What Is Included in an Illinois Living Trust?

Web Admin - Thursday, December 31, 2020

Kenilworth estate planning attorneyWhen someone passes away, there is a legal process for administering and managing his or her estate, which is often referred to as estate administration. Instead of creating a will that outlines how assets will be distributed after death, a person can put those directives in another document, called a living trust. A trust is a legal document that designates a person or corporation to act as a trustee to administer the trust property according to the trust instructions. The individual who drafts the trust is considered the “grantor” or “settlor.” Those who receive assets or income from the trust are known as “beneficiaries.” The individual who is assigned as the trustee has a responsibility to uphold and manage the trust property for the beneficiaries named in the trust document. If you or someone you know is considering establishing a trust, an experienced estate planning attorney can help you draft this important legal tool.  

The Difference Between a Will and a Trust

A will only takes effect upon a person’s death. A living trust becomes valid during the grantor’s lifetime and can be either revocable or irrevocable. A living trust designates a trustee and explains the steps for administering the trust during a person’s life in addition to after his or her death. It is important to note that the trust document simply sets up the trust, which remains empty until assets are placed into the trust.

An individual can be the sole beneficiary of his or her trust while he or she is living. Alternatively, he or she can name a spouse or children as other beneficiaries. In the event the grantor becomes incapacitated due to a serious illness or injury, the trust designates a successor trustee to manage the assets. Upon the grantor’s death, the living trust instructs the distribution of assets like it would in a will. These assets may include cash, life insurance policies, individual retirement accounts (IRAs), stock portfolios, real estate, and other business interests. By putting who gets what into writing can prevent arguments or disputes between family members who believe they are entitled to any assets. 

The Benefits of a Living Trust

The benefits of a living trust include avoiding going to court for probate and guardianship proceedings (in the event a minor is involved). A living trust can be especially useful when someone owns real estate property in more than one state. Generally, real estate is probated in the state where it is located. There are people who may own real estate in one or more states, which usually requires probate to be administered in the owner’s home state. However, probate must also be conducted in any other state in which a person has property. Since probate is not necessary for property that is held in a trust, homeowners can forgo this additional administration as long as the out-of-state real estate is included in the living trust.

Unlike a will, a living trust is private since it is not a public record. 

Contact a South Barrington Estate Planning Lawyer

Thinking about and planning ahead for your future is important to prevent disputes among family members upon your death or if you become incapacitated. Depending on your circumstances, you may want to create a living trust instead of a will. Drost, Gilbert, Andrew & Apicella, LLC, are well-versed in Illinois law pertaining to estates. Our accomplished Long Grove estate planning attorneys will help you draft and review these essential legal documents. Call our office today at 847-934-8000 to schedule a free consultation.

About the Author: Attorney Jay Andrew is a founding partner of Drost, Gilbert, Andrew & Apicella, LLC. He is a graduate of the University of Dayton School of Law and has been practicing in estate planning, probate, trust administration, real estate law, residential/ commercial leasing, contracts, and civil litigation. Since 2005, Jay has been a Chair of the Mock Trial Committee for the Annual Northwest Suburban Bar Association High School Mock Trial Invitation which serves over 240 local Illinois students each year.



Capital Gains Tax and Trusts

Web Admin - Thursday, June 25, 2015

capital gains tax, Illinois estate planning lawyerToday, increasing numbers of individuals are turning to trusts as opposed to wills for their estate planning. Trusts are often advantageous over wills because they allow for greater flexibility and control over assets. It is important to know the impact of capital gains tax on the assets that fund a trust.

Step-up in Basis

Capital assets include items like a house, stocks or bonds, and machinery. When one of these items is sold, the difference in the sale price and the original purchase price is considered a capital gain or loss. If an item is sold and a profit is realized, the capital gain is taxed.

If an individual forms a grantor-type trust, all appreciated assets that are transferred into the trust (items like real estate or a stock portfolio) are eligible to receive a step-up in basis upon the death of the grantor. Basis is the cost of the property or asset. A step-up in basis is a readjustment of the value of an asset to its current value for tax purposes upon inheritance of the asset. This is important because it minimizes the beneficiary’s capital gains taxes going forward.

For example, let’s say a grantor purchased an asset for $50 and transferred it to a trust. The grantor’s basis is $50, meaning if the asset were to be sold, the difference between $50 and the sale price would be the amount subject to the capital gains tax. Now, let’s say that at the time of the grantor’s death, the value of the asset is $100. The beneficiary receives a step-up in basis, meaning his or her basis is $100, not the $50 that the grantor originally paid. This is important because if the beneficiary decides to immediately sell the asset for $100, she will not be subject to any tax. Further, any sale in the future after the asset increases in value will be subject to tax on the difference between the sale price and $100, as opposed to $50 if a step-up in basis was not available.

An important consideration is when the step-up in basis is applied. For example, how is the step-up in basis determined if a married couple each owns half of an asset through the use of separate trusts and they die at different points in time? If the deceased spouse’s share is transferred to the surviving spouse, the surviving spouse will receive a step-up in basis. When the surviving spouse dies and the trust is inherited by the beneficiaries, they will also receive a step-up in basis.

Finally, it is important to be aware of the Medicare tax on “unearned” net investment income. This imposes a 3.8 percent tax on the net investment income, which includes capital gains, of joint filers who have a modified adjusted gross income of greater than $250,000 or single filers with an adjusted gross income of greater than $200,000.

Help Forming Your Trust

If you would like more information about forming a trust, you should reach out to an experienced Illinois estate planning attorney today. Our firm proudly represents individuals throughout the northwest suburbs, including areas such as Crystal Lake, Inverness, Schaumburg, Kenilworth, Long Grove, Palatine, and Barrington.

About the Author: Attorney Jay Andrew is a founding partner of Drost, Gilbert, Andrew & Apicella, LLC. He is a graduate of the University of Dayton School of Law and has been practicing in estate planning, probate, trust administration, real estate law, residential/ commercial leasing, contracts, and civil litigation. Since 2005, Jay has been a Chair of the Mock Trial Committee for the Annual Northwest Suburban Bar Association High School Mock Trial Invitation which serves over 240 local Illinois students each year.

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