CALL US TODAY 630-780-1034

The Basics of Estate Planning and Trust

 Posted on October 31, 2022 in Estate Planning

kendall county estate planning lawyerWhat is Estate Planning?

Every person, regardless of wealth, has an estate. Your estate is made up of everything you have to your name, whether it be real property, a car, a home, savings accounts, life insurance policies, or personal property. Estate planning includes the process of determining how to distribute the possessions in your estate after you die and solidifying your wishes in the event that you become incapacitated.

Why is Estate Planning Important?

In order to make sure that what matters most to you is distributed according to your wishes, it is important to name your beneficiaries now. This will make distribution much easier in the future and eliminate potential arguments between loved ones. In addition to naming beneficiaries, estate planning should consist of instructions on how to provide for family members, explicit written protection for family members with disabilities, instructions for how to transfer your business and retirement, long term disability arrangements, guidelines for tax costs and fees, and provide instructions for how to manage your financial affairs when you are no longer able to.

Unfortunately, many people are guilty of not preparing for the inevitable for a variety of different reasons. Whether it is because they believe that they don’t have the time or money, life gets in the way, or they simply just don’t understand the process or importance of planning.

What Happens to My Assets if I Die Without a Will or Trust?

For those who do no estate planning, their estate will be distributed after death according to the laws of the state they were living in. Each state has a default set of rules and regulations for how an estate may pass in the event that the deceased does not have a will or a trust. These laws are called intestacy laws and it is the courts way of controlling how the estate is handled. Typically, the state will determine that a portion of the estate will pass to the spouse, if there is one, and a portion will pass to the children, if there are any.

Often when this happens, the court must get involved and the probate process is initiated – which is a hassle for everyone involved. If any of the assets have a successor by contract, then they will not be eligible for disbursement through probate, as they will automatically go to the contractual beneficiary. The types of items dealt with through probate includes property, furniture, vehicles, money, land, artwork, and shares in a business. In the case of items such as money accounts or property, they must have been owned solely owned by the decedent to be eligible to be distributed through probate, as jointly owned ones will most likely already have a beneficiary by default.

In Illinois, intestate succession is the process administered when an individual dies without a will or trust. Upon death, everyone must go through probate to wind down their affairs unless they have a revocable living trust or have assets under $100,000. In Chicago and surrounding suburbs, a typical home is valued at more than $100,000. Therefore, most families must go through probate court if there is no revocable living trust.

What Happens if I Become Incapacitated Without a Trust?

A person must undergo probate court if one becomes unable to make decisions for themselves during their lifetime. The case of Terri Schiavo is a prime example of a person who became incapacitated without the proper legal documents in place. In 1990, Terri Schiavo collapsed in her home and interruption of blood flow to her brain resulted in significant brain damage. She left no advance directive expressing her wishes about medical decisions in the event of her incapacity and thus began a long and time-consuming legal battle in which Terri could not advocate for her own wishes.

The age group that encompasses most individuals who are classified as being in a persistent vegetative state is both surprising and alarming. Approximately 80% of these individuals fall between the ages of 18 and 30.

Why is it Best to Avoid Probate Court?

Probate is a time consuming and expensive court process. At a minimum (with more simple estates), the probate court process takes 6 months to 2 years. Probate is necessary not only to facilitate the distribution of property from the will (if there is a will), but also to allow objections to the will by other parties. Objections can arise for a variety of reasons and investigations may also be required for several reasons, including the possibility that the deceased was not of sound mind when the will was made, the possibility that another will was made at a later date, the possibility that the will was forged, or that the decedent’s decision was improperly influenced.

The costs associated with the probate process are also dependent on the circumstances and complexity of the execution of the will as well as the size of the estate. It is estimated that the total cost of probate can amount to around 4% to 7% of the deceased’s estate, although this does again depend on the complexity of the process. If a will is contested, the cost of probate can rocket and you will find that the process will be far more costly both in terms of time and money.

This can be done whether or not a will has been left, and the probate process ensures that all debts and taxes are paid from the deceased’s estate and that the remainder of the estate is distributed to the beneficiaries as per the deceased’s wishes. If there is no will, the courts will still ensure that any debt are repaid to creditors that file a valid claim, and the remainder of the estate is distributed according to the state law.

There are a number of fees involved in probate, all of which add to the final cost of the whole process. These include appraisal costs, executor’s fees, filing fees for the court, surety bond fees, legal fees, and accountancy fees. The cost of probate may be reduced if the executor decides not to take a fee. If you are the executor of the will as well as the sole beneficiary then this would make sense. The fee you are paid for executing the will is around 2% of the estate, but this is taxable. However, as the main beneficiary you would get that 2% anyway, and it would be tax-free. Generally, legal fees and costs range from $3,500 to $10,000.

Because of the complexity of these proceedings that require court time and fees it usually takes months or years before significant progress is made. These laws are default rules, and do not take individual situations into account. If you have any interest at all in having a say in how your estate is handled, it is important you start planning as soon as possible.

How Do I Start Estate Planning?

First, you must decide whether you’d like to pursue a will or a trust. A will is a document by which a person directs his or her estate to be distributed upon death. Wills and trusts are both common ways in which individuals determine the distribution of their wealth. Trusts, unlike wills, have the benefit of avoiding probate, a lengthy and costly legal process that oversees the transfer of assets. At Gateville Law Firm, our general recommendation of to create a trust, though every situation is different and our attorneys will meet with you in order to determine what is the best route for you and your family, considering your ultimate goals.

Benefits of a Will

A will has two major benefits. One, it is inexpensive to create and two, it disposes of one’s property upon death. A will explains who inherits a deceased person’s assets, chooses who shall be the executor, and makes any specific gifts. An executor is a person who is responsible for probating the will. A lot of people falsely conclude that a trust agreement is for those with a lot of assets. A trust agreement does not require a minimum level of assets. Instead, a trust agreement is an agreement that smoothens the transfer of your property upon death or incapacity, eliminates excessive court involvement, and saves money. Similar to a trust, a will disposes of one’s property. Upon death, a deceased person’s will distribute his or her property upon death. For example, John Smith was age 50 years old and had a wife and two kids. John Smith’s will, will have stated that his wife should inherit his entire estate worth $750,000. Therefore, his wife receives the entire estate outright (no restrictions imposed), which is worth $750,000. A will distributes property outright and creditors are eligible to access a beneficiary’s inheritance. For instance, property that is transferred by a will is subject to divorce proceedings and beneficiaries’ creditors. Unlike a will, a trust agreement may have a spendthrift provision, which protects beneficiaries’ inheritance from being subject to creditors such as divorce proceedings or credit card companies.

Weaknesses of a Will

A will has several major weaknesses: first, a will is public information; second, a will lacks creditor protection; third, a will fails to plan for incapacity; fourth, a will does not avoid probate court; and fifth, a will does not maximize the reduction of federal and state estate taxes.

The first major weakness of a will is that it is public information. Anybody is entitled to read the will. Challenges under a will are easier. A will goes through probate court and court proceedings are public information where anybody has a right to information. Any heir has the right to challenge the will. Due to a will being public information, any heir may read the will and decide to challenge the validity of the will. In contrasts, a trust may solely be challenged by a beneficiary and a trust is private information. Therefore, a non-beneficiary of a trust does not have a right to the information contained in a trust.

Second, a will lacks a spendthrift provision, which enables a beneficiary of a deceased person to protect their inheritance from creditors such as civil lawsuits, divorce proceedings, and credit card companies. A will disposes of property outright without any restrictions imposed upon the beneficiary. For instance, John Smith has a wife and two kids. Both of John’s kids are adults and both are married. One of John’s daughters is going through a divorce proceeding with her husband. A transfer of property under a will to John’s daughter is subject to the divorce proceeding. Therefore, John’s daughter’s husband is entitled to a percentage of her inheritance from John. In contrast, a trust document may have a spendthrift provision, which protects a beneficiaries’ inheritance from creditors such as divorce proceedings, lawsuits, and credit card companies.

Third, another drawback to a will is it fails to plan for incapacity such as altheizmers’ disease or a car accident that leads to life support. A will is designed to transfer one’s assets upon death. On the contrary, a Trust is created to address death and incapacity. Therefore, one is subject to probate court if they lack the ability to make decisions for themselves. A guardianship procedure is a specific type of probate court designed to determine whether a person has the ability to make decisions for one’s self. Similar to probate, a guardianship procedure is an expensive, frustrating and expensive procedure. In contrast, a trust agreement plans for events such as incapacity. The Trust agreement chooses who shall administer one’s affairs if they became incapacitated.

Fourth, most people falsely believe that a will avoids probate court. A lot of lawyers draft wills with the understanding that these wills will become probate clients upon death. Having a will makes the probate process easier, but it still must undergo the probate process. Unlike wills, a Trust can avoid probate court because assets are no longer in one’s individual name and subject to probate court. One of the most common mistakes individuals make in the estate planning process is titling of assets and property. Title is how you own something, which helps to determine how you give it away, sell it, borrow against it, mortgage it, use it during your life and pass it to heirs at your death. Titling your assets and property play a crucial role in the effective management and transition of your assets.

Benefits of A Revocable Living Trust

A revocable living trust is an arrangement you make for management and distribution of your property. A revocable living trust (hereinafter referred to as living trust) is called revocable because you may change, alter, or amend the document. A revocable living trust is established by a written agreement which appoints a trustee (person who administers the trust) to administer the property (which is transferred from your name to trust’s name) and which gives detailed instructions on how the property is to be managed and eventually distributed. The benefits of a living trust include privacy, avoiding probate court, providing credit protection for your beneficiaries, guardianship protection, a smooth transition upon your death or incapacity, reducing federal and state estate taxes, and it is easy to amend, change or alter the trust directions.

Unlike a will, a living trust is a private document. The beneficiaries and trustee (person who manages the trust) of the living trust are the sole people who have the right to know the contents of a living trust. Privacy is beneficial because it minimizes family disputes.

In addition to privacy, another major benefit of a living trust is the smooth transition that is created upon one’s death or incapacity (lack of mental ability to make decisions for one’s self). A living trust usually involves validation of your will, appointment of a personal representative upon death or incapacity, collection of your assets, notification and payment to your creditors, and transfer of your property to the beneficiaries under your will. The trustee must keep separate records for trust assets and might have to file separate income tax returns for the trust. Additionally, if you die owning real estate outside the state of Illinois, a court proceeding might be required in each state where real estate is located. A living trust can avoid these extra court proceedings and can substantially reduce probate fees.

A living trust should have a spendthrift provision, which protects a beneficiary’s inheritance from their creditors (beneficiary’s creditors). With an outright distribution to your beneficiaries such as a will, your beneficiary’s inheritance is subject to divorce proceedings or creditors such as credit card companies. A major benefit of a living trust is the protection against creditors for your beneficiaries. For example, Joe Smith has two kids who are his beneficiaries. Child A is going through a divorce proceeding with his wife and Child A’s inheritance is an asset that must be considered for divorce’s purposes. Therefore, Child A’s inheritance will be reduced due to his divorce proceeding.

Guardianship is the legal process for management of your property and providing for your personal needs when you become disabled or “incapacitated”. It is court-supervised and it usually involves a formal, public determination that you can no longer handle your own affairs; the appointment of a “guardian of the estate” to manage your assets, and a guardian “of the person” to care for you; the listing of your assets in the court file; court-supervised investment of your property; and the preparation and filing of periodic reports and accountings. A living trust avoids this guardianship procedure and provides a smooth transition. In the living trust, you designate a “trustee” to handle your affairs upon the happening of incapacity. With your loving instructions, the trustee manages your affairs as outlined in your living trust agreement.

A living trust provides a smooth transition upon the occurrence of death or incapacity. Awill must undergo the probate process and does not plan for incapacity. A living trust takes about two weeks to administer after the filing of the will.

A living trust can be easily amended or changed as long as the person who created trust is still alive and of sound mind and memory. It is crucial to consult an attorney to ensure that you amend or change your living trust correctly. Often times, the creator of a trust changes their mind about who should inherit their wealth upon death or who should manage their affairs upon incapacity. A living trust is a flexible document, which understands that change is constant. One should consult an estate planning attorney at least every two years to determine whether amendments to their agreements are needed. Changes in the law, new born children, and disputes in the family are all examples of why a family should amend their Living Trust every couple of years.

Experienced, Reputable Estate Planning Attorneys in Kendall County

As a general matter, estate planning is strongly recommended for everyone. Without a proper plan in place, the process of settling a person’s estate after they die can be emotional, costly, and overwhelming for the loved ones that are tasked with doing so. Regardless of which method you choose for your situation, it is important to get started on your estate planning as soon as possible because planning ahead of time can help protect beneficiaries of your property, reduce the amount of taxes taken by the IRS when transferring assets, and helps to eliminate family disputes that can arise during the distribution of an estate. The attorneys at Gateville Law Firm concentrate in estate planning. Our estate planning lawyers utilize cutting-edge estate planning and asset protection strategies to protect the economic security and peace of mind of our clients. We are eager to assist you and your family with their estate plans in Yorkville, Oswego, Plainfield, Aurora, Joliet, Plano, Bristol, Newark, and other areas in Kendall County, Illinois. We are passionate about helping families to protect their assets and create a legacy plan. Contact us today at 630-780-1034 or contact us via email.

Sources:

https://www.floridasupremecourt.org/content/download/363272/file/03-1242_JurisIni.pdf

Share this post:
badge badge badge badge badge badge

Questions?
Contact Us Today

Call 630-780-1034 or fill out the form below to set up a free consultation today:

NOTE: Fields with a * indicate a required field.
Name *
Phone *
Email *
Message *

DisclaimerThe use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

I have read and understand the Disclaimer and Privacy Policy.

Back to Top