Estate planning is important to avoid complications for your loved ones.
In 2019, the Illinois estate tax/gift exemption is $4 million, and the federal estate tax/gift exemption is $11.4 million. That means, for a person who passes away while domiciled in Illinois 2019, up to $4 million of their assets will be exempt from Illinois inheritance taxes and $11.4 million of their assets will be exempt from federal estate taxes. This is subject to any taxable gifts made during the lifetime of the individual who died (i.e., the decedent). Further, with a proper estate plan, a married couple can double their cumulative estate tax/gift tax exemption and avoid Illinois estate taxes on the first $8 million of assets and avoid federal inheritance taxes on the first $22.8 million of assets.
In Illinois, if a person dies owning assets in their name valued at $100,000 or more, but doesn’t have legal planning in place, the assets will have to go through a judicial procedure called probate before those assets can be distributed. Probate can be a long and expensive process. Furthermore, probate is a public proceeding that allows anyone to (1) make a claim on any of the assets, (2) potentially see the assets owned by the decedent, and (3) find out how those assets are distributed. (For more on probate, click here.)
Anything owned jointly by two or more people (i.e., bank accounts, brokerage accounts, real estate) or anything with a named beneficiary (i.e., trusts, insurance policies, retirement accounts) will pass automatically to the joint owner or beneficiary without probate and without any further action. (See What is a trust? FAQ.)
What is probate?
A: Probate is required in Illinois whenever someone dies owning $100,000 or more of assets and did not have a will or trust in place. Probate is a long and expensive court procedure where a decedent’s assets are collected and itemized. The probate court determines which obligations, taxes, and creditors are paid first, and it determines how any remaining assets are to distributed. This can be avoided by planning with an attorney how you want your assets to be distributed to your beneficiaries. Contact us so we can discuss your particular situation and the best fit for your needs.
Q: Can probate be avoided?
A: Yes. If you own less than $100,000 in assets in your name at the time of your death, probate can be avoided. Contact us so we can discuss your particular situation help determine what particular actions must be taken in order for you to avoid probate.
Q: What is a trust?
A: A trust is a legal document that can own assets and creates a fiduciary relationship with the trustee (the person who will manage the assets), who must follow the terms in the trust for the benefit of the beneficiary/beneficiaries named in the trust (the person setting up the trust can also be the beneficiary). Contact us so we can discuss your particular situation and the best fit for your needs.
Q: Is having a will important?
A: Yes. A will allows you to name guardian(s) for your minor children and provide for distribution of your assets according to your wishes after you are gone. Without a will, a court will determine who will be the guardians of your minor children and State law will determine which of your heirs will get your assets and how those assets are to be distributed. Without a will, the choices made by a court and by the law may not what you wanted. Creating a will with a lawyer can protect your beneficiaries and minor children and assure a smoother transition. Contact us so we can discuss your particular situation and the best fit for your needs.
For more information, see 10 Things You Should Know About Writing a Will
Q: What are the differences between a will and a trust?
A: See the table, below:
|Control of Distributions||Sets forth how the specific items (including money) owned by a person at the time of death will be distributed.||Sets forth the items (including money) to be included in the trust during the person’s lifetime, and how the items will be distributed after the person’s death.|
|Guardians of Children||Sets forth who will become the guardians for the minor child(ren) of the decedent.||Does not appoint guardians of minor children.|
|Effective Date||A will is effective immediately as soon as it is signed. It can be amended or revoked at any time prior to death.||After a trust is signed, the title to specific assets must be transferred to the trust for the trust terms to control those assets.|
|Probate||If a person passes away with $100,000 or more in assets in their name, the estate must go through probate.||If enough assets are transferred to a trust, or by other means (i.e., through joint ownership and/or naming a beneficiary) the estate of a decedent with less than $100,000 in assets in their name will avoid probate.|
|Asset Ownership||An individual owns their assets.||A trust owns the assets for someone’s benefit.|
|A will can be modified or terminated (i.e., amended or revoked) at any time while the person who created and signed the will is alive and competent.||Revocable living trusts can be modified and/or changed anytime the person who created the trust (i.e., the settlor) is alive and competent. Irrevocable trusts cannot be modified and/or changed at anytime after they are created. Irrevocable trusts are only necessary for people whose assets exceed (or may exceed) the amount of the estate tax/inheritance tax. Is this is a concern of yours, please contact us so we can discuss in more detail.|
Q: What is a power of attorney?
A: A power of attorney is a document whereby a party (i.e., the principal) gives another person the right to make decisions, take actions, and/or sign documents on the principal’s behalf. There are two main powers of attorney:
- Healthcare power of attorney: This allows medical personnel to communicate about the principal’s medical conditions to a third-party (i.e., the person with the healthcare power of attorney). The third-party can make decisions regarding the medical care and treatment of the principal when the principal is incapacitated. When properly drafted and executed, a healthcare power of attorney includes the principal’s wishes, made by the principal while competent, about receiving or not receiving life-sustaining treatment and about becoming or not becoming an organ donor. The person named as the third-party must adhere to those decisions. A healthcare power of attorney effectively replaces a living will. Having this form in place means a person’s preferences regarding his/her healthcare are followed, even when they can no longer communicate those decisions.
- Property power of attorney: This allows a third-party to make decisions and sign binding agreements on behalf of the principal to any/all/specific property of the principal when the principal is unable or not present to act on their own behalf. For example:
a.) When we represent a seller of real estate, we often have our client sign both the closing documents and a property power of attorney granting us power to execute peripheral documents on the seller’s behalf. This saves our clients considerable time because they do not need to attend their closing, which can be lengthy. (See Do I need to attend my closing? FAQ).
b.) If the principal has executed a property power of attorney but then something tragic happens and they can no longer manage their own affairs, the third-party now has the authority to manage the principal’s affairs (e.g., deposit checks, pay rent, mortgage, real estate taxes, insurance). A property power of attorney allows banks and other institutions to communicate confidential information and give account access to the third-party for purposes benefiting the principal.
Contact us so we can discuss your particular situation and the best fit for your needs.
Q: Do I need a will, trust, healthcare power of attorney, and property power of attorney?
A: No, not everyone needs all of these, but some people do. The minimum is to keep your assets safe and handled in the way you want, and your healthcare decisions to be followed, should you become incapacitated or die. Contact us so we can discuss your particular situation and help you determine the best fit for your needs. We often say, “we do not sell insurance, we sell assurance.”
For more information, see 4 Reasons Estate Planning Is So Important
Below is a list of definitions
Basis: the basis is the value (often purchase price of the property) used to determine profit or loss for tax purposes when property is sold
Double Taxation: double taxation is the concept that C-Corporations pay taxes on their profits and then the shareholders of the C-Corporation also pays taxes on their profits from the sale of their stock of the C-corporation
Easement: an easement is someone else’s right to access your property for a particular purpose