
To create a trust in Wisconsin, it is strongly recommended to seek the assistance of an experienced Wisconsin trust attorney. The attorney can help determine the best type of trust for your needs and goals. They will also explain the duties and legal requirements of operating the trust and draft the required trust documents.
Once the trust document is created, the trust must be funded. This involves transferring assets into the trust, such as real estate, stocks, bonds, or other forms of wealth. It's important to note that some assets, like retirement accounts and life insurance, cannot be transferred. The trustor, also known as the grantor, usually names a trustee to manage the trust according to their terms. Any adult can be a trustee, but it is common to select oneself as the trustee and a successor trustee to take over after the trustor's death.
Trusts can be revocable or irrevocable. A revocable trust can be changed or eliminated by the trustor during their lifetime, while an irrevocable living trust cannot be altered. A revocable living trust can protect the trustor if they become mentally incapacitated, as their assets are already controlled and managed by the trust.
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Trust types and their benefits
Trusts are a common alternative or supplement to a will, allowing another party to manage your assets for your beneficiaries. They are a versatile tool for protecting, growing, and distributing your assets. Trusts are also useful for avoiding probate expenses and maintaining privacy in the event of your death.
There are two main types of trusts: revocable and irrevocable. Revocable trusts, also known as living trusts, allow the grantor to maintain control of all assets within the trust and make changes to the terms or revoke the trust during their lifetime. Many revocable trusts become irrevocable upon the death of the grantor. Irrevocable trusts are usually created by a family member to provide financial resources and security to the beneficiary.
A spousal lifetime access trust (SLAT) is a type of irrevocable trust that can reduce the taxable estate of both spouses without losing access to their assets, as would be the case with other irrevocable trusts. Each spouse creates a SLAT for the benefit of the other, and each SLAT is funded with all or a portion of each spouse's lifetime exemption amount. This reduces their individual estates and allows the couple to maintain access to the full value of their joint estate. SLATs are typically structured as "grantor trusts," meaning the grantor is responsible for paying income taxes and capital gains taxes on the trust's investments.
Other types of trusts include joint trusts, which involve the assets of two individuals, and A-B trusts, a type of joint trust that separates the assets of the two individuals into two trusts, allowing for the avoidance of double taxation. A credit shelter trust, also known as a family trust or bypass trust, allows married couples to fully utilize their federal lifetime estate tax exemptions.
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Frequently asked questions
A common law trust is a legal arrangement where a trustee holds property or assets for the benefit of a beneficiary. Trusts are created by a settlor who transfers their assets to the trustee.
Trusts are a powerful tool for estate planning and can help ensure your assets are distributed according to your wishes. Trusts can also help you avoid probate, retain privacy, and reduce estate taxes.
To set up a common law trust in Wisconsin, you must select a trustee and beneficiaries, have the trust document drafted and signed in front of a notary, and then fund the trust with your assets. It is recommended to consult with an experienced Wisconsin estate law attorney to ensure you meet all legal requirements.
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