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Using a Special Needs Trust to Assist a Disabled Family Member

Web Admin - Friday, August 10, 2018
Inverness estate planning trust attorneyPeople who have saved money or accumulated assets over the course of their lifetime will often want to pass these assets on to their loved ones, either before or after their death. This is especially true when family members have disabilities or other special needs. However, when providing financial assistance to these family members, it is important to make sure that doing so will not make them ineligible for the public benefits they need to meet their needs. An experienced estate planning attorney can help you protect your loved ones’ interests by establishing a special needs trust.

Benefits of a Special Needs Trust

People with mental or physical disabilities are usually able to receive government benefits such as Supplemental Security Income (SSI) or Medicaid. However, eligibility for these benefits is based on the income earned and assets owned by the recipient; in most cases, a recipient must own no more than $2,000 in assets, and there are also limits on the amount of income they can earn. This means that if a well-meaning family member gives them money or other assets, either through a direct gift or an inheritance, it may make them ineligible for the benefits they need. 

To avoid jeopardizing a disabled person’s ability to receive public benefits, their family members can use a special needs trust (sometimes called a supplemental needs trust). This is a type of irrevocable trust in which the assets will be placed under the control of a trustee, which could be another family member or a financial institution. The trustee will then ensure that the assets are used to provide for the beneficiary’s needs.

There are specific rules that must be followed in special needs trusts. For instance, the trust can only be used to pay for certain expenses related to the beneficiary’s care, such as the costs of medical equipment, caretakers, transportation, or educational expenses. Using funds from a trust to pay for food or housing may make a beneficiary ineligible for public aid. 

Contact a Schaumburg Trust Attorney

Since a disabled person will often need assistance throughout their entire life, it is important to ensure that trusts are set up in a way that will provide them with the resources they need for many years to come. An Arlington Heights estate planning lawyer at Drost, Gilbert, Andrew & Apicella, LLC can help you create a special needs trust that meets your loved one’s needs, and we can help you address any other estate planning needs, ensuring that you can provide for your family both before and after your death. Contact us at 847-934-6000 to arrange a personalized 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.



Sources:
https://www.investopedia.com/terms/s/special-needs-trust.asp
https://money.usnews.com/money/personal-finance/articles/2015/11/04/how-to-draw-up-a-special-needs-trust-for-a-child-with-disabilities
https://www.cnbc.com/2017/10/25/how-to-set-up-a-special-needs-trust.html

Two Important Benefits Provided By a Living Trust

Web Admin - Tuesday, August 07, 2018
Arlington Heights trust lawyerThe thought of planning for what should happen after one’s death is often too morbid for many people to want to consider. However, doing so is incredibly important, since you want to be sure that your wishes will be followed correctly and that your heirs will be able to receive the assets you plan to pass on to them with minimal complications. While you may think that the estate planning process begins and ends with the creation of a last will and testament, another tool that can be very powerful is a living trust. 

Trusts allow you to protect certain assets, placing them in the control of a trustee and passing them to your beneficiaries once certain requirements are met. With a living trust, you can serve as the trustee while you are still living and mentally competent, giving you control over your assets and allowing you to revoke or change the terms of the trust to meet your and your family’s needs. There are a number of benefits to using a living trust, but two of the primary advantages are:

1. Avoiding Probate

When a person dies, the executor of their estate will enter their will into probate court, which is a process that can be lengthy and expensive as the court reviews the will and approves the paying of debts and taxes and the passing of assets to beneficiaries. The will is entered into public court records, meaning that the family’s personal business is available to be viewed by anyone who wants to examine the court documents. 

A trust, on the other hand, does not have to go through the probate process. This will allow assets to be passed to beneficiaries much more quickly and with fewer complications, and it will also ensure that the details about the estate are kept private.

2. Planning for Illness or Incapacitation

In many cases, when a person becomes ill or incapacitated or is no longer able to manage their own affairs, a friend or family member is named as their legal guardian. Guardianship will often not only give a guardian control of a person’s health and personal care, but also their financial affairs. This type of situation is not ideal, but a living trust can help you avoid losing control of your finances by addressing how things should be handled if you are incapacitated. 

Your trust can specify what conditions should exist for you to be declared incapacitated or mentally incompetent, and it can name a successor trustee who will manage the trust in this situation. The trustee can ensure that you have the financial resources you need to provide for your own care, while preserving your assets to pass on to your beneficiaries after your death.

Contact a Palatine Estate Planning Attorney

If you want to know more about how to use a living trust to protect your assets and pass them to your heirs, the attorneys of Drost, Gilbert, Andrew & Apicella, LLC can answer your questions and work with you to create a comprehensive estate plan. Contact a Schaumburg living trust lawyer today at 847-934-6000 to schedule a personalized 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.



Sources:
https://www.thebalance.com/the-benefits-of-a-revocable-living-trust-vs-a-will-3505405
https://www.thebalance.com/pros-and-cons-of-revocable-living-trusts-3505384

Tax Considerations for 2016

Web Admin - Tuesday, January 26, 2016

tax considerations for 2016, Illinois Estate Planning AttorneyAs we head into 2016, there are various tax issues of which to be aware and are related to estate planning and real estate debt. These issues include an extension of an existing law, as well as new requirements for 2016.   

Consistent Basis Reporting  

Estate tax is a tax levied when a person transfers property upon his or her death. It is calculated by using the fair market value of everything the deceased person owns or has an interest in. The total value is called the “Gross Estate.” Certain deductions may be taken from the Gross Estate to arrive at the person’s “Taxable Estate.” Finally, the value of lifetime taxable gifts is added to the Taxable Estate and the tax is computed. Most estates do not require the filing of an estate tax return. However, for 2016, a filing is required for estates that have combined gross assets and prior taxable gifts that exceed $5,450,000.   

Under §6035 of the Internal Revenue Code (IRC), the executor of an estate who is required to file an estate tax return must provide to anyone who acquires an interest in the property of the decedent’s gross estate a statement that identifies the value of each interest in such property as reported on the estate tax return. This statement must also be filed with the IRS.   

The basis of certain property acquired from a decedent cannot exceed the value of the property as determined for federal estate tax purposes. If the value has not been determined, pursuant to the IRC, the basis ceiling is set at the value of the property as reported on the statement made under §6035. These new requirements are intended to help with ensuring there is consistent basis reporting between estates and beneficiaries receiving property from decedents. The statement required under §6035 is made on Form 8971, which must be filed at the earlier of either 30 days after the estate tax return under §6018 must be filed or 30 days after the estate tax return is actually filed.   

Real Estate Forgiveness   

Ordinarily, gross income includes income realized when a person with debt discharges that indebtedness. However, a provision under the Tax Relief Extension Act has been extended to 2016 by amending IRC §108. This provision allows individuals to exclude from gross income discharges of qualified principal residence debt. Qualified principal residence debt is acquisition debt incurred in connection with a taxpayer’s principal residence. This is typically indebtedness related to the purchase, construction, or substantial improvement of a principal residence where the debt is secured by the residence. It may also include refinancing indebtedness. 

This exclusion was extended because it is believed that people restructuring acquisition debt on their home, or who are losing their home due to foreclosure probably, do not have sufficient cash to pay taxes on the discharged debt in the event it were considered income. Additionally, the extension was considered necessary for individuals who entered into a discharge agreement while the exclusion was allowed, but that had not completed the discharge yet. By extending the exclusion into 2016, those agreements can still enjoy the advantage of exclusion. For more information related to any of these issues, please speak with an experienced Illinois estate planning attorney today. Our firm serves the communities of Inverness, Palatine, Schaumburg, Arlington Heights, Long Grove, Kenilworth, Barrington, South Barrington, Riverwoods, and Mount Prospect.  

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.


Sources: 

http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section6035&num=0&edition=prelim 

https://www.gpo.gov/fdsys/pkg/USCODE-2011-title26/html/USCODE-2011-title26-subtitleA-chap1-subchapB-partIII-sec108.htm


VA Benefits and the Transfer of Assets to an Irrevocable Trust

Web Admin - Friday, November 27, 2015

VA benefits and irrevocable trust, Illinois employment lawThe Department of Veterans Affairs (VA) provides our nation’s veterans with important benefits after they have been discharged from service. In order to qualify for those benefits, veterans must meet certain requirements. For some veterans, it may be necessary to transfer assets into an irrevocable trust to lower his or her net worth. 

Qualifying for Pension 

The Veterans Pension benefit is a tax-free, monetary benefit for low-income veterans. In order to qualify, the following requirements must be met: 

1. Veteran must be 65 years of age or older or permanently and totally disabled;

2. He or he must have been discharged under conditions other than dishonorable;

3. He or she must have served, which generally involves a minimum period of active duty service, one day of which was during wartime;

4. Net worth must not be considered too substantial; and

5. Countable family income must be below the yearly limit as set by law. 

Veterans who are concerned about their level of net worth may consider forming an irrevocable trust. By creating an irrevocable trust, net worth can be reduced in order to qualify for the Veterans Pension. The VA does not assess a penalty for transferring assets as long as that transfer occurs prior to filing a claim or notifying the VA of an intent to file a claim. The determination of net worth is subjective—the VA has discretion in determining whether a veteran’s assets are too large to qualify for the Veterans Pension. 

An irrevocable trust can be used to hold assets that are provided by a veteran in order to reduce net worth. Importantly, a veteran claiming benefits (as well as his or her spouse) cannot be an income or principal beneficiary of the trust established in order to obtain VA benefits. This is because the VA requires that the rights to property and income from that property be actually relinquished to be considered a reduction of net worth. 

A second issue relates to whether to form the trust as a grantor trust or a non-grantor trust. The VA compares income reported to it with Supplemental Security Income (SSI) and Internal Revenue Service (IRS) income records through a process called Income Verification Match (IVM). Due to the nature of a grantor trust, there may be a discrepancy between income reported to the VA and income that appears with IRS filings. 

Under a grantor trust, all items within the trust are taxed to the grantor on his or her personal income tax return. Ordinarily, the grantor is the person who funds the trust, which, in this case, is the veteran claiming benefits. The VA may assume that the tax reported on the veteran’s tax return is based on income of the veteran, which may lead to lower (or complete denial of) benefits. Therefore, a non-grantor trust, in which the trust is responsible for any tax, is likely more desirable, in an attempt to avoid this potential issue. 

Forming a Trust 

If you would like more information on the formation of a trust, reach out to a skilled Illinois estate planning attorney today. Our firm proudly helps individuals in the communities of Inverness, Schaumburg, Palatine, Arlington Heights, Kenilworth, Long Grove, Riverwoods, Barrington, South Barrington, and Mount Prospect. We look forward to hearing from you. 

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.



Source:
http://www.benefits.va.gov/pension/







Importance of Funding Your Living Trust

Web Admin - Friday, September 25, 2015

funding your living trust, Illinois estate planning attorney

The creation of living trusts in order to transfer property to beneficiaries is becoming increasingly popular. One of the major benefits of using a living trust is the avoidance of probate. However, if the maker of the trust (called the grantor) does not actually fund the trust with property or other assets, the grantor’s estate will likely have to go through probate. 

Living Trusts 

A revocable living trust is a form of estate planning that allows a grantor to determine who gets his or her property upon their death. A trust that is revocable can be altered, changed, or revoked during the life of the grantor. Upon the grantor’s death, the trust becomes irrevocable. After the trust becomes irrevocable, it cannot be changed and the trustee must follow the distribution plan made by the grantor. Alternatively, an irrevocable living trust is one that cannot be revoked once it is finalized. Both of these forms of trusts are called “living” trusts because they are formed during the life of the grantor. 

Living trusts provide the benefit of the avoidance of probate, which is a court process in which a determination is made as to how property is distributed upon the death of an individual. Probate, which is governed under Illinois law by the Probate Act of 1975, is often expensive and time-consuming. Additionally, it often means that property is not divided in accordance with how the deceased individual would have desired. 

In order to avoid probate, the grantor must correctly form the trust and fund the trust. A trust is formed through the creation of a written trust document that is signed by the creator of the trust and a notary public. The trust document must include a list of the property that is covered by the trust, name a trustee, and name the beneficiaries of the property included in the trust. 

The grantor must transfer the property that is to be covered by the trust into the trust. For most property, a trust is funded simply by including a list of covered property in the trust document. However, real estate must be retitled in the name of the trust in order to be correctly transferred. A trust that has not had assets properly transferred to it is called an unfunded living trust. 

Unfortunately, it is not uncommon for grantors to fail to fund their trust. This may occur when a grantor plans to get around to it in the future but never actually does it. Alternatively, a grantor may incorrectly believe that the creation of the trust document was sufficient. For example, in the case of real estate, the creation of the trust document is not enough due to the retitling rule. If a trust is not properly funded, the goals of the estate plan will not be achieved and the estate will have to go through probate. 

Help with Estate Planning 

Planning for what will happen to your property and assets is important for you and your loved ones. If you would like more information or help in forming a living trust, contact an experienced Illinois estate planning attorney today. Our firm proudly serves the communities of Inverness, Palatine, Schaumburg, Arlington Heights, Long Grove, Kenilworth, Riverwoods, Barrington, South Barrington, and Mount Prospect.

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.


Source:

http://www.ilga.gov/legislation/ilcs/ilcs5.asp?ActID=2104&ChapterID=60


Duties of Trustees to Beneficiaries

Web Admin - Wednesday, July 30, 2014

long grove wills and trusts lawyerOne common legal instrument that people use to plan their estates is a trust. A trust is a legal entity involving at least three roles: a settlor, a trustee, and a beneficiary. The idea of the trust is that each of these three roles work together. The settlor creates the rules of the trust and provides it with property, and they designate the beneficiary. The beneficiary, like the name suggests, is the person for whom the trust is managed. They derive the benefit of any income or other gains from the trust.

However, between the settlor and the beneficiary lies the trustee. The trustee manages the assets of the trust and uses them in the best interests of the beneficiary as directed by the rules of the trust that the settlor created. This means that the trustee has a variety of duties that they need to fulfill. These trustee duties can be thought of as either substantive or procedural duties. This is not an official classification, and the lines can blur, but it is at least a helpful way to catalog the duties.

Substantive Duties

Substantive duties are those that require the trustee to behave in a certain way. The central example is the duty to administer the trust by the rules the settlor laid out. The trust document will contain a variety of provisions, and it is the trustee's duty to follow them. Another example of these substantive duties is the duty of skill and care. This means that the trustee must manage the trust's assets with reasonable skill and caution. Similarly, Illinois law also imposes a “prudent investor” duty on trustees.

This means that the trustee has the duty to act as a prudent investor of the trust's assets including things like developing a diversified portfolio and actively managing investments as necessary. Trustees working with multiple beneficiaries also have a further duty: that of loyalty and impartiality. The trustee may not favor one beneficiary over the other unless the trust instrument provides some reason for it.

Procedural and Ministerial Duties

Trustees also owe beneficiaries a variety of more procedural duties, which involve the proper formalities of managing the trust. For instance, the law governing trusts in Illinois requires trustees to give annual accountings of the trust's receipts, disbursements, and an inventory of the estate. Trustees also often have duties to provide notice of certain actions such as changes in the trusteeship. This may also include a requirement that the trustee provide the beneficiaries with a copy of the trust instrument for their records.

These are just some of the many duties that trustees owe the beneficiaries of their trust. If you would like more information on the legal ramifications of managing a trust, contact an experienced Illinois estate planning attorney today. Our firm advises clients in many northwest suburban towns like Long Grove, Kenilworth, and South 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.

5 Benefits to Using an Institutional Trustee

Web Admin - Tuesday, April 08, 2014

illinois trusts and estate planning attorneyTrusts are versatile, useful legal instruments that allow the grantor (the person who sets up the trust) to set aside certain money or other assets for the use of another person (the beneficiary). However, the beneficiary does not have direct access to the assets. Instead, the trust is managed by a trustee whose job it is to control the assets and use them in the beneficiary’s best interest. This makes choosing the trustee one of the most important parts of setting up a trust.

Although most individuals can serve as a trustee, Illinois law also allows for the use of an “institutional trustee.” Institutional trustees are companies, often banks, who professionally manage the trust’s assets. These companies usually do charge a fee for the services, but the companies come with several benefits:

  • - They are skilled at managing trusts;
  • - They have the ability to handle complex paperwork and recordkeeping;
  • - They provide continuity to the management of the trust;
  • - They operate free of bias; and
  • - They are regulated to prevent fraud.

Reasons to Use an Institutional Trustee

  1. 1. Experienced Administrators: Institutional trustees have experience managing trusts. This allows them to easily navigate the legal requirements for trustees. Furthermore, many trustees are responsible for investing the trust’s assets. Banks and other institutional trustees are often professional investors who will be able to handle the task better than friends or family.

  1. 2. Strong Recordkeeping: Trusts also have fairly extensive recordkeeping requirements to prevent fraud on the part of the trustee. Institutional trustees have the infrastructure in place to make sure that important documents, like tax returns, are filed on time and do not get misplaced. Furthermore, the use of an institutional trustee prevents this complex work from being pushed onto a friend or family member.

  1. 3. Management Continuity: The corporate nature of institutional trustees also allows for continuity in the trust’s management. Trusts can last for decades and decades. An individual trustee may not be physically or mentally capable of managing a trust for its entire duration. Conversely, institutional trustees have the ability to smoothly transfer trust administration from one employee to the next, allowing for steady management of the assets.

  1. 4. Unbiased Distribution: Additionally, institutional trustees can eliminate the possibility of bias that might exist with trustees who are friends or family. The company would not have any prior history with particular beneficiaries that might interfere with the fair and evenhanded use of the trust’s assets.

  1. 5. Fraud Protection: Finally, institutional trustees have fraud prevention mechanisms in place. Although everyone would like to think that their friends or family members are above reproach, cases of theft on the part of the trustee do happen. Many institutional trustees are subject to government regulation and auditing requirements that can reduce the risk of fraud on their parts.

If you are interested in setting up a trust, consult with an Illinois estate planning lawyer to tailor one to your specific situation. Our attorneys lend their experience to clients across the northwest suburban area, including in Long Grove, Riverwoods, and Kenilworth.

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.

The Dynasty Trust: A New Method of Creating an Inheritance

Web Admin - Thursday, March 20, 2014

illinois trusts estate planning attorneyDynasty trusts are a new type of trust that can be used to minimize the burden of certain taxes that the government levies on inheritance by holding the inheritance in a trust for many generations. These trusts have become more popular in recent years as states have begun to relax or abolish a legal doctrine known as the rule against perpetuities. The rule is a complex legal doctrine that limited the length of trusts and other legal instruments to only lasting a certain period of time, usually about two or three generations, depending on a variety of factors. Now that the rule is being relaxed, it has made dynasty trusts a more viable option.

What is a Dynasty Trust?

Simply put, a dynasty trust is a trust that holds assets from which future generations will benefit. This has important tax consequences because assets placed into a dynasty trust are subject to the federal estate/gift tax only once. This means that the assets can flow down to further generations without future estate taxes. For instance, if a person left $10,000,000 to their child without using a trust, this would exceed the gift/estate tax exemption, so it would be subject to the tax. Then, if that inheritance appreciated in value and the child passed it on to a grandchild, it would be subject to another round of taxes. If, instead of simply passing the money down in the first place, the person had placed it into a dynasty trust, then the original $10,000,000 would be taxed at that point, but it the appreciated amount would not be subject to another estate tax when it went to the grandchild.

Another benefit of the dynasty trust is that it can help reduce the effects of the generation skipping transfer tax (GST). The GST exists because people used to leave money directly to their grandchildren in an effort to avoid the double estate tax of the previous example. The GST can take as much as 55 percent of the money passed down to grandchildren in excess of $1,000,000. If the dynasty trust is created using that $1,000,000 dollar exemption, then it can sizably reduce the burden of transfer taxes on future generations.

This means that the dynasty trust can be a very useful estate planning tool for people with large families, or those who have enough assets that the estate tax and GST are serious concerns. Additionally, dynasty trusts are also useful for people who would like to have some say as to how their money is spent after their deaths because dynasty trusts can sometimes be used to control such things.

If you believe that your estate planning could benefit from the use of a dynasty trust, contact a Long Grove estate planning attorney today. Our firm helps handle tax planning issues for clients across the northwest suburbs, including towns like Riverwoods, Barrington, and Kenilworth.

About the Author: Attorney Jay Andrew is 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.

Using Virtual Representation Effectively in Illinois

Web Admin - Wednesday, November 06, 2013

When a trust is created, many different people may have an interest in how it is administered. For example, it is common for the trust documents to allow one person to benefit immediately (i.e. a spouse), with others to receive the assets upon that beneficiary’s death (i.e. the children). Those who are set to inherit later obviously have a stake in how the trust is managed. Mismanagement may affect their interests.

But what happens if those future beneficiaries are children, disabled, or otherwise unable to effectively advocate for their interests? One solution is to go to court and have a judge appoint a guardian to act in their interest. But that process often takes significant time, is costly, and may be ineffective if the future beneficiaries are unknown, like unborn children.

Reaching an Agreement

Is there a way to settle disagreements involving a trust without going to court? Fortunately, there is.

Illinois has a “virtual representation” statute which allows select individuals to represent the interests of others to craft agreements, often dealing with disputes regarding a trust. Essentially, this law allows different parties to create agreements which avoid litigation and are binding on some future beneficiaries.

When used properly, these settlement agreements can solve ambiguities in the trust document, delineate duties of the trustee, and account for many other administrative issues. As a result, these agreements can be incredibly efficient, eliminating the risk of prolonged legal battles down the road.

Many Illinois residents are well served by exploring use of virtual representation to reach a nonjudicial agreement. However, it is important to proceed cautiously, usually with the aid of an attorney. When not created properly, the agreement may not hold up. Under the law, to be valid the primary beneficiaries must all be adults and legally competent. The trustee must also be a party to the agreement. Notably, the agreement cannot change the terms of the trust. In addition, the primary beneficiary must not have a conflict of interest with those who are being bound. To qualify as a primary beneficiary the individual must currently receive income or principal from the trust. Alternatively, the individual must be eligible to receive a distribution of principal at a certain date.

Learn More

Do you want to learn more about using virtual representation effectively? These issues are quite complex, and so it is helpful to contact a Palatine estate planning attorney to make sure you are doing everything in your power to protect your long-term interests. The law office of Drost, Gilbert, Andrew & Apicella, LLC serves clients in Palatine, Arlington Heights, Crystal Lake and other suburban Chicago areas.

Estate Tax Changes: Is it Time to Revisit Your Living Trust?

Web Admin - Friday, October 11, 2013

The American Taxpayer Relief Act of 2012 (ATRA) introduced “portability” as a permanent law which has many Illinois residents asking about the need for customary trusts. Portability allows a transfer up to $5.25 million in federal tax exceptions to surviving spouses. Previously, a married couple could only make the best use of both spouses’ exception amounts by dividing asset ownership and establishing a credit shelter trust (or an A/B living trust) that initiates after one spouse is deceased. Accordingly, a married couple can pass on $10.5 million to their heirs free from federal estate taxes.

If you have an existing A/B trust plan drafted prior to the estate tax law changes it is most likely based on the Federal Estate Exemption amount, which when it was $650,000, probably worked for a “mid-sized” estate. Now that the exemption is $5.25 million, people need to revisit the funding/formula clause of their A/B trust plan so that there is money present for a surviving spouse. Using portability rules at the federal level can allow a surviving spouse to live off the estate without necessarily the need for A/B planning depending on the size of the estate.

Additionally, a deceased spouse’s estate will not be taxable if less than $5.25 million. A surviving spouse will be required to fill out an IRS Form 706. The United States Estate (and Generation-Skipping Transfer) Tax Return will allow the surviving spouse to use the deceased spouse’s tax exemption or it will be lost. This exception is not transferable, but an A/B living trust can take advantage of the exemption amounts for potential transfers to grandchildren.

Though portability simplifies federal estate planning, but not Illinois Estate Tax, the need for traditional trusts is still apparent with the use of a credit shelter trust. There is potential to lose a deceased spouse’s unused exceptions if the surviving spouse remarries. A credit shelter trust with a new spouse can be used to protect this exception before remarriage. Prior to a remarriage, a credit shelter trust may provide asset protection and secure inheritances for children of former marriages and save assets from an heir’s creditors.

Inflation can also effect an exception amount because the portability law is fixed, but again a credit shelter trust can offer a safeguard. Finally, a living trust can avoid the costs and delays of probate that can cause family grief after a family death.

Since portability is here to stay, now would be a good time to revisit your living trust to determine how the portability law effects inheritance distribution. Contact an Illinois estate planning attorney to make sure your assets are accurately dispersed as you intend.


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