Wills & Trusts

Your Last Will and Testament

A Simple Will sets forth the wishes of the person writing the Will, the “Testator”, and provides for the distribution of his estate after his or her death. A common gift in a Simple Will reads “to Joe, if Joe survives me, otherwise to Mary.” The gift is not held until Joe reaches a certain age, or attains a certain goal, such as after graduating from college. There are no restrictions on the gift to Joe, other than that he is living at the date of death of the Testator.

A Simple Will only disposes of the Testator’s “probate assets,” which are those assets that are owned by the Testator, in the Testator’s own name, alone, at the time of the Testator’s death. It will not dispose of any assets which were held jointly with right of survivorship by the Testator with others, or any assets on which the Testator named a beneficiary (i.e., a payable on death beneficiary).

Writing a Will does not ensure that Probate will not occur. In fact, Simple Wills are typically administered through the Probate Court. Think of a Simple Will as a “roadmap” for the Probate Court. Also, a Will must be filed after the Testator’s death and becomes a public record.

Supplemental or Special Needs Trusts

A Supplemental or Special Needs Trust (“SNT”) is typically established as an irrevocable trust. It is our intention when creating an SNT to provide for the use of family wealth as a supplement to public benefits. Generally, public benefits for the disabled person take into account assets that the disabled person owns or controls. When an SNT is used to hold assets, so long as the disabled beneficiary does not have demand rights, does not participate in funding the SNT, and is not the Trustee, the assets in the SNT should not be countable resources for purpose of calculating his or her public benefits.

Payback Provisions

In certain circumstances, public benefits provided to someone who has an SNT must be repaid upon the death of the disabled person. This depends on the type of benefits received. While payback may not seem like an ideal result, it does allow for the postponement of costs associated with care until after death, and often results in the net cost being lower, in that it is paid at the public source rate and not private pay rate. Payback does not apply in all cases.

Administration of the SNT

The SNT must have its own Taxpayer Identification Number (TIN).The Trustee may need to file annual income tax returns for the SNT, reporting income and expenses of the SNT, as well as any distributions made during the year.

The Trustee must carefully follow the distribution provisions and keep detailed records of all SNT activity, including records of all uses of funds. If the Beneficiary is receiving any public benefits, these records should be as comprehensive as possible.

There are many benefits to choosing a Trust, including the following:

  • Avoiding Probate
  • Providing for Long-Term Needs (e.g. Minor Children, Special Needs)
  • Utilizing Special Tax Provisions (in certain cases)
  • Increasing Flexibility of Dispositions
  • Increasing Privacy for Estate Disbursements and Life-Time Needs

The use of a Trust for estate planning can help achieve the following goals: (1) it provides a means of avoiding probate (2) it provides long-term asset management potential to assist with the care of minors or others with special needs; (3) it can take advantage of certain tax-saving provisions; (4) it provides flexibility with regard to the terms of asset disposition; and (5) it can prove to be far more private than a Will or a general power of attorney.

Illinois Trust Lawyers

At its most basic level, a Trust is a legal entity that can own or control assets. For many people, it is a terrific way to ensure that their assets are distributed according to their plans after their death.  The person in charge of the Trust is known as the “Trustee”, while the person who establishes the Trust is called either the “Settlor” or “Trustor”. The person whom the assets in the Trust will benefit is the known as the “Beneficiary”.  A Trust generally benefits one or more lifetime Beneficiaries and one or more after-death Beneficiaries.

1. Avoiding Probate:

A Trust provides a means of avoiding probate. Assets held in trust name are no longer “owned” by the person in control of the Trust. Therefore, to avoid probate with a Trust, you must not only create the Trust, but it must also be funded prior to the death of the Settlor. To fund a Trust, assets should be retitled into Trust name, or the Trust should be listed as the payable on death beneficiary of the asset. The procedure for accomplishing this generally is not difficult, but must be carefully done. Furthermore, retitling assets in Trust name will not affect your ability to utilize them. In a revocable Trust where the Settlor is the Trustee and Beneficiary, the Settlor may sell, transfer, deplete, etc. the assets as if they were not placed in Trust. Not all assets may be owned by a Trust. You are advised to seek specific advice of legal counsel and financial advisors as you determine which assets should be held by a Trust.

2. Long Term Asset Management:

The use of a Trust can provide significantly increased flexibility regarding the timing of the disposition of property.

First, a Trust can delay the placing of assets in the hands of a minor beneficiary. Assets that pass only by a Will (or by the intestacy statute if no Will exists) become the property of a minor recipient upon reaching their 18th birthday. This result can be avoided through the use of a Trust. For example, instead of a certain beneficiary receiving large amounts of property on his or her 18th birthday, the Trust could provide income paid in regular intervals, such as quarterly, and that the beneficiary has the right to withdraw Trust principal when the beneficiary reaches certain benchmark ages. For example, the beneficiary may be given the ability to request distributions of principal on a schedule similar to the following: 25% on his or her 25th birthday; 25% on his or her 30th birthday; and 50% on his or her 35th birthday. During the existence of the Trust, beneficiaries could have the ability to receive principal for certain other expenses such as education and medical expenses, and may request a discretionary distribution from the Trustee prior to a withdrawal right age. The flexibility of delaying and controlling payments by a Trust can represent a significant planning advantage for people with young children and can help ensure that funds set aside for the child do not wind up under the control of a guardianship court. 

Second, in the case of certain assets, the use of a Trust can enable a beneficiary to access funds. For example, if a young couple has large life insurance policies payable in the event of both of their deaths to their minor children, the life insurance company may refuse to payout on the policy until a guardian is appointed by a court of competent jurisdiction. The company may determine to “hold” the proceeds of the policy until the child reaches age 18. By using a Trust as the Beneficiary of the life insurance policy, this result can be avoided, in that the Trustee would accept the policy proceeds and hold them for the Beneficiary pursuant to the Trust provisions.

3. Tax Saving Provisions:

One of the most significant advantages of a Trust is that it can include tax-savings provisions. Specifically, a Trust can be drafted to ensure that each spouse can utilize his or her federal and Illinois estate tax exemption, which can result in significant estate tax savings. Tax laws and rates are constantly changing. Each year, it becomes important to review the current tax law structure and specific exemptions and rules. By understanding and taking advantage of existing tax laws, an individual, and his or her family, can save hundreds, or even thousands, of dollars in tax. Further, to minimize the estate tax impact of generational wealth, a generation skipping transfer in favor of grandchildren may also be employed.

Even if you do not have any estate tax concerns, you must still consider the income tax consequences of the provisions in your Trust, and of your beneficiary designations on any retirement accounts (e.g., IRAs and 401(k)s), or tax-deferred annuities.  If you are utilizing a Trust as a beneficiary of these types of assets, perhaps because your children are minors, the Trust must include specific provisions to minimize income tax liability upon your death.

Other options also may exist depending on the facts and circumstances of a particular situation.

4. Flexibility of Asset Disposition:

A Trust can provide flexibility with regard to modifying asset dispositions. Unlike with a Will, which must be modified through a duly executed Codicil, a Trust may provide for dispositions of tangible personal property by letter. This letter may detail who receives certain items of tangible personal property. Further, this letter can be changed at any time by the settlor, without further legal expense, and does not have to be executed with the formalities of a Will.

Furthermore, the assets may be distributed in the body of a Trust in a more flexible arrangement than can be found in a simple Will. For instance, the Trust may provide for the assets to be distributed in a staggered payout structure, or according to beneficiaries achieving goals (e.g., college graduation, maintaining job for a period of time).

5. Increased Privacy for Asset Distribution

Unlike a Will, which must be filed with the county after death and becomes a public record, a Trust is a private document. A Trust is not required to be filed and continues to be a private document even after your death.  Only the beneficiaries identified in the Trust, and financial institutions or others involved in the administration of the Trust will receive a copy of your Trust.

The above list is not an exhaustive list of the benefits of a Trust. We would be happy to discuss how a Trust could benefit you and your loved ones.

Trusted Estate Planning Lawyers

Creating a Will or Trust that effectively avoids unintended consequences requires the assistance of a knowledgeable attorney. When it comes to drafting yours, work with an attorney you can trust and who has the extensive knowledge and experience you need.

The benefits to a carefully thought-out and well-crafted estate plan, include:

  • Avoiding Guardianship & Probate courts
  • If probate is required, reducing probate costs through independent probate administration and eliminating the surety bond fee
  • Naming beneficiaries outside of the statutory scheme
  • Naming the executor
  • Detailing the role of the executor
  • Detailing burial/ final disposition requests
  • Naming the guardians of minor children
  • Providing for contingent beneficiaries, guardians, and executors

We have used the expertise of Susan Dawson and others at Navigant Law for quite a few years. She has been instrumental in guiding us through several difficult situations. Our experience with Navigant Law has resulted in us referring them to our clients. In every instance our client has thanked us for the results generated by Navigant Law.

Bob Schutz, President | DSP Insurance Services

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