Estate  Planning

A trust is, at its essence, a relationship. It is a relationship between three parties: a grantor (also known as a trustor or settlor), a trustee, and a beneficiary. 

The grantor is the creator of the trust. The trustee is the person or corporation the grantor entrusts with certain responsibilities. The beneficiary (or beneficiaries) is the person (or people) who benefits under the trust.

In many cases, these three roles can be played by the same person. For example, Jane Doe can choose to set up a trust--thus acting as a grantor. She can assign herself the task of trustee so that she can continue to manage her own affairs. Lastly, she can enjoy the principal and income generated from her assets, thus acting as beneficiary. 

Once this structure is set up, managing the trust when new people step into the role of trustee or beneficiary can be a smooth transition. Jane Doe's trust can have provisions in it that allow a successor to step into her shoes upon her incapacity and continue to manage her trust for her benefit. In this instance, she would no longer be trustee; however, she could remain the beneficiary, and her trustee would continue to manage the trust according to the clear instructions provided within her trust document.

Upon her death, her trust can continue to be administered by her successor trustee, but now for the benefit of others who Jane Doe named in her trust instrument. This allows Jane's family the potential ability to avoid costly probate proceedings that may otherwise be required had she not had a trust in place, and continue to be supported as they were during Jane's lifetime.

There are many different kinds of trusts. Some are revocable, meaning they can be terminated or amended by the grantor during his or her life, while others are irrevocable, meaning that they can only be changed (if at all) in very limited circumstances. Some are created during a grantor's life and are thus known as living trusts or inter vivos trusts, while others are triggered by death and are thus called testamentary trusts. Some are joint trusts, and are held by married couples jointly, while others choose to have individual trusts, held in their own name. Some individuals have multiple trusts, with each serving a special purpose. Even within a single trust document, a trust can create subtrusts, whereby certain triggering events can cause the creation of additional trusts.

Because the creation of trusts is so varied, it is best to speak with an attorney about what kind of trust is best suited for your circumstances.

As the name implies, a trustee is someone who has been entrusted with certain responsibilities.  This includes not only those specified in the trust agreement, but also the general duties of care and loyalty.  In terms of care, a trustee must use the kind of care, skill, prudence and diligence that a person familiar with the job would use to carry out the intentions of the grantor.  This applies to lay persons as much as it applies to corporate trustees.  

In terms of loyalty, a trustee must act solely in the interests of the trust beneficiaries and cannot do anything that puts his or her own interests before those of the beneficiaries.  

Because of these duties and many others, the selection of a trustee is of great importance.

A trust is created through a written declaration, coupled with the transfer of assets into the name of the trust.  The written trust document typically identifies who will serve as the initial trustee and who the trust will initially benefit.  It should additionally specify successor trustees and contingent beneficiaries.  

Of significant importance is the delineation of the responsibilities and powers of the trustee, both when the grantor becomes incapacitated and upon death.  A clear articulation of the intent behind the creation of the trust can oftentimes be very helpful for a successor trustee in determining how to best administer the trust pursuant to the grantor's intentions.

Control. A well-designed trust includes the ability to maintain control over the disposition of assets upon disability and death, including the ability to:

• Streamline disposition by pooling assets into a single trust;
• Extend the duration of control over assets;
• Build in flexibility to accommodate unique, unanticipated needs of a spouse, children, other beneficiaries, charities, etc.;
• Designate when children can access assets and to what extent; and
• Provide assistance with the management of assets for loved ones.

Incapacity Planning. A well-designed trust allows a grantor to create a framework for his or her care upon incapacity, including the ability to:

• Design a disability panel to avoid delays in trust administration upon incapacity;
• Continue to support dependents and loved ones during periods of disability;
• Ensure that the grantor continues to receive quality care and support during a disability.

Probate Avoidance. A well-designed trust allows a grantor to avoid probate because

• Assets are held in trust and thus no probate proceeding is required to manage the assets.

Tax Planning Abilities. A well-designed trust allows a grantor to create a structure that allows a trustee to manage the potential changes in tax laws. This may include the ability to:

• Minimize exposure to federal and state estate taxes; and
• Minimize exposure to capital gains and income taxes.

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Privacy. A trust, unlike a will, is a private document that does not become a public record upon death. 

Often referred to as a "Last Will and Testament," a "Will" is an expression of your wishes and desires for the distribution of your assets and the care of your loved ones upon your death. It serves many important functions.

Executor

First, your will identifies a trusted individual, referred to as an "Executor," whose job it is to execute the wishes you (i.e., the "Testator") have created in your will. The executor you name is, ideally, someone who is responsible and trustworthy and who can competently wrap up your affairs, distribute your assets, and hire attorneys, accountants, and real estate agents when necessary.

Guardian

Second, if you have minor children (a child under 18 years of age), then your will should also identify a trusted individual to care for your children should you pass away before they turn 18. Although the appointment of a guardian is done by a court, courts look to a will for guidance in selecting an appropriate guardian for a child.

Beneficiaries

Your will allows you to designate what happens to your assets upon death. You can choose to put them in a trust upon death through a vehicle called a testamentary trust, or you can have them distributed outright to your beneficiaries (i.e., those who benefit under the will). While the law has default provisions in place in case you fail to make a plan, by proactively designating how your assets get allocated, you can take some control over your loved ones' inheritances at your death.

Court Procedures

When an individual dies and assets become part of a probate estate, an executor must file the will in court and petition the court for issuance of letters of office. If a will has appropriate provisions in it, the court proceeding can be streamlined to reduce court costs and legal fees. Two of these provisions, the waiver of a bond and the election of independent administration, are important to include in a will and can save an estate significant fees and costs.

It's a common misconception that if you don't have a will, the government will take all of your property when you die.  In fact, the state of Illinois, like most states, has a back-up plan for you if you choose not to create a plan for yourself.  

The default rules provide that if you die with both a spouse and at least one living child, one-half of your estate will go to your spouse and the other half will go to your children.  If you have one but not the other (in other words, a spouse but no children, or children but no spouse), then either your spouse or your children will inherit all of your assets.  If you are neither married nor have children, then your assets go to your living parents and siblings, in equal shares.  If you have no living parents, nor living siblings (or their descendants), then state law requires that you move up the family tree to your grandparents, whereby your assets would be divided between your grandparents and their living descendants (i.e., your aunts, uncles, and cousins).  If you have no living grandparents, aunts, uncles or cousins, then the law requires you to again move up the family tree to find great-grandparents and their descendants.  If no relatives can still be found, then your estate gets divided among the "nearest kindred" in equal shares.  Only if there is no next-of-kin to be found does the property then go to the county.

In order to make a valid will in Illinois, four basic requirements must be met: 1) "you" (the testator) must be at least 18 years of age; 2) you must be of "sound mind and memory;" 3) the will must be in writing; and 4) the will must be signed by at least two credible witnesses.

Of course, there is much more to making a will than just these four components; however, the failure to meet these basic requirements will invalidate a will. 

Wills generally fall within three broad categories: 1) a basic will; 2) a will with testamentary trusts; and 3) a "pour-over" will.

Basic Wills

In a basic will, the testator appoints an executor (a trusted, responsible person or corporation) to wind up the testator's affairs after he or she dies, possibly sell off real estate and personal property owned by the testator, and distribute the testator's assets according to his or her plan. If the testator has minor children, then the basic will would also designate a guardian for the testator's children, subject to court approval. 

The basic will envisions that distributions will all be made outright -- in other words, the executor will not hold on to any of the testator's property in case a beneficiary is a minor, is disabled, or is unable for some other reason to handle his or her assets. 

Finally, a basic will is most often created by a testator who does not have a living trust nor is intending to create trusts upon his or her death.

Through the basic will, the testator can designate who cares for his/her children upon death and who gets to inherit which asset; it can waive bond payments to the court; and it can prompt a testator to organize his/her affairs to alleviate some of the burden that comes with probate upon the death of a loved one.

Wills with Testamentary Trusts

Often the most complex wills are wills that include testamentary trusts.  A trust is a relationship whereby the creator of the trust (i.e., the "Grantor") entrusts his or her assets and affairs to a trusted individual or corporation (i.e., the "Trustee") for someone's benefit (the "Beneficiaries"). Testamentary trusts are those that take effect upon death (as opposed to Living Trusts​, which take effect during someone's life). A trust, whether testamentary or living, creates a vehicle for the safe-keeping and sound management of assets for the benefit of another. This is especially relevant when a testator has minor children and has chosen not to create a living trust. The testamentary trust at minimum provides some oversight over a minor's inheritance and provides a foundation for financial security that can last throughout the beneficiary's lifetime.

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Pour-Over Wills

This third category of wills is utilized when a testator has created a living trust. Ideally, the living trust holds title to the testator's assets so that, upon disability or death, a successor trustee can easily step into the shoes of the testator and follow the plan the testator created while living. However, sometimes assets are not titled in the name of the trust--either inadvertently or by design. In that instance, upon the death of the testator, the assets that are not titled in the name of the trust and are thus part of what's referred to as the "Probate Estate" now need to get poured into the trust. This is done through the "Pour-Over Will." This will essentially serve to transfer all of the testator's assets into the living trust so that the management and distribution scheme laid out in the living trust can be executed by the successor trustee.

A "Power of Attorney" is a legal document empowering an agent to make decisions for a principal.  These decisions can address issues pertaining to real estate, financials, tangible assets, and health care.  There are two kinds of Powers of Attorney with regard to estate planning: 1) a power of attorney for property; and 2) a healthcare power of attorney.

You may have encountered powers of attorney in other contexts, such as buying and selling real estate; however, those powers of attorney are limited, meaning that they apply only in the narrow context for which they were created (for example, signing the contract for sale).  The powers of attorney discussed here, on the other hand, are general, meaning that they can apply to a broad range of circumstances and decisions.  Moreover, they are durable, meaning that they remain valid even after the principal becomes incapacitated.

Individuals who have a validly executed power of attorney can rest assured that someone they have selected and who they trust can step into their shoes and make decisions on their behalf if they suffer from an incapacity.  If, for example, you begin to experience signs of dementia and are thus unable to properly care for yourself or your assets, your agent designated within your power of attorney can step in and make decisions for you.

If, on the other hand, you fail to create a power of attorney and then suffer from an incapacity, your loved ones would be obligated to initiate a guardianship proceeding in court and have a judge appoint someone for you.

The Illinois Power of Attorney act, effective July 1, 2011, and found at 755 ILCS 45, governs the law in Illinois on Powers of Attorney.  Article II of the act is called "Durable Powers of Attorney" and addresses the ability for the agency to continue after the incapacity of the principal.  Articles III and IV of the act address powers of attorney for property and health care, respectively.

The agent is under no duty to exercise the powers granted under the power of attorney.  However, upon the exercise of a power, that agent must act in good faith for the benefit of the principal, using due care, competence and diligence.  He or she must keep records of receipts, disbursements, and significant actions, and provide copies of these upon request to state agencies or the principal.

State law creates statutory forms of the powers of attorney, which is highly recommended for individuals to use in Illinois.  Although the statutory form has its limitations, following the form allows for third parties to more easily recognize and accept the document, thus reducing the possibility of delay in acting pursuant to the agency created by the power of attorney.  The healthcare power of attorney must be signed by the principal and at least one witness.  The power of attorney for property must also be signed by the principal and a witness, and must furthermore be notarized.

A principal is able to designate a co-agent, but cannot do so using the statutory form.  Alternatively, a principal can designate a successor agent who can act on behalf of the principal in the event that the primary agent is unable or unwilling to act.

The agency can terminate at a date specified within the power of attorney itself.  However, unless otherwise specified, the agency terminates at the death of the principal.  Post-death planning and care is typically managed through the executor of the estate, as designated by the will, and/or the trustee of a trust, as designated by the trust.  

Powers of attorney are revocable, meaning that the power can be taken away by the principal after having given it.

Long-term care is expensive, and many Americans can't afford it. More than 10,000 Americans turn 65 every day, and the majority of these Americans will need long-term care services. While we should all have long-term care insurance to pay for these services, for many Americans--whether due to health, cost, or age-- insurance is not an option. In the meantime, the cost of long-term care can be upwards of $100,000/year; and yet, the median household income of older households is $42,000 a year. Privately paying for long-term care will quickly impoverish these Americans, undermining many individuals' goals of leaving a legacy and aging with dignity. 

Medicaid is a government benefits program that, unlike Medicare, will pay for nursing home costs. However, there are strict income and asset requirements that must be met for an individual to qualify for Medicaid. We help clients evaluate best options for proactively planning for eligibility, and for obtaining immediate eligibility in the event of a crisis.

​When working with clients long before they may need to qualify for Medicaid, we have the opportunity to devise an estate plan that allows these clients to both leave a legacy and age with dignity. Such a plan may include outright gifting, transferring assets into special trusts, and reallocating assets from countable assets to non-countable assets.