PSS LAW has prepared hundreds of Will-based estate plans. This page explains the importance of having a Will.
Do I need a Will? If you are over the age of 18, and you have property that you want to leave to someone in particular, you need a Will. Regardless of the size of your estate, it is critical that you have at least a simple Will. By executing a valid Will, you will have control over who gets your property and in what proportions, who will manage your affairs as executor, and who will serve as the Guardian of your minor children, if any.
What happens if I die without a Will? Without a Will, state law determines how your assets will be distributed. The government’s default plan for you could conflict with your wishes to benefit your parents, brothers, sisters and/or grandchildren. That plan could also conflict with your wishes to donate to a charity or provide for your partner or friend. Additionally, without a Will, you lose control over who is responsible for managing your estate; the Court will appoint an “administrator.” Finally, without a Will, it is more costly to administer your estate; that’s because state law requires that your administrator purchase a surety bond, which is paid out of assets of the estate. A Will typically waives the surety bond, thereby saving money.
Is probate avoided with a will? No. A Will guarantees probate. Probate can only be avoided through the use of a Living Trust.
Besides a Will, what else do I need? When you establish your Will, it is important to also execute a Power of Attorney for Property and a Power of Attorney for Health Care. You also might want to sign a Living Will. Finally, if you want your estate to bypass the probate process, you should execute a Trust at the same time you execute your Will.
When you come in for your initial consultation, PSS Attorneys will determine what is truly best for you. Your attorney will take the time to get to know you and your situation, explain your options, and help you develop a plan that suits your needs.
Revocable Living Trust
What is a Trust? A Trust, generally, is an arrangement where one or more persons (the Trustees) hold and manage property for others (the Beneficiaries). Typically, you will serve as trustee of your Trust while you are able and willing. When you no longer serve as trustee, a successor trustee takes over for you. If you create a Trust within your Will (i.e., within the same document as the Will), it’s called a Testamentary Trust. If you create a Trust outside of a Will (i.e., in a separate document) and while you’re alive, it’s called an inter vivos or Living Trust. A Testamentary Trust comes into being after the death of the Will-maker. A Living Trust comes into being during the Trust-maker’s lifetime (typically when the Trust-maker signs the document).
What is a Revocable Living Trust? A Revocable Living Trust is a Trust that you set up during your lifetime, and you state in the trust instrument that you reserve the right to revoke your Trust. Revocable Living Trusts are very useful in organizing and managing assets during life, and efficiently transferring assets at death without probate court involvement.
Can I Avoid Probate Court By Using a Trust? Yes. The “funded” Living Trust is a way to manage your property during your lifetime and pass it on to your beneficiaries at death without the burden of probate court proceedings. “Funding” the Trust is the process of the Trust-maker transferring his/her assets into the name of the Trust. Probate court proceedings can only be avoided through the use of a “funded” Living Trust. The probate court cannot be avoided through the use of a Testamentary Trust.
I’m Not “Rich,” So Will I or My Family Benefit From a Trust? Yes. Contrary to what many people think, a Trust is not just for “wealthy” people. Individuals with very modest estates can benefit from the use of a Revocable Living Trust.
How Does a Living Trust Work? Your estate planning lawyer prepares a Trust agreement that names the Trustee and the Beneficiaries and defines everyone’s rights and duties. The Trust may, if you desire, stipulate that you retain the power to amend or revoke the Trust whenever you want.
Typically, you serve as Trustee of your Trust until you can no longer handle the responsibility, at which time your successor Trustee will take over for you. Your successor Trustee(s) may be one or more responsible individuals, your attorney, a bank trust department or an independent trust company. You put property (real estate, securities, cash, etc., but NOT tax deferred accounts) in the Trust by transferring such assets into the Trust’s name; for example: John Doe, trustee of the John Doe Revocable Trust.
While you are serving as trustee of your Trust, you have the same amount of control over your assets as you did prior to transferring them to your Trust. If you become disabled and are no longer able to handle your financial affairs, your successor Trustee is directed to use the income and principal of the Trust to pay your necessary expenses. Upon your death, the Trust assets are distributed to your Beneficiaries in accordance with your directions contained in the Trust Agreement, or the Trust can continue for specified purposes for a period of time.
Advantages of the Living Trust. If you want or need to have someone else manage your property and pay your bills in case of illness, the Living Trust is a good arrangement. One alternative is a court-supervised guardianship that is more costly and inconvenient and has the disadvantage of disclosing your assets to the public.
If probate avoidance is important to you and a Living Trust is appropriate for your circumstances, keep in mind that all of your probate assets must be in your Trust at the time of your death to accomplish your goal of probate avoidance. You should work closely with your Living Trust attorney to see that the Trust gets “funded” properly. A properly funded Living Trust makes the estate administration process easier for your beneficiaries. Also, trust administration is usually less expensive than probate administration.
Because a Living Trust is not filed in Court, its provisions are private. This differs from a Will, which must be filed with the Probate Court and becomes a public document.
Disadvantages of the Living Trust. There are more initial costs in setting up a Living Trust as compared to a Will. Living Trusts generally necessitate more extensive, technical and complex drafting, which should only be performed by an experienced estate planning lawyer. Also, time needs to be spent to assure the proper “funding” or re-titling of assets in the name of the Living Trust. The advantages of a Living Trust usually far outweigh the disadvantages.
A Word on Taxes. Forming a Living Trust will not alter your income tax situation. While you are living and serving as Trustee, you report your income on your federal and state income tax returns just as you always have. You do not use a separate tax identification number for your Trust while you are living. At death, the assets in your Trust are included in your estate for State and Federal Estate Tax purposes as if you owned the assets outside of your Trust.
Married couples may save significant estate taxes by using either a Living Trust or Testamentary Trust estate plan, either of which may provide for the use of an Estate Tax Exemption Trust. If your estate exceeds the Illinois estate tax exemption of $4.0 million or the federal estate tax exemption of $11.4 million, your estate plan should include measures to defeat estate tax.
Power of Attorney
When you sign a Power of Attorney (“POA”), you create an agency relationship between you and your “attorney-in-fact” (i.e., agent). The attorney-in-fact need not be a lawyer – the word “attorney” in this sense means your agent. Your agent is duty bound to act in your best interest. If your agent abuses his/her power under your Power of Attorney, the agent can be held legally accountable through the court system. It is critical that you designate an agent who has a history of acting responsibly, especially when it comes to their own finances.
For estate planning purposes, there are two types of Powers of Attorney: Durable Power of Attorney for Property and Power of Attorney for Health Care.
Durable Power of Attorney for Property. In this type of POA, you name a person who will have the power to manage your finances if you become unable to do so (i.e., you become disabled). This type of POA continues to be effective during any period when you are incapacitated. If a POA is not “durable,” it will not be effective when and if the principal becomes incapacitated. Therefore, it is recommended that you direct your estate lawyer to prepare a “durable” POA.
Power of Attorney for Health Care. In this type of POA, you name a person who will have the authority to make health care related decisions for you if you are unable to communicate your health care wishes.
Powers of Attorney can be designed to take effect immediately, or upon the principal becoming incapacitated. PSS LAW generally designs POAs to take effect upon the principal becoming incapacitated; that is, when a medical physician confirms in writing that the principal is unable to manage their financial affairs. The agent named in the POA can then take the POA and the doctor’s written “confirmation of incapacitation” to financial institutions so as to manage the principal’s financial affairs.
What is a Living Will? A Living Will is a legal document that spells out the types of medical treatments and life-sustaining measures you do and don’t want, such as mechanical breathing (respiration and ventilation), tube feeding and resuscitation.
Do I need a Living Will? If you know that you would not want extraordinary measures taken to sustain your life, if such measures will only serve to delay the moment of your death, it is a good idea to execute a Living Will.
What is the difference between a Living Will and a Health Care Power of Attorney? If you ever have a terminal and irreversible medical condition, your Living Will serves to inform medical personnel that you do not want extraordinary measures taken to sustain your life if such extraordinary measures will only serve to delay the moment of your death. Through a Health Care Power of Attorney, you appoint another person to make health care decisions for you if you are unable to communicate your decisions regarding treatment options. Each of these documents serve a different purpose. In some cases, these two documents are joined together and referred to as an Advanced Directive. In other cases, particularly in Illinois, these two documents are separate and apart from each other.
What is an example of Living Will language? Here is some of the language found in the statutory Living Will in Illinois: “If at any time I should have an incurable and irreversible injury, disease, or illness judged to be a terminal condition by my attending physician who has personally examined me and has determined that my death is imminent except for death delaying procedures, I direct that such procedures which would only prolong the dying process be withheld or withdrawn, and that I be permitted to die naturally with only the administration of medication, sustenance, or the performance of any medical procedure deemed necessary by my attending physician to provide me with comfort care. In the absence of my ability to give directions regarding the use of such death delaying procedures, it is my intention that this declaration shall be honored by my family and physician as the final expression of my legal right to refuse medical or surgical treatment and accept the consequences from such refusal.”
Advanced Estate Planning
If you have done well financially, either through earnings, inheritance or lottery winnings, you might be a candidate for advanced estate planning. Advanced estate planning techniques are typically used to legally avoid or lessen estate taxes, achieve asset protection, and benefit multiple generations of your descendants. Advanced estate planning may also involve benefitting your favorite charities in ways that also benefit you.
Asset Protection Planning. Advanced estate planning tools and techniques can be used to help protect your assets from aggressive litigants (i.e., “Legal Predators”). Unfortunately, we live in a world where unscrupulous people seek out opportunities to file lawsuits. Although PSS LAW is of the opinion that no asset protection planning is guaranteed to be 100% bullet-proof, he can assure you that there are time-tested asset protection tools that prove to be very successful at protecting your assets.
Tax Planning. PSS Law can prepare a customized, advanced estate plan to help you lessen or completely defeat estate, gift and generation skipping taxes. The use of advanced estate planning tools for potentially taxable estates proves to be very valuable. The cost of establishing an advanced estate plan is usually miniscule compared to the potential tax bite.
Charitable Giving Planning. Perhaps you have a desire to make charitable gifts either before or after death. Clients often tell us that they don’t know how to make advantageous charitable gifts, aside from periodically writing out a check, which may not always be affordable during your life. You may be hesitant to make charitable gifts during your life because of your unknown financial future. There are practical ways to address your concerns and still provide for your favorite charities. Advanced estate planning tools and techniques can be used to make charitable gifts that make sense.
Everyone’s situation is different. No two estate plans are the same. The days of the 1 – 3 page common “form” Will are over. It is important that you hire an estate lawyer who is experienced in advising on the use of advanced estate planning tools and techniques.
Special Needs Trust
What is a Special Needs Trust? A Special Needs Trust, otherwise known as a “Supplemental Needs Trust,” is a legal instrument that is established for the benefit of a person who is receiving, or will be receiving, means-tested government benefits, such as SSI (Supplemental Security Income) and/or Medicaid (health care coverage for people with relatively little income and assets).
What is an example of the use of a Special Needs Trust? Let’s say that Grandma has a grandchild who was born with a disabling condition. Grandchild regularly needs expensive medical care. If Grandma’s Will leaves money directly to Grandchild, Grandchild will have to use those inherited funds before being eligible for further government benefits. A good solution to this problem is for Grandma to have Grandchild’s inheritance paid into a Third-Party Special Needs Trust. The trustee of the Trust will be able to use trust monies to purchase goods and services (i.e., “supplemental needs”) for Grandchild that are not provided for through government benefits. As long as the trustee spends trust monies in an authorized fashion, Grandchild will continue to receive uninterrupted government benefits. Grandma can provide that if Grandchild does not survive the complete distribution of the Third-Party Special Needs Trust, the left-over cash and securities in the trust can be paid directly to other beneficiaries chosen by Grandma.
What is another example of the use of a Special Needs Trust? Let’s say that Daughter receives government benefits, such as SSI and Medicaid. Mom dies with a Will that leaves monies directly to Daughter (i.e., not in a Third-Party Special Needs Trust ). Daughter essentially has two choices. First, she can accept the inheritance and use it for any purpose, but if she does, her access to SSI and Medicaid will be restricted for a period of time. In other words, Daughter will be penalized for having received the inheritance and using it for any purpose she desired. Second, the inheritance can be immediately deposited into a Self-Settled Special Needs Trust, otherwise known as a Supplemental Needs (d)(4)(A) Pay-back Trust. The Self-Settled Pay-Back Trust must provide that any monies left in the trust at the time of Daughter’s death shall be paid to the government to the extent of the value of the government benefits provided to Daughter during her lifetime. While Daughter is living, the trustee may use trust monies to provide Daughter with goods and services (i.e., “supplemental needs”) that are not provided for through government benefits.
It is very important that only authorized expenditures are made from the Special Needs Trust; therefore, it is critical that you appoint a trustee who knows, or is capable of learning, the technical rules related to government benefits and Special Needs Trusts.
Following are some important rules that must be adhered to during the administration of Special Needs Trusts. It is very important that the rules regarding distributions from Special Needs Trusts are followed. If the rules are not followed, you take the risk that Supplemental Security Income (SSI) and/or Medicaid benefits will be withheld for a period of time. To ensure that benefits continue uninterrupted, it is very important that you follow the rules regarding distributions from the Special Needs Trust.
First Rule: Generally, no trust monies should be distributed from the trustee directly to the beneficiary. When the trustee spends trust monies for the beneficiary’s supplemental needs, the trustee must make payment directly to the provider of the goods and services. For example, if trust monies are used to purchase a television for the beneficiary, the trustee must not give money to the beneficiary to make the purchase. Rather, the trustee must pay trust monies directly to the store.
Second Rule: Trust monies must only be used for “supplemental” needs. That is, monies shall only be used for goods and services not provided for through Supplemental Security Income (SSI) and/or Medicaid. Those programs are designed to provide for primary needs. Special Needs Trust monies must only be used to satisfy supplemental needs.
Vacation Home Planning
Estate planning is especially critical if you have a Family Vacation Home (e.g., cabin, cottage, Florida condo, Door County house, etc.). Any form of real estate that will be held within your family for more than one generation needs the attention of an estate planning attorney who has significant experience in Vacation Home Planning.
Vacation Home Planning will help your family AVOID:
- ugly conflicts between family members;
- a partition lawsuit brought by a family member who wants to “cash out” their ownership interest;
- a disorderly transition from one generation to the next;
- scheduling conflicts;
- conflicts regarding upkeep;
- fights over use of funds in the capital account;
- unnecessary estate taxes; and
- many more potential problems that could create family disharmony.
Vacation Home Planning will help your family ACHIEVE:
- a plan for who should make decisions regarding the property;
- a plan for the payment of expenses related to the upkeep of the property;
- a plan for how an ownership interest should be valued if a family member wants to sell their ownership interest;
- rules for who may purchase an ownership interest from a selling family member, if such a sale is allowed;
- a plan for resolving conflicts between family members without the involvement of the courts;
- a plan for how to structure the eventual sale of the property, and how sale proceeds will be distributed; and
- many more benefits, including family harmony.
The centerpiece of a Vacation Home Plan is either a Vacation Home Trust, Vacation Home Partnership Agreement, Vacation Home Tenants-in-Common Agreement, or Vacation Home LLC Operating Agreement (i.e., Limited Liability Company). Which form of Vacation Home Plan is best depends on the particular circumstances of each case.