A Will is a document that controls the disposition of a person’s property at death. Each state has formal requirements for a Will. In Illinois:
- The maker of a Will must be 18 years old and be of sound mind and memory.
- The Will must be in writing.
- The Will must be signed by the maker and must be witnessed in the special manner provided by law. Two witnesses are required in Illinois. (Persons who are beneficiaries under the Will should not serve as witnesses.)
- After death, the Will is presented in court and, after being proven valid, is put into effect and its provisions are carried out.
- A Will may be revoked or changed at any time before the death of the maker. To be effective, changes must be made strictly in accordance with legal requirements. A change in a Will is often made by an addition, called a “codicil”.
- Who should receive your property, and, if children, at what age?
- Who should be named as guardians of minor children, and what are their duties?
- Should a trust be created for your spouse, children or others?
- If a trust is created you must name a competent individual or trust company to manage the trust. Should charitable gifts be made?
- Should life insurance proceeds be payable to a trustee or executor named in your Will or to individuals directly?
- Who should be named executor?
- Can taxes be saved?
- Have any beneficiaries of your estate died or have you had important changes in circumstances or assets?
Generally, a person may give away his or her money in any way in a Will. However, Illinois law does not allow one spouse to disinherit the other without the consent of the one who is disinherited. A surviving spouse, whether or not named in the Will, may renounce the Will and receive a third of the deceased spouse’s estate if there are surviving descendants of the deceased or one half if there are no surviving descendants. A spouse may renounce a Will for any reason.
No. If a person dies leaving an estate, a court determines who is to receive the estate, and makes sure that all debts and expenses are paid. This must be done whether or not there is a Will. However, a Will can save expense by eliminating the need for sureties on bonds, expediting the sale of property, avoiding guardianship for minors where not really necessary and otherwise providing the executor of the Will with clear directions on the handling of the estate.
If there is no Will the court appoints an administrator to settle the estate and make distribution as provided by law, after all debts and expenses have been paid.
An individual without a Will has no voice in the selection of the administrator. If there is a Will, the executor named by the maker of the Will takes the place of an administrator, and is the one who handles the estate. A person making the Will may name as executor any individual in whom he has confidence provided the execution meets statutory requirements. A bank or trust company also may be named as executor.
A trust, generally, is an agreement where one person (the trustee) holds and manages property for another (the beneficiary). If you create a trust under your Will, it’s called a testamentary trust. If you create a separate trust while you’re alive, it’s called a living trust, sometimes called an “inter vivos trust”.
The living trust is a vehicle for managing your property during your lifetime and passing it on to your beneficiaries at death without probate.
The usual living trust works in this way. First you have your lawyer prepare a trust agreement that names the trustee and the beneficiaries, and defines everyone’s rights and duties. The agreement usually says that you retain power to amend or revoke it whenever you want. (Because of this feature, these trusts are sometimes called “revocable trusts” or “revocable living trusts”). The trustee (or trustees) may be one or more responsible individuals or a bank or trust company. You transfer property (real estate, securities, cash, etc.), into the trust by placing it in the trustee’s name. (You can begin by putting in a small amount, and then add to the trust later). The trustee has management responsibility for the trust property.
The trust agreement usually provides that you are to receive all of the income of the trust and as much of the principal as you request, but if you are disabled, the trustee may use the income and principal to pay your bills. Upon your death the trust property is transferred to your beneficiaries without probate. A trustee might also continue to manage the trust property for the beneficiaries if they are minors, disabled or have other special needs.
The main advantages of a living trust are these:
If you want or need to have someone else manage your property and pay your bills in case of illness, the living trust is by far the best arrangement. One alternative is a probate court guardianship proceeding, which is public, costly and inconvenient. Another alternative is the power of attorney for property which is discussed in the next section of this issue.
Avoiding probate at death may save time and money. However, Illinois probate procedures are very simple especially when Independent Administration is used, and the importance of avoiding probate can be exaggerated. Virtually all of the steps outlined in the Probate Administration sections, “Duties as to Property” and “Financial Duties” need to be satisfied by the trustee.
Because a trust is not filed in court, its provisions are private, unlike a Will, which must be filed in court at death. However, copies of the trust may be required by persons dealing with the trustee such as, for example, banks, stock brokers, etc.
The main disadvantages are these:
If you use a bank or professional trustee, there are fees to pay during your lifetime that will probably be much more than the potential probate cost savings.
Even if there are no trustee’s fees to pay, there will be costs and inconveniences during your life-the initial cost of setting up the trust and transferring your property into trust, inconvenience of maintaining a separate bank account and books and records for the trust, and the annual filing of fiduciary income tax returns may be required.
A trust only disposes of assets transferred to the trust.
The living trust has essentially no tax significance. While you live, the trust income is reported on your 1040 just as if the trust did not exist. (Unless you are trustee, the trustee must file an annual fiduciary return on form 1041, but this is only an information return). At death, the trust property is included in your estate for tax purposes as if you owned it outright. Any tax plan that is built into the trust agreement (e.g., the marital deduction gift) also could be achieved through a Will.
A life insurance trust is technically a living trust (sometimes revocable and sometimes irrevocable) but its function is quite different from the living trust vehicle discussed above. When a life insurance trust is created, the maker doesn’t transfer any property to the trustee-you merely name the trustee as beneficiary of your life insurance policies. The trust is dormant until the maker dies. At that time, the trustee collects insurance proceeds, and thereafter the administration of the trust is like that of a testamentary trust. Indeed, the life insurance trust is something like a Will of your insurance proceeds-it’s a way to unify the disposition of your life insurance and the rest of your property without subjecting the insurance to probate or to claims of creditors.
Powers of Attorney
The living trust is usually the best way to provide for someone to manage a person’s property and the payment of his bills during disability. The power of attorney is a simple device that may serve that same purpose.
In concept, the power of attorney creates a form of agency-the person named as “attorney-in-fact” has power to act as your agent for whatever purposes are specified in the document that appoints the attorney-in-fact. (The attorney, in fact, need not be a lawyer; the word “attorney” in this sense means agent).
Some powers of attorney are limited in scope. Examples of limited powers of attorney are the deputy cards that you can sign to authorize someone to write checks on your bank account or to authorize access to your safe deposit box. A general power of attorney, on the other hand, gives that agent broad power to manage your property and pay your bills. It may even empower the agent to make gifts on your behalf, to transfer your property to a living trust or to consent to medical or surgical procedures on your behalf, if these powers are specified in the instrument. Even if you have signed a general power of attorney, it may also be advisable to sign one or more special powers, because most financial institutions prefer to work with their own printed forms. A power of attorney that deals with real estate must be acknowledged before a notary public like a deed.
In a long illness, a general power of attorney doesn’t work as smoothly as a living trust. For this reason, many lawyers recommend living trusts for clients who are ill or elderly, and use the power of attorney for clients who are younger and healthy, as “insurance” against an unexpected contingency.
The power of attorney may also be used to supplement a living trust.
Illinois has adopted a Durable Power of Attorney Law. This Act allows the appointment of an agent and successor agent who can act for you. The power can be conditioned upon the principal’s incapacity. These powers survive the disability of the principal.
There are two types of statutory powers: PROPERTY and HEALTH CARE. Both must be executed by the principal. The property power must be witnessed by a notary public and the health care power by one witness.
A property owner allows a principal to appoint an agent who can act for him or her in whatever matters are delegated. It can be as broad or narrow as the principal requires. Also, matters such as successor agents, guardianship, and compensation can be specified.
A health care power allows the appointment of an agent to make health care decisions on your behalf. Illinois law allows adults the right to accept or refuse medical treatment as they see fit. A health care power allows the delegation of this right to an agent. The health care power allows specifications of medical treatment desired, appointment of successor agents, nomination of guardians of your person. The powers survive disability of the principal. Your health care power of attorney should be consistent with any preferences you may express on a living will (see below).
A power of attorney allows the agent to do anything that a principal could do. You should not provide anyone with a power of attorney unless you place the utmost trust and confidence in that person. Death automatically cancels a power of attorney, so this document is no substitute for a Will.
Setting Objectives through Estate Planning
Wills, trusts and powers of attorney are documents used by an experienced attorney to craft an estate plan specifically for an individual client. Estate planning is a process whereby a person’s objectives for management and disposition of his property are analyzed by a legal professional and action is taken to accomplish those objectives. Here are some of the areas that estate planning addresses.
- What should be done to avoid probate?
- What is the difference between an executor, guardian, trustee or agent?
- What is the difference between a living trust and a testamentary trust and what determines which one should be used?
- Should an individual trust or common trust be set up for my children?
- Who will manage the estate? This is a critical problem if there are handicapped or minor beneficiaries.
Who should be guardian of minors or handicapped beneficiaries?
Are there tax-saving opportunities?
- Who should get my money and property when I’m gone? The needs of one’s spouse, children and others must be weighed against one another. This can be particularly difficult if there are children by prior marriages or a property settlement agreement with a current or former spouse.
- Who will take care of my minor children?
- Who will manage my child or children’s money until they are old enough to manage it themselves?
Should it be done with Court supervision?
- Is there a problem of succession to ownership and control of a business. Do I need a buy-sell agreement with my partner?
Do I have enough liquid assets to pay the estate taxes on my business?
- Who will receive my assets if my spouse and my spouse, my children and I die in a common accident?
- If a trust is set up, which assets should be transferred into the trust and who will prepare the paperwork to make the transfers?
- What is the difference between a health care power of attorney and a living will?
When the objectives have been defined, an attorney can determine what documents are to be prepared and if property should be transferred to put the plan into effect. The attorneys at Joseph A. La Zara and Associates draft each document to suit the individual client. People shouldn’t do their own estate planning without legal help. Few people are experienced in identifying and solving the problems outlined above. Even fewer are skilled in drafting with precision and clarity the documents needed to put the plan into effect. Fill in the blank internet documents or web sites do not provide the personal attention to detail and protection you and your loved ones need and deserve. An estate plan only should be prepared through personal interaction with an experienced attorney. At Joseph A. La Zara and Associates we are experienced attorneys concentrating in estate planning. Our legal services are affordable, and many times we are able to prepare an estate plan custom tailored to your needs on a flat fee basis.