Estate Planning And Administration

Executor’s Deed:

A Deed that transfers real estate from the Estate to a buyer.

Intentional Interference with an Expectancy:

This is a case of action that can be brought by those that have an expectation of inheritance that is interfered with by a third party. For example, if a caretaker uses fraud or coercion to cause an ill or elderly person to make Will or Trust changes, making the caretaker the recipient of an estate, those deprived of inheritance by such caretaker action can sue the caretaker for a monetary judgment equal to the denied inheritance.

“Nursing Home Rules”:

Illinois has adopted the tougher federal rules regarding qualifying for state paid nursing home payments. There are exceptions and nuances, but the basic rules are as follows: For couples the following assets are exempt: a house up to $750,000.00 in value, one car, household, personal property and other assets totaling approximately $109,640.00, household income of approximately $2,700.00, pre-paid burial contracts up to $10,000.00, and life insurance up to $1,500.00. Any assets over these amounts must be “spent down” before qualifying for state nursing home payments. For a single person, the spend-down rules change drastically, and everything except the burial contract, life insurance as noted and $2,000.00 must be spent down on nursing home expenses before state aid kicks in. There is a five year look back period, which means any transfers of assets for less than fair value made within five years of applying for nursing home payments is considered a fraudulent transfer, done for the purpose of avoiding nursing home payment rules.

Estate Planning/Administration Examples

Now, let’s take a look at a couple of hypothetical situations that are not uncommon, and discuss possible estate planning options.

Hypothetical I:

Husband and wife are in their 30s or 40s, have “normal” assets (house, cars, some savings, some life insurance, 401(k) plan), and three minor children. Ideal estate planning would be to prepare Last Will and Testaments and Powers of Attorneys, appointing each other as Executor and Agent. The Will should have a
Testamentary Trust, which would hold the assets and invest them, and use them for the support, education, and medical provision for the children. We sometimes recommend that final disbursements be staggered. For example, one-third of the remaining trust is distributed equally to the children when the youngest graduates from a fouryear college or attains the age of 25, whichever comes first (the college attendance incentive)., one-half of the remaining trust is disbursed when the youngest attains the age of 30, and the remaining trust assets are disbursed when the youngest is 35 years of age. If a child is disabled, a separate Special Needs Trust should be part of the Will, so that the child’s share is paid to the Trustee of the Special Needs Trust. It may be recommended that life insurance and tax deferred monies be paid into the Testamentary Trust, by naming the trust as a second beneficiary of those assets.

Hypothetical II:

Holder of the assets (whether husband and wife or single) is older, children have left the nest, and the assets are more substantial. The concern at this point is not how assets should be handled for the benefit of the children, but how to avoid unnecessary probate. Ideal would be the development of a Revocable Trust, with a transfer of assets to the Trust. This might include a Deed to Trust for any real estate, and placing assets into a Trust account, subject to the terms of the Trust. Upon death, the successor Trustee can then liquidate and pay the Trust assets per the Trust terms, without the use of court processes.

Hypothetical III:

The husband passed away many years ago, and all assets were in joint tenancy with right of survivorship with his surviving spouse, or payable to the surviving spouse by power of appointment. Surviving spouse passes away, leaving four adult children. The estate consists of a house and contents, C.D.s, bank accounts and a vehicle, all of which combined total less than $100,000.00. The assets were never made subject to a Trust. A Will leaving everything equally to the children is located, naming the oldest child as Executor. This estate does not need probated. The house is sold, and at closing is transferred using an Affidavit of Heirship and four QuitClaim Deeds from the surviving children. The accounts and C.D.s are retrieved using a Small Estate Affidavit, and the funds used to pay any known debt prior to distribution. Once a buyer is found for the car, it can be transferred using a special Secretary of State Small Estate Affidavit. Since the claim period for unprobated estates is two years, it is recommended that some funds be “held back” in an account in reserve for two years in case any unknown debts or claims are presented prior to the expiration of the two-year period.

Hypothetical IV:

Same example as Hypothetical III, but one child is not willing to cooperate with the execution of the Quit-Claim deed. If not part of a Trust, probate would then be recommended to give the Executor court ordered power to sign an Executor’s Deed for purposes of conveying the real estate and marshaling the remaining assets.

Concluding Observations

Nothing in this handout is meant to be considered legal advice, but rather is meant to provide clarification as to terms used in the field of estate planning and administration, how estate planning is done, and administration is implemented. The terms and explanations given are very general and are meant to give the average lay person a basic understanding of estate planning and administration.

Please remember that despite what you hear from others, everyone’s estate planning needs are unique. What might have been done by your neighbor or other family members for estate planning for their property might not be appropriate for your circumstances and may in fact be the wrong thing to do requiring many resources and litigation after death to correct.

Please do not take any major estate planning steps on your own without first acquiring the knowledge to understand the complete possible ramifications of those steps. Some of you may have heard horror stories from friends or acquaintances about how assets and dignity were lost by the failure to use an attorney to properly plan for the future. In most cases such tragedies could have been avoided by simple estate planning with an attorney at a nominal cost compared to what was lost.

At Stephens, Fiddes, McGill & Associates, P.C. we have over 100 years of combined experience in estate planning and administration. We can assess your circumstances, make recommendations that best suit your needs, and prepare those estate planning documents that protect the assets and dignity of both yourself and your family. Come see us and find out why our firm was voted multiple times as one of the top three law firms in Central Illinois. Please remember that all asset information acquired is subject to the attorney-client privilege and cannot be disclosed to others for any reason.

DISCLAIMER

The information contained herein, and any other accompanying information and/or forms, were prepared to answer general questions and give general information about estate planning in Illinois. The information provided is meant to assist readers with general issues, and not meant to constitute legal advice for any specific situations and does not replace the advice or representations of an attorney licensed to practice law in the State of Illinois. Stephens, Fiddes, McGill & Associates, P.C. makes no claim as to whether the use of this information will achieve the results you desire and disclaim any responsibility for the consequences of any form prepared and/or action taken in reliance upon the information/forms given. The law firm further disclaims that any attorneyclient relationship exists by the distribution of this information or forms provided.

TRUSTS

THE FOLLOWING IS INFORMATION EXPLAINING TRUSTS AND PROBATE. IT IS PROVIDED TO YOU FROM INFORMATION FROM THE ILLINOIS STATE BAR ASSOCIATION.

1. How are assets distributed at your death?
A. Non-Probate Assets.
Certain assets may be distributed at your death without court proceedings because of the way the asset is titled or because the asset permits a beneficiary to be named. These assets are often referred to as “non-probate assets.” Assets held in joint tenancy with rights of survivorship are non-probate assets because on the death of a joint tenant title automatically passes to the surviving joint tenant unless it is proven that the funds were placed in joint tenancy solely for purposes of “convenience.”

B. Assets Passing Without Probate: Non-Probate Assets.
Assets with beneficiaries designated, such as life insurance, IRAs and retirement accounts are also non-probate assets because the asset will be distributed to the beneficiary at the owner’s death without court proceedings. Assets that are not non-probate assets, however, such as bank or investment accounts in your name individually, are usually distributed pursuant to the instructions in your will, or if you do not have a will, by the rules provided for by law (intestate rules). These are probate assets. After your death, the court supervises the distribution ofyour probate assets.

C. What Is “Probate?”
Probate is a legal process for administering and managing the estate of a person who died. A court appoints and supervises a responsible individual or trust company, usually as designated by you in your will, who administers and distributes assets. If you have a will, the person appointed is called an “executor;” if you do not have a will, then the person appointed is called an “administrator.” In Illinois, a simplified version of probate called independent administration is available in many cases, but your attorney may still be required to appear in court. Probate has standard procedures for the orderly payment of claims and distribution of assets that may shorten the period for creditors to make claims against the estate.

Probate has the advantage of involving a judge to help sort out disputes and supervise unsophisticated executors. Because a court is involved, however, probate can be somewhat cumbersome, with the need for preparation of special court documents and attorney appearances in court. With a sophisticated trustee or when all the beneficiaries are in agreement, avoiding probate may be desirable.

An alternative to leaving your instructions for distributing your probate assets after your death in a will is to put those instructions in a revocable living trust.

2. What Is A “Trust?”
In its simplest form, a trust is the designation of a person or corporation to act as a trustee to deal with the trust property and administer that property in accordance with the instructions in the trust document. The person who creates the trust is known as the “grantor,” “settlor,” or “trustor.” The persons who receive income or other distributions from the trust are called “beneficiaries.” A trust in essence creates a duty for the person designated as trustee to hold and manage the trust property for the benefit of the beneficiaries as named in the trust document.

A. What Is A “Living Trust?”
Unlike a will, which only becomes effective upon your death, a living trust (also called a “revocable trust” or an “inter vivos trust”) goes into effect during your lifetime and is revocable (capable of being changed, amended, or terminated). A living trust is created by a trust agreement document that specifies who is to be the trustee and that explains how the trust should be administered both during your lifetime and after your death, among other things. It is important to keep in mind, however, that the trust document merely sets up the trust, which will remain empty until it is properly funded, or in other words until assets are actually put into the trust. To maximize the advantages of a living trust, it is essential that you properly transfer your chosen assets to the trust at some point.

You have a lot of flexibility when it comes to setting up your living trust. You may choose to name yourself as trustee and maintain control of the assets you put into the trust, or you may designate someone else. You can also name co-trustees, even if you are one of them. Similarly, you may be the sole beneficiary of the trust during your lifetime, or you may name others, such as your spouse and children, as additional beneficiaries. If you become incapacitated, the trust provides for a successor trustee to manage the trust assets. Upon your death, the living trust contains instructions for the distribution of your assets, just as a will would.

The two primary advantages of a living trust, to the extent you transfer your assets to the living trust during your life, are the avoidance of probate and the avoidance of guardianship proceedings.

Assets held in trust at your death do not have to go through the probate process. When you set up and transfer your assets to a living trust, the trust is considered the owner of your assets. When you die, there is no probate because the trust already owns your assets and not you. The assets are then distributed according to the instructions in the trust.

A living trust is especially useful if you own real estate in more than one state. The general rule is that real estate is probated where it is located. Owning real estate in more than one state will give rise to one main probate administration in the state of your legal residence and another (called “ancillary administration”) in each additional state in which you own real estate. However, because probate is not required for property held in a trust, you can bypass ancillary administration by transferring your out-of-state real estate to a living trust.

Another advantage to a living trust is that it provides for comprehensive disability planning. If you become incapacitated, a living trust provides for a successor trustee to take over the control of the trust. The successor trustee invests the trust funds and uses them for your benefit, according to the instructions in the trust. No other disability plan provides these complete instructions. The successor trustee cannot use the assets for his or her own benefit, although he or she may receive compensation (if allowed under the terms of the trust). Additionally, the trust avoids the necessity of having a family member or other person named as a guardian by the probate court to manage your assets.

In addition, there are two secondary advantages to a living trust. One is privacy. Unlike a will, the contents of a living trust are not a matter of public record. Like most court records, probate files are open to the public. Anyone can go to the courthouse and review your probate file, which will most likely identify the value of your probate estate, your place of residence, and the names and addresses of your legal heirs. In Illinois, under the simplified procedure for probate administration known as “independent administration,” an inventory and accounting do not have to be filed with the court, and therefore the key documents showing the assets of the decedent are not made public. Even though the independent administration process reduces the amount of personal information accessible to the public, a living trust nevertheless provides the ultimate in privacy because it does not pass through probate at all.

Second, creating and amending a trust is usually simpler than creating and amending a will. Unlike a will, a living trust does not generally require a formal signing ceremony with required words spoken before at least two attesting witnesses. Only the grantor’s signature is required to create a valid trust instrument, although if the trust may own real estate it is wise to have the signature notarized to meet recording requirements.

B. Who Controls The Assets Of A Trust?
The trustee named under the trust controls the assets of the trust. In a living trust, the individual who creates the trust in most cases acts as trustee. If you choose to act as your own trustee, you retain broad powers to control and use the assets you put into trust. When someone other than you is the trustee, the trust sets forth specific instructions for the investment and use of the trust assets during your lifetime. Typically, even if someone else is acting as trustee, you will be the beneficiary of the trust and can amend or revoke the trust during your lifetime. As long as you are acting as trustee of a living trust that you created, no income tax returns nor accountings are required. You also may appoint someone other than yourself to act as trustee if you feel you want your assets professionally managed, or if you want them in the hands of an independent party, although this may lead to additional work such as the filing of a separate income tax return for the trust.

C. Who Should I Name As Alternate Trustee?
If the makers of the Trust are deceased, and the Trust has significant assets and reserved payouts to beneficiaries, we strongly recommend that the Trust Department of a financial institution be named as the Alternate Trustee. Naming an individual as Alternate Trustee can put that person and trust assets at significant risk from failure to properly invest, failure to account for and make proper Trust payouts, and puts that individual at significant risk for future litigation by the beneficiaries for those failures. The Trust department of the financial institution is in the best position to properly invest for and account for Trust assets.
D. Trust Distributions To Beneficiaries.
One particular advantage of a Trust is that payouts to beneficiaries can be staggered over the course of time. It is never prudent to give an 18-year-old beneficiary significant amounts of money. Trust can be written up so that the Trust funds are used for the benefit of the beneficiaries by a Trustee who can exercise oversight of the expenditure of those funds. Lump sum expenditures of the Trust can then be distributed over time, such as onethird of the principal and interest when the beneficiary attains the age of 25 or graduates from an accredited college or university, one-half of remaining principal and interest at age 35, and the remainder at age 40.

3. How Do I Fund My Living Trust?
The primary advantages of a living trust –avoidance of guardianship and probate – are realized only if you fund the trust before becoming incapacitated or dying. The trust controls only the assets which are registered in its name, so any asset that has not been transferred to the trust before your death will likely have to pass through probate, thus undermining one of the primary advantages to having a living trust. You should therefore have all of your assets that would otherwise be probate assets transferred to the trust, (although there may be instances where leaving certain assets out of the trust is more beneficial or even necessary). This is not a problem when the trust is set up, but every time you acquire or exchange assets that would otherwise be probate assets, you must make sure they are registered in the name of the trust. The amount of time and fees associated with retitling property depends on the number and type of assets you have, where they are located, and how they are titled. Usually, you can do the retitling of assets other than real estate yourself by following your attorney’s instructions.

Not everyone is able to fund their living trust immediately after creating it. Even if you do not fund the living trust during your life to avoid guardianship proceedings and probate, your living trust can still effectively work as your estate plan if you sign a “pour over” will that distributes your probate assets at your death to your living trust. If anyone did look up your will at the courthouse, they would know only that your will left your assets to the trust.

4. Other Ways To Avoid Probate.
In Illinois, if the assets in your estate titled in your individual name have a gross value of less than $100,000 and do not involve real estate, then your will does not necessarily have to be probated. Your assets can instead be distributed after an attorney prepares a small estates affidavit.

To avoid probate for an estate worth more than $100,000 or for one that includes real estate, your property must either be held in a trust or pass directly to a beneficiary by operation of a beneficiary designation or pursuant to some special type of property ownership, such as joint tenancy. You can also avoid probate for residential real estate by using a Transfer on Death Instrument.

Probate can be avoided by holding property in joint tenancy with another person or persons due to the fact that the jointly held property automatically goes to the surviving tenant(s) upon your death. However, there are several disadvantages to joint tenancies. To sell real estate, stocks, and many other types of assets held in joint tenancy during your lifetime, you must have the signature of all joint tenants. Thus, if your joint tenant is uncooperative or becomes incapacitated, you cannot readily sell or transfer your assets in their entirety. Bank accounts can be more of a problem because most deposit agreements give all parties the right to withdraw funds, meaning your joint tenant has the right to unilaterally withdraw funds at any time without your consent. In addition, if your joint tenant has creditor problems, the creditor can garnish the jointly held asset to satisfy the debt. Finally, adding someone as a joint tenant may be considered a gift to that person and a gift tax may be imposed. In summary, although there are advantages to using joint tenancy, they are usually outweighed by the disadvantages.

5. Can A Living Trust Avoid Estate Taxes?
Both a living trust and will, if properly drafted, can be used to reduce or eliminate estate taxes under certain circumstances, and especially for married couples. It is not necessary to create a trust to avoid estate taxes. Tax saving clauses that are included in your living trust are virtually identical to the tax saving clauses that would be included in your will. However, in addition to potential tax savings derived from a comprehensive estate plan, a living trust can also assist in organizing your finances. Thus, a living trust is well suited to both of these purposes.

6. Does A Living Trust Speed Up Distribution Of Assets?

The amount of time required for the distribution of assets for both living trusts and probate estates vary greatly depending on the circumstances. Probate estates usually remain undistributed for at least six months after the probate process has started to allow creditors an opportunity to present claims. A partial distribution can be made within the first six months if family members are in need. The trustee of a living trust has the same responsibilities as an executor in a probate administration: identify and transfer assets, render an accounting, pay creditors, file and pay estate and income taxes, and resolve any pending litigation. Usually this will take roughly the same amount of time as administering a probate estate. If a federal estate tax return is due, the trustee or executor may elect not to distribute all of the probate or trust assets until the return is audited and the tax paid. Probate can be delayed by disputes in court. A living trust does not automatically protect the trust assets from a dispute. Disappointed family members or creditors may file a lawsuit against the trust which could delay distribution. Most often, however, the length of the distribution process depends on how long it takes to liquidate the assets, regardless of whether they are held in a living trust or in a probate estate. For example, real estate will normally take longer to liquidate and distribute than will bank accounts.

7. Can I Avoid Creditors By Creating A Living Trust?
This topic should be discussed with your lawyer. In general, your assets cannot be protected from your creditors by putting them into a living trust. At the time of your death, your trustee will pay off any final expenses and debts that may be outstanding. Moreover, because you retain control over the trust assets either by retaining the right to revoke the trust or by retaining the power to control the assets by acting as trustee, the assets held in a living trust will still be included in any calculation to determine if nursing home care, for example, is to be paid for by public aid.

8. How Does The State View Trust Assets If Trustor Has To Go To A Nursing Home?
Because Trust assets normally are available to the Trustor or must be used for the Trustors care benefit if incapacitated, the Trust assets are still considered by the State as assets of the Trustor and have to counted as such in determining eligibility for nursing home Medicaid eligibility. The only way to prevent Trust assets from being counted as assets of the Trustor for nursing home eligibility purposes is to create an Irrevocable Trust that is not for the benefit of the Trustor, and place in assets in that Trust five years before having to go to a nursing home.

9. What If A Beneficiary Is Disabled And On Governmental Aid That Is Sensitive To Income And Assets?
If a beneficiary is receiving governmental aid that is sensitive to income and assets of the beneficiary, special language called “Special Needs Trust Language” can be inserted into the Trust for that beneficiary. The Trustee will then be able to use the disabled person’s Trust share for the benefit of the disabled beneficiary without jeopardizing receipt of continued governmental aid.

10. Will A Living Trust Save Me Money?
The cost of preparing a living trust as part of your estate plan is generally about the same as incorporating a similar estate plan in a will. There may, however, be additional costs associated with creating a living trust. These generally include the preparation of additional documents required to transfer assets into trust name and fund the trust, especially if real estate is transferred. Cost savings from a living trust may occur after the death of the grantor. Because there is no probate involved, there are no court costs and no attorney’s fees for preparation of probate documents or court appearances. In some instances, these savings are substantial. Even without probate, there may be fees for attorneys, accountants, and other professionals who assist the trustee in liquidating and distributing the assets of the trust. The trustee is normally entitled to a fee, just as an executor or administrator would be.

11. How Do I Create A Living Trust?
It is always important to have appropriate professional advice in tackling something as complicated as a will or living trust. In Illinois, only attorneys can assist in this process. If you need help finding a lawyer, see information on back panel concerning Illinois Lawyer Finder.

The use of a living trust is an important estate planning option. While a living trust can serve several valid purposes, it is generally not the only answer. Simply executing a living trust will not materially affect the disposition of your assets, will not save estate, taxes and may not reduce administration costs after your death. On the other hand, a well-prepared living trust as part of your overall estate plan has many benefits and will facilitate the implementation of a plan that meets your goals.

We at Stephens Fiddes McGill & Associates, P.C. are prepared to answer all your questions regarding estate planning, including how a Trust can best serve you family. Call us for an appointment and we will be happy to examine your circumstances and advise you how to meet your estate planning needs.