Estate Planning is for Everyone (including you!) Mary E. Vanek, Attorney at Law 540 W. Revere LN Palatine, IL

What is an Estate Plan?  Your Estate Plan should include the following documents:  Living Trust  Will  Power of Attorney for Property  Power of Attorney for Health Care  Living Will

LIVING TRUST  A Living Trust is created during your lifetime, and allows you to transfer most of your assets into the Trust, such as real estate, bank accounts and stock accounts. During your lifetime, you may act as Trustee of your own Trust.  If you become disabled your successor Trustee continues to manage your Trust for the benefit of you and your family.  When you die, your successor trustee takes control of the Trust, and distributes the Trust property according to your wishes. Having a Living Trust may allow you to avoid probate and guardianship proceedings.

WILL  Your Will allows you to name guardians for your minor children, make specific gifts of money, jewelry or other personal items, and instruct your Executor regarding your burial preferences.  If you have a Living Trust, your Will should be a “Pour-Over” Will that transfers all assets into your Living Trust.

POWER OF ATTORNEY FOR PROPERTY  A Power of Attorney for Property allows you to appoint somebody (your spouse, a relative or trusted friend) to make financial decisions for you in the event that you become disabled or incapacitated by illness or accident.  The Power of Attorney is effective only where non-Trust assets are involved – all Trust assets will be controlled by your successor Trustee if you become disabled.

POWER OF ATTORNEY FOR HEALTHCARE  Your Power of Attorney for Healthcare allows you to appoint an Agent to make decisions regarding your health care in the event that you become disabled and are unable to make your own decisions.  The new Illinois Power of Attorney for Health Care (effective July 1, 2011) appoints your Agent as your Representative under the HIPAA act. Your Representative can obtain medical information necessary to make health care decisions.

Why everyone needs an estate plan, not just the wealthy  Creating an estate plan lets you decide who will take care of your minor children when you die, and how your assets will be distributed. If you don’t have an estate plan, these decisions will be made by others.  Creating an estate plan allows you to create a trust and appoint a trustee to manage your assets if you become disabled. Without a trust, your family may have to endure expensive guardianship proceedings in the probate court system.  Creating an estate plan allows you to make gifts of your personal property, such as jewelry, antiques, and artwork after your death.  Creating an estate plan allows you to make charitable gifts to your favorite charitable organizations after your death.  Creating an estate plan allows you to avoid unnecessary State and Federal Estate taxes.  Creating an estate plan gives you and your surviving family members peace of mind.

LIVING WILL  In the event that your Health Care agent is unavailable, or there are any questions regarding your wishes regarding life-sustaining treatment, the Living Will declaration will speak for you.

WHY DOES EVERYBODY WANT TO AVOID PROBATE?  Probate refers to the court procedure for administering a estates. There are three different types of estates: decedent's, disabled person’s and minor’s estates.  Probate courts administer estates with Wills (testate estates) and without wills (Intestate Estates).  Even if you have a Living Trust, you may have to probate your estate if there are assets valued at more than $100,000 that are not included in your Trust.  You can avoid Probate, but you can’t avoid Estate Administration. Even if you have a Living Trust there will be a period of time after your death when your successor Trustee will have to take control of the Trust assets, prepare income tax and possibly estate tax returns, and distribute assets to the beneficiaries. Having a Trust keeps the administration of your estate out of the court system and out of the public record. Your Trustee will still need to hire an attorney (and probably an accountant) in order to complete the Trust Administration.

PROBATE CAN BE A GOOD THING FOR SOME PROFESSIONALS  If you are a lawyer, accountant, doctor or other professional concerned about potential malpractice or other claims, you may wish to probate your estate even if you have a Living Trust. This is because the probate process limits the time for making a claim against your estate to 6 months as opposed to 2 or more years for other claims against professionals.

CAVEAT – NOT ALL ASSETS CAN OR SHOULD BE HELD BY A LIVING TRUST  So far, it sounds simple – create a Living Trust and Pour- Over Will, transfer your assets into the Living Trust, and you are done with your estate plan! Not quite.  Joint Tenancy Assets cannot be held by a Living Trust. In order to transfer these assets into a Living Trust you will have to sever the Joint Tenancy.  IRA, 401(k) and other Qualified Plans cannot and should not be transferred into Living Trust ownership.  Depending upon your specific situation, these plans may require changes in beneficiary designations, which can be very complicated and should only be done with the assistance of legal counsel.

WHAT ABOUT LIFE INSURANCE?  Irrevocable Life Insurance trusts have been popular tools in the past for sheltering the value of life insurance policies from State and Federal Estate Taxation. If you have a very large life insurance policy (in excess of the $2 million Illinois Estate Tax Exemption amount) you may wish to create an Irrevocable Life insurance trust to shelter the proceeds from the Estate Tax.  For smaller policies you may choose to name your Trust as a beneficiary of the life insurance proceeds.

ILLINOIS AND FEDERAL ESTATE TAXES  The Illinois Estate tax exemption amount is currently $2 million per person, and the Federal exemption amount is $5 million per person, effective through the end of After that… who knows? The Federal Exemption may revert back to $1 million after 2012, when the current estate tax act “sunsets”.  Since 2009, Illinois law has allowed the use of an Illinois only QTIP election so that married couples with assets in excess of $2 million can shelter up to additional $3 million from Illinois estate tax. However, the Illinois estate tax on the amount in excess of $2 million can only be deferred, not avoided entirely.

ILLINOIS AND FEDERAL ESTATE TAXES, cont’d.  All of this uncertainty in the Federal and State estate tax codes makes planning for high net worth individuals and couples complicated.  Every estate plan should be reviewed every few years to make sure that it is up to date with the most recent tax law changes.  Your financial situation may change significantly in years to come, whether because of your own hard work, the receipt of an inheritance, or a lucky Lotto number. Regular review of your Estate Plan is very important.

PROVIDING FOR MINOR CHILDREN  If you have minor children (under the age of 18) you will want to appoint a relative or friend as your children’s Guardian.  The Guardian of the Estate of you minor child handles the money you leave for your child.  The Guardian of the Person of your minor child takes custody of your child and cares for your child on a day to day basis.  It is typical to name separate Guardians for the Person and the Estate of the child in order to provide a system of “checks and balances” for the guardians.  The Guardian of the Estate can be the same person as the Successor Trustee under your Living Trust.

GIFTS TO CHARITIES  Gifts to charities are more complicated than they appear. Failing to properly name the correct legal entity can result in your gift to Charity “lapsing” and being invalid.  Gifts to charity are exempt from estate tax under both Illinois and Federal estate tax laws.  Gifts to charities can create tax issues if you have a large IRA that you will be using to fund the gift.

HOW DO I CHOOSE MY EXECUTOR AND TRUSTEE?  Your Executor/Trustee will be responsible for marshalling your assets, preparing tax returns and distributing assets to benificiaries.  You will want to choose a person who has a strong financial background as your Executor/Trustee.  You will want to name a Bank or Trust Company to act as a Successor Corporate trustee, in the event that none of the individuals that you name are willing to act.  In our litigious society, it can be a risky to take on the responsibility of acting as an Executor and Trustee.

IT SOUNDS SIMPLE – WHY IS ESTATE PLANNING SO EXPENSIVE?  Every estate plan is as unique as the person it is created for, and requires careful consideration of your assets, the needs of your family, and the tax code.  Spending money now on a well-drafted Trust can save you and your loved ones money later.  You may be tempted to try a “do it yourself” estate plan such as Legal Zoom. Don’t.