Dodge Probate and Keep the Car…No Pun Intended
A popular reason people use trusts as estate planning tools instead of wills is because a properly constructed trust will typically avoid probate. As mentioned on my web site, probate can be lengthy, costly, and just plain unpleasant. Still, having a trust prepared, for some individuals, is like taking a bath when all they need to do is wash their hands. So over the next few weeks, I’ll add to last week’s commentary about how to avoid probate using tools other than a trust, which can also be costly. All of us don’t have Warren Buffett’s money and keeping up with the Joneses is getting difficult even for the Joneses. In addition to the Illinois Transfer on Death Instrument, or TODI, another tool that may allow heirs to avoid probate is the Illinois Small Estate Affidavit, established by Article XXV (25) of the Illinois Probate Act. The Small Estate Affidavit allows a decedent’s personal estate to be distributed if certain criteria are met: The estate is no more than $100,000 in total value. No real property is included in the estate. No contested claims exist on the estate. The person filing and completing the affidavit is called an “affiant,” and upon signing the document swears under penalty of perjury that the statements made, boxes checked, or information provided in the affidavit is true. One may still use a small estate affidavit if there is a will; the will simply must be valid. Additionally, the affidavit cannot be used to bypass the terms of the will. It is inadvisable to use a small estate affidavit if one or more of the heirs is a minor or disabled. However, if a person simply needs to retitle Aunt Bee’s Coronado, the Small Estate Affidavit will probably do the trick.
Can a TODI Keep You Out of Probate…Good Question
I’ve been asked a few times recently about the simplest way a person can transfer property, when they pass away, to loved ones. Undoubtedly, the probate horror stories reached a few ears. My response has generally been, “Glad you asked and good timing!” Then I start sharing the following information. On January 1, 2012, the Illinois Transfer on Death Instrument Act became public law. Under this law, the Illinois Transfer on Death Instrument (TODI) became available for Illinois residents who want to transfer property in a relatively efficient and inexpensive manner. The TODI only applies to residential property, primarily defined as 1-4 units or 40 acres or less of a single tract of land on which a family home was built. The TODI cannot be cast in stone, meaning, its creator can change it; and it is only effective when the owner dies. Furthermore, only a natural person, not a corporation or similar entity, may create a TODI. However, a corporation, trust, or other legal entity may be a designated beneficiary of a TODI. Another important point is although the TODI owner must have the same mental faculties to create a TODI that are required to create a will and a TODI allows for beneficiary designations, it is not a will. A valid TODI must Contain the identical aspects of a recordable deed; Expressly state that the property will transfer to the designated beneficiary when the owner dies; Be recorded before the owner’s death in the appropriate county; and Be prepared by a lawyer. Admittedly, I like that part. A few other items should also be noted about the TODI: It’s not a deed, even though it must be recorded. Beneficiaries have no legal interests in the TODI until death. A TODI beneficiary will not lose his or her needs assistance eligibility just because he or she is a beneficiary. Finally, because this instrument is based on new law, it hasn’t been tested. And no, I don’t like that part. As a result, the outcome of the “right to challenge,” which is provided by the law and the ineffective acceptance of beneficiaries is unknown. Thus, a TODI may be very beneficial for individuals of modest means with a small piece of property they want to keep in the family. However, the unanswered questions about challenges and invalid acceptance might create a Pandora\’s box for some. Do you have questions or comments? Feel free to drop me a line here or by e-mail.
A Living Will? Think Again…
In a recent newsletter, I briefly tried to take readers through the legalese maze used to discuss documents that give a person authority to make healthcare decisions for someone else. Because these documents are typically – and should be – signed before the need to make the decision arises, they’re often called, “advanced directives,” “healthcare directives,” or “healthcare proxies.” No such terms are used to identify these documents in Illinois. Confused yet? Here in the Land of Lincoln, the 2 main “healthcare directives” are a “Living Will,” which is based on the Illinois Living Will Act, and the Healthcare Power of Attorney (“HCPOA”), which falls under the Illinois power of Attorney Act. 755 ILCS 35 et seq., 45/4 et seq. (2011). People often confuse a Living Will with a Living Trust because we hear the term “will” and automatically assume the term has something to do with property. However, a Living Will has nothing to do with property, unless you consider your life property. Then again, our organs, tissues, blood, and so forth are defined as property under certain legal circumstances, but that’s not relevant here. A Living Will is a document that can authorize one person to make the decision for another person to prohibit or stop death-delaying procedures when the decision involves terminal illness. 755 ILCS 35/3(d). A Living Will requires the principal (person providing the authority) to be of “sound mind” and “willfully and voluntarily” execute the document. This means they have to know what they’re signing and be doing it of their own accord. Additionally, the document only applies where the principal has an “incurable and irreversible injury, disease, or illness judged to be a terminal condition … by an attending physician.” 35/3. A Living Will is primarily a “do not resuscitate” or “don’t keep alive by artificial means” declaration and requires not only the principal’s signature but also the signature of 2 witnesses. The other primary healthcare directive is the Illinois Healthcare Power of Attorney,which gives much broader authority than a Living Will and, ironically, only requires one witness. The HCPOA, like a Living Will, allows a person to delegate decision making about healthcare matters to another person (an “agent”). Those decisions can be not only about basic healthcare treatments, but also can “include, without limitation, all powers … to consent to or refuse or withdraw [from] any type of healthcare.” 755 ILCS 45/4-3. The law defines healthcare as including “any care, treatment, service, or procedure” used to sustain or cease a death-delaying measure. 45/4-10. Therefore, the HCPOA provides the same powers – and more – as a Living Will. So why have a Living Will? Good question. Often, the legislature passes a law that gives more authority and flexibility to those who will use it but doesn’t repeal the old law. This happens to be one of those cases: the Living Will as written in the law did not have a space for the name of the authorized agent or successor agent. It’s also why, if you reside in Illinois, you might want to execute an HCPOA instead of a Living Will.
JD, CPA, CFP – What\’s with the Estate Planning Alphabet Soup
When designing an estate plan for a new client, I usually ask if the client has a financial “team.” “A team?” you may wonder or say to yourself, “I don’t need a team because I don’t even have an estate! I just need a will, if that.” On the contrary, as mentioned in a previous post, you probably do have an estate and it’s likely larger than you think. So yes, you probably need a team. Consider this analogy: To maintain overall good physical health, you need a primary doctor, a dentist, and, if you’re female, a gynecologist. Now these providers may only consult with each other once, if then, but they are certainly aware of the other\’s existence because your good health requires it. An estate planning team works in a similar way, albeit a little closer, and is essential, especially if you have loved ones you want to protect. So here\’s the line-up: Estate planning attorney: Does more than draw up a will or a trust, and while online DIY services offer estate planning, if you use one, be sure there\’s a review by an attorney who understands the probate, trust, and tax laws in your state. In addition to the many laws, an estate planning attorney must also have a good command of the various, related documents needed to protect you and your family now and in the future. He or she should also possess, at least, a basic understanding of the federal and state tax implications of the distributions and powers designated within the documents, near-term financial planning, and retirement planning. Certified Public Accountant (CPA): Must take a licensing exam, work for as an accountant for about 5 years, and take continuing education courses to retain certification. Accordingly, a CPA’s knowledge base is deeper than a non-certified accountant. A CPA whose specialty is estate and income taxation typically consults with your estate planning attorney to ensure that the tax implications for you and your beneficiaries are minimized. Certified Financial Planner (CFP): While not required for CFAs, a CFP must take extensive exams in financial planning, taxes, insurance, estate planning, and retirement. He or she must also take continual financial planning courses to maintain their certification. A CFP performs the research needed to help determine how best to allocate funds to reach your personal goals and the goals of your family and consults with the estate planning attorney to ensure beneficiary designations are accurate and that allocations and distributions are aligned with your goals and unique investment style. In a nutshell, your estate planning team is a group of capable and highly qualified individuals who, together, help to ensure that: The intentions underlying your financial and personal interests are legal and accomplished during and after your lifetime; The tax implications of those interests are minimized; and The financial interests are secured and grown if possible. *Note: Different states have different rules on fee-splitting arrangements, but typically attorneys cannot accept fees from non-attorneys, at least in Illinois, which is a healthy check-and-balance on your team.
Saving Parents\’ Precious Resources
Occasionally, I’m stunned by how little current clients\’ or customers\’ needs are considered by service providers. As an estate planning attorney for “non-traditional families,” one of my key concerns for my clients is providing them with services that are not only excellent, but also efficient. Nontraditional families include women who are heads of households with children and, as the primary wage earner, they have 3 issues to continually manage: Financial resources Time Parenting While The Law Offices of Max Elliott may not be able to assist in quality parenting, we do provide services and use tools that bring efficiency to the first 2 issues. In plain English, we help our clients by saving them money and time. Estate planning, as is said so often now, is not just for the very wealthy. So our services allow you to determine the scope of estate planning protection that fits within your financial framework. Are you a median wage earner who rents with a teenager living at home but working his or her way through college? If so, then an estate plan that encompasses education planning and a Qualified Personal Residence Trust, or “QPRT,” may be unnecessary AND we won’t turn you away. We will simply recognize that more than likely, to protect your family and yourself, you will and should want to start with simpler vehicles, which is what you can obtain for probably less than 1-2 months’ rent. BUT… “It’s not money, but time,” you say. Well let’s look at Joan: Joan is an HR executive at a Fortune 500 company and earns more than the median. Plus, she’s up by 5 AM to workout, get the kids off to school and daycare, is working her smartphone by 7:30 at the office by train by 9ish, eats lunch at her desk, is on the 5:15 and cooking or ordering in by 6:30 but answers her email until 10:00 PM. Weekends are for catching up on the latest SHRM reports she missed while taking the train during the week. Joan came up along the ranks in HR, so it would be unwise for us to waste her time talking about 401(k) planning and HSAs. She’s a tech wizard who lives in the ‘burbs and works downtown, so I’d also never think to ask her to commit to only in-person meetings when a teleconference or an exchange on our secure client directory will suffice. Speaking of that directory, if you are the mom, renting, and with the teenager or a parent with kids and no time like Joan, or someone who just wants to save time and money, our secure online portal that is available for clients makes it easy to engage in substantive, secure conversations, exchange documents, and pay fees all in one place. It’s not an open e-mail or even e-mail on our website. It’s a secure, designed specifically for lawyers and used strictly by us and our clients. So, in concluding this shameless “use our service” self-promotional piece, I’ll just say that whoever you choose as your legal services team, make sure that your precious resources are considered and used wisely.
Heading to the Mall for a Gift and a … Will
An interesting concept that has already been established abroad is the ability to purchase testamentary documents at malls. Capitalizing on the concept and holiday traffic, during this past festive season, a couple of attorneys in Florida set up a legal services kiosk offering various legal services including \”basic estate planning.\” This set up involves dynamics that are both troubling and admirable. Estate planning is a complex practice, especially if you\’re approaching it from the perspective where your main focus is individuals with relatively large estates who want to protect their families but also seek to minimize taxes. Plus, considering the newer comprehensive approach, which incorporates using other financial professionals, estate planning is a relatively complex practice. This approach requires a more than basic familiarity with a number of disciplines because this approach uses a \”team\” of advisors, with the attorney at the top of a pyramid, with a financial planner and an independent CPA at the base. Finally, needless to say but I\’ll say it anyway – the tax laws are always changing. Still, it\’s doubtful that individuals with large estates who are mindful about the fees they pay will consider a kiosk; that\’s just not how they do business. On the other hand, a demographic does exist that needs testamentary documents to just protect family members in the event of a death or incapacity. The \”basic\” will and power of attorney would likely be applicable in this situation. Yet, I am troubled by lawyers who don\’t use these documents regularly and understand how they intersect with other law and regulations, especially powers of attorney and health care directives but offer them with a little counseling as a holiday special. If a gay or cohabiting couple approach these attorneys for wills or estate planning, there\’s no 15 minute answer. Finally, the middle class is struggling as it is; it cannot afford planning mistakes with the small amount of resources it has managed to maintain during the financial crisis. I absolutely agree that trying to help the middle class is admirable, but this setup may cause more harm than good. If the motive is helping the middle class, they could offer documents and a free review without the 15-minute time constraint? But the question then becomes do the attorneys have the requisite experience to know what to look for during the review.
Estate Planning Tools to Keep Lex-the-Ex Away
Outside of food and clothing, 2 of the most critical matters parents manage for their children are education and housing. Single parents are typically even more concerned with managing these issues because ultimately the responsibility falls on the primary custodial parent. Divorcees may breathe a little easier because of settlement and child custody agreements, but not necessarily. Family courts around the country are filled with defendants and plaintiffs arguing over alleged breaches of such agreements. Consequently, as a single parent, the burden is heavier. Managing housing and educational issues can be made easier with proper estate planning tools. An earlier blog post addresses basic estate planning instruments parents should have in place. This post discusses some of those instruments in more detail. Property Power of Attorney. As mentioned here, this authority, which you to give to another person, allows that person to make and carry out financial decisions for you when you are physically incapacitated. Thus, if you’re ill for a long time and need someone to pay the rent, mortgage or any other expenses associated with your family’s home, you should designate a trusted agent under a property power of attorney. Guardian of the Estate. A will allows parents to designate who should care for their children in the event of a parent’s death – a guardian. This is critical to single parents. However, in Illinois, there are 2 types of guardians: a “guardian of the estate” and a “guardian of the person.” A guardian of the estate status allows the guardian to manage the financial affairs of the minor, e.g., gifts received under a will or trust. This makes sense because sometimes the person you would trust to raise your children may not be as financially well informed as needed to manage large sums of money. So I typically advise clients to consider guardianship from both “personal values” and “financial expertise” perspectives. Trustee. In a vein similar to a guardian of the estate, a trustee is the person, or entity, you authorize to administer, preserve, protect, and grow trust assets. Note: Many people think they’re not personally wealthy enough to require a trust; many are mistaken in this thinking. Example: Sharon is the single mom of a 14 year-old daughter and has a home valued at $150,000 with a mortgage balance of $30,000. She has about $100,000 in a retirement account, and $500,000 in life insurance. Additionally, Sharon keeps approximately $1,000 in her checking account and $2,000 in her savings. She doesn’t feel like she’s wealthy, but if Sharon were to pass away today, her estate would be valued at $723,000. She would have died almost a millionaire! An important and related consideration is that unless other designations are made, life insurance and retirement account proceeds may be paid out to a very young adult, e.g., an 18 year old. How many 18 year olds do you know who are mature enough to manage receiving a lump sum of $600,000? Returning to Sharon’s scenario, where her daughter is a minor: If Sharon didn’t designate a guardian or trustee, but Sharon’s ex-husband, Lex, is lurking around, guess who would likely obtain control over the $600,000 – yep, Lex the ex. Life Insurance. Typically, life insurance is a death benefit and can be used to pay off mortgages and for other housing expenses. An Irrevocable Life Insurance Trust (“ILIT”) is a time-honored estate planning tool and excellent for providing for education and housing costs, especially if one does not intend to benefit from a policy otherwise. Transfer the policy in a trust where someone other than yourself is trustee and your child’s education is relatively secure. Securing the hearth and educational future of children is critical, so review your policies and plans today and get a good night’s sleep going into the New Year. Well…after midnight anyway. Your comments are welcomed as always!
Pumpkinheads Afoot in Estate Planning
Wills, trusts and estate planning is a great subject for Halloween because of the trick or treat nature of the area. The treats are significant: peace of mind, retirement, healthcare, education, and family harmony. However, the tricks can quickly eliminate all or almost all of the treats for most parties involved. Because so many people know someone who has a will and have at least heard of trusts and estate planning, many people know just enough to sound knowledgeable. Yet, many individuals also lack just enough knowledge to cause schisms if their advice is actually heeded. So how can we be tricked? Let me count the ways: A living will is just as good as a healthcare power of attorney. Trick: A living will is subordinate to a healthcare power of attorney, unless the person holding the living will has a terminal illness or is in a basically vegetative state. My dad’s house is only worth $50,000, so I can file a small estate affidavit and skip probate. Trick: Sure. You can skip probate, if the house is in an Illinois land trust and let’s hope that Dad didn’t take out a second mortgage that the house is still subject to. If the house is still subject to a mortgage, you may have problems trying to sell it. Estate planning is only for the rich. Trick: I\’m not sure who invented this one…maybe the Boyz on Wall Street. Nevertheless, please read this. After 7 years of living with my man, I can finally be put into his will as his wife and our child can inherit, too. Trick: Someone has put something in your water. Illinois hasn’t recognized common law marriages for decades, and your child…the inheritance issue is an even bigger trick in this regard. A trust will keep my creditors and the repo man away from my door. Trick: Not really. The repo man is coming and a trust will generally keep creditors away only if you don\’t own anything, i.e., you are not the trustee nor are you the beneficiary of the trust assets. I won’t have to pay taxes if I put my assets in a trust. Trick or treat: If your assets are instruments that appreciate in a tax-deferred manner, then you may not have to pay estate taxes but you may have to pay income taxes. Trick: Depending on how the trust is structured and the relationships of the beneficiaries to you and each other, your beneficiaries may have to pay estate taxes. A will is less expensive than a trust. Trick or treat: If litigation is involved because of a will contest or claims are placed on the estate that need to be answered, that statement could be the costliest trick of all of the above, except maybe number 4. Money saver tip: Be patient; your debt wasn’t created in a day so unless you win the lottery, it’s not going to go away in a day either.
Thanks But No Thanks: The Benefits of Disclaiming Aunt Val\’s Gift
Occasionally, a person may receive a gift under a will or a trust that they think would be more appropriate for their descendants. In these situations – and if the trust is drafted appropriately – the person usually has a legal right to say, “Thanks, but no thanks,” to the gift. At that point, the gift then “passes” to the person’s descendant(s) or beneficiary(ies). This means that the law will consider that initial recipient dead, i.e., having “predeceased” the testator, with respect to that particular gift and, as a result, the proposed recipient’s descendants take the gift. Why would you disclaim a gift? You don’t need the gift but your descendants might. For example, if Grandpa passes away leaving his house to your father, but Dad has his own home and a retirement condo, Dad may decide that you – a young professional with student loans – may benefit from owning the home more than Dad. So, Dad says in a writing that appropriately describes the gift and is delivered to the appropriate party, “Thanks, but no thanks. I, Dad, am unequivocally and expressly refusing the house … bequeathed to me by my father …” Once Dad’s disclaimer is accepted, if you\’re the only child, then you get the house. If you have siblings, then, generally, you will need to determine with your siblings how best to divide the interest in the house. You can’t afford the responsibility. If you and your partner are urbane empty-nesters, perfectly content with your 2-bedroom city dwelling, do you want the 4-bedroom home in the suburbs that Aunt Val left you with all the maintenance and tax bills that come with it? Probably not. However, your adopted daughter who now has newborn twins and a 3-year-old could probably use the extra space. So you say in writing, “Thanks but no thanks” to Aunt Val’s lush suburban family home. You want to avoid creditors. If you refuse a gift, a creditor claim cannot attach to your interest in the gift because under the law you never had any interest in the gift once your disclaimer is accepted. However, the area of the law using disclaimers as a way to avoid creditors is rapidly closing this loophole, so creditor claim avoidance probably isn’t the most prudent use of this testamentary mechanism. Disclaimers, simple at first blush, are like most legal tools – devilish in the details. If you’re considering disclaiming a gift, below are a few points to discuss with your attorney: Whether or not the property will be completely yours if it is currently held in joint tenancy with you and 2 other tenants; The irrevocability of disclaiming; Your action to date regarding the interest in the property; and Tax implications, which should be considered sooner rather than later. In the world of wills, trusts, and estate planning, the intent of the testator is a cardinal rule. Yet, sometimes the intent of the testator and the needs of the heirs conflict. Using a disclaimer may help resolve that conflict.
Who Takes the Eggs? ART and Estate Planning Considerations
As technology’s digits crawl through the nooks and crannies of our physical world and cyberspace, the legal consequences and questions emerging keep even us non-IP lawyers quite busy. Considering assisted reproductive technology (\”ART\”), family law was the premier practice area for getting caught in ART\’s web. Few lawyers realized the effects ART would have on estate planning and, even as the effects became clear, only a fraction of states passed laws providing legal guidance. Fortunately, Illinois is a state that considered ART in its laws and included laws for in vitro fertilization in the Parentage Act. Additionally, the Probate Act states that children born after a parent’s death (“posthumous” children) are to be considered having been born during the parent’s lifetime. So, what does all this technolegalese mean? Well, in terms of inheritance and/or estate planning laws, it means conversations should be had between Illinois spouses if conception is a challenge or an impossibility for one or both spouses.* The conversations are necessary because of 2 vital estate planning tools often used by couples, Health Care Powers of Attorney (“HCPOA”) and Property Powers of Attorney (“PPOA”), which can also provide instruction for ART cases. Yes, lawyers love acronyms. In Illinois, a posthumous child born via ART typically emerges in 1 of 3 ways: Use of frozen sperm; Use of a frozen embryo; or Use of a frozen egg. Furthermore, obtaining frozen sperm or eggs may not only occur after incapacity but also may occur after death, which is when estate planning mechanisms are triggered. When creating an estate plan, couples usually consider a bunch of “what ifs,” e.g., “what if I become disabled while we’re still in the “prime” of our lives and haven’t had kids yet?” A HCPOA is a tool that requires making those decisions but, consequently, eases the fears associated with the “what ifs.” Accordingly, when considering ART, a HCPOA could, for example, authorize the implantation of frozen sperm or eggs. Of course, other considerations would naturally follow, such as, how one abled-parent and one disabled parent would raise a child. Still, ART combined with the law creates a reasonable and protected possibility for having a family, when that likelihood, outside of adoption, didn’t exist before. Another equally interesting issue relates to the PPOA. But, you say, “That’s about property.” Yes, it is. In a 1993 California decision, Hecht v. Superior Court, which is used by several states, the Court determined that frozen genetic reproductive material, such as sperm and eggs, is property for the purpose of leaving a gift in a will (aka “devise”). Here, you might think the conversation would be easy – women can leave their eggs to their partners; but, not so fast. What if the eggs are frozen, then the relationship is legally dissolved, the donor spouse remarries, and then passes away? Who gets the eggs if the second spouse doesn’t want any (more) kids? She could disclaim them and pass them to her descendants or siblings; that would be interesting. The future brothers and sisters of the former partner? Should the reproductive material be destroyed? Who do you think should get the eggs? * The term “spouses” and \”partners\” are interchanged in this context because the terms are synonymous in Illinois law.