Estate Planning is a critical tool which everyone must utilize to protect themselves and their loved ones. Estates can vary widely in terms of size and complexity, however, the one fact that remains constant in all estates is that the failure to plan will be detrimental to both you and the ones that you care about. At Cossidente & Salus, Ltd., the attorneys recognize the importance of Estate Planning, and utilize the most current and efficient estate planning tools to protect your assets and your loved ones. We have created the following web page to help understand the need we all have for proper Estate Planning. Although this information can be very beneficial, Estate Planning is highly complex and only a qualified expert, such as an attorney, can truly determine the Estate Planning instrument that will correctly and efficiently provide the financial stability and security you require during your life, plus distribute your assets to those individuals or institutions you care about most, after you are gone.
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Below are some Common Questions Concerning Estate Planning. Please select a question that you want to know more about:
In the past Wills were the most common method of Estate Planning but changes in the law have made Revocable Living Trusts one of the best Estate Planning tools available. Revocable Living Trusts are becoming the standard device for individuals to pass their possessions to their loved ones while avoiding costly probate and reducing estate taxes. Additionally, Revocable Living Trusts have become critical in securing financial stability during times of medical need or disability. A Revocable Living Trust is a form of a trust in which the settlor of the trust is also the trustee and the beneficiary of the trust. This trust allows an individual to have complete control over his or her assets but still avoids the costly and lengthy delay of probate. Furthermore, the implementation of a trust allows an individual to name a person as successor trustee, who will be responsible for managing the assets of the trust in case of a medical emergency or unanticipated disability. Finally, the Revocable Living Trust utilizes tax shelters necessary to minimize or even eliminate estate taxes.
One of the most important reasons to utilize Revocable Living Trusts is to avoid the costly Estate Taxes. Estate tax is tax which is paid on the total value of your estate on the date of your death. The lowest estate tax rate is 39% but the highest tax rate is 55%. Meaning that on every $10,000.00 which is taxable, up to $5,500.00 will be paid in tax. However, with the use of trusts this tax could be reduced or even eliminated. The example below demonstrates just how costly estate tax can be and how much implementing a Revocable Living Trust can save. The example is based upon an estate of $1,000,000.00. Although this may sound large, it is quite common when all factors are considered including: homes, retirement plans, closely held business interests and even life insurance.
Now let's take a look at the difference before and after the implementation of a Revocable Living Trust.
Estate
Estate Tax
Net Estate
$1,000,000
$199,650
$800,350
Estate
Estate Tax
Net Estate
Net Benefit
$1,000,000
$0
$1,000,000
$199,650
As you can see without the plan, this individual's estate will pay almost $200,000.00 in tax, as compared to the second example, which utilizes Revocable Living Trusts, in which there is absolutely no estate tax liability. That means that this individual will leave an additional $200,000.00 to his or her beneficiaries.
Revocable Living Trusts also avoid the time and expense of probate. Probating any Will necessitates a six month delay with the court system. During this time the estates assets will be tied up in the court system and will be subject to creditors claims. The estate will also incur costs of almost $400.00 as soon as the estate is opened with the court and if there is a Will contest, the probate expense will be enormous. Normal legal fees in a probate estate can easily range from 3% to 5% of the total estate, but if a Revocable Living Trust is in place these costs can be significantly reduced. The Graph below demonstrates the savings to the estate when a Revocable Living Trust is implemented.
As you can see, between estate taxes and probate expense almost $230,000.00 of the estate assets have been wasted in the first example as compared to the second example where Revocable Living Trusts have been implemented. Furthermore, Revocable Living Trusts protect the beneficiary in times of medical need or disability, by allowing a successor trustee to help the beneficiary to manage their financial affairs, should they be unable to do it for themselves. This can be a critical tool for your own care as you progress in age and to avoid an embarrassing court supervised guardianship. Finally, the Revocable Living Trust organizes your estate for easier and more efficient asset management.
Overall the Revocable Living Trust is one of the most efficient and effective estate planning tools available. It reduces or even eliminates costly estate tax. It avoids the mandatory six month delay of probate. It eliminates the legal expense and costs of opening a probate estate with the courts and it protects you in case of illness or disability, while organizing your assets for efficient management.
A Will is the most traditional estate planning device. In a Will, a person dictates how he or she would like the estate assets dispersed after death. Individuals direct how they would like heirlooms passed on, as well as, their homes and other real estate. One of the most important reasons for the Will is to name a Guardian for any minor children. The Will also names the individual who will manage the estate and transfers, otherwise know as the Executor. Although a Will must be probated with the courts, it can still be a very useful Estate Planning Tool.
By drafting a Will with an attorney, an individual can specify to whom they would like to distribute their estate. If there is no Will or trust in place, the estate will be intestate (without a will) and the assets will be distributed under the laws of intestate succession, regardless of any wishes of the decedent. Furthermore, a Will usually disposes of any need for an administrators bond, which is always needed in an intestate estate. This saves the estate a considerable amount of money for the cost of the bond. Finally, the Will allows an individual to name the Executor. The Executor should be a person with whom the individual places a great deal of trust, as this person will bear the responsibility of managing the estate and disbursing its assets as the Will directs.
Guardianship of minor children is one of the most important reasons why every parent with children under 18 years old should have a current Will. Under the current law, if both parents have died, leaving minor children, the court must determine who will be the Guardian of the minor children. By naming a Guardian in a Will, the Judge will take the decedents' wishes into consideration when appointing the Guardian for the children.
A Will is a very good and inexpensive way of planning your estate. It notifies the courts how your assets are to be distributed, reduces the expense of probate costs, and hopefully prevents intra-family conflict by leaving detailed directions to the executor as to whom will receive your estate. It also provides a way for an individual to notify the court of who the Guardian of the minor children should be. Finally, it is an excellent way to help and thank those special people in your life after you have gone.
One of the most important steps every person should take in planning their estate is executing a Power of Attorney for Health. The purpose for the Power of Attorney for Health is to notify physicians of a person who you have nominated to make medical decisions for you should you be unable to make those decisions for yourself. It also allows you to inform the person you name as your attorney and the doctor the amount of care you wish to receive should you be in a life threatening condition.
By naming a Power of Attorney for Health you direct the doctors to listen to the person you name and give that person access to your medical records and information. The Power of Attorney for Health even gives the person the power to withdraw life support should an irreversible coma or other type of life threatening medical condition arise. Without this document doctors may be forced to take whatever measures available to sustain the patient's life, without considering the suffering that person might incur or the quality of life they will have afterwards. The Power of Attorney for Health is a critical piece of every Estate Plan produced by the attorneys of Cossidente & Salus, Ltd.
Executing a Power of Attorney for Property can be a useful tool in case of a medical emergency or disability. The purpose of the document is to allow a named individual to perform financial and property transactions for you should that person receive written notice from your attending physician that you are not currently able to perform those functions. Although this document can be more limiting than a Revocable Living Trust, it can still be useful for the short term such as in the case of an emergency.
Careful planning must be implemented when caring for a disabled individual and their estate, especially when the person is currently receiving Social Security Benefits for their disability. Under the rules of Social Security, property which is received by a disabled individual may be claimed by Social Security as repayment for past funds distributed or the person may even become ineligible to receive future payments. It is because of these rules that particular care must be used in planning any type of gifts or bequests to disabled individuals.
One very useful tool in this planning is a special trust which allows an individual to donate money to the trust for the benefit of a disabled individual without having to worry about the state making a claim against the asset or about disqualifying the individual from receiving future disability benefits from Social Security. The assets placed into the trust can be used for vacations, clothing, food, entertainment or for whatever purposes defined in the trust. This type of trust can be very useful for any disabled individual and can be established by anyone. It ensures that the disabled person will be cared for and will have some assets to utilize outside of their Social Security benefits. This type of trust should only be created with the expert advice of a qualified attorney but can be extremely valuable for those that need it.
There are some very common misconceptions that many people share regarding Estate Planning. Due to these misconceptions, people limit their ability to develop an Estate Plan that addresses the types of problems that often arise when there is no estate plan in place. Yet others fail to realize the liabilities their estate will face due to poor planning. The fact that Federal estate tax begins at 39% and can reach up to 55% is unbeknownst to most individuals and is only fully understood when they find that half of a loved one's estate is going to be paid to the government.
Below you will find some common misconceptions regarding estate planning followed by some explanations of the different methods of planning your estate.
Planning your estate does more than minimize estate tax and distribute assets at death. In its broadest sense, an estate plan provides financial security, stability and growth before and after an individual's death. In short, an estate plan is a form of financial protection for you and for those people you care about the most. An Estate Plan can direct the courts as to the appointment of Guardians for your minor children. Furthermore, a properly planned estate plan can control and manage wealth for generations to come, as well as, minimize and even eliminate estate tax.
An Estate Plan does much more than minimize the amount of tax you pay. It can provide for your physical care and financial requirements, should you become disabled or incompetent. It ensures that your assets benefit those individuals that you care about most. It reduces the administration expenses your estate will incur. Most importantly, a properly drafted estate plan demonstrates your true intentions regarding the distribution of assets and eliminates intra-family conflicts, which often tragically sever family relationships.
Intestate law requires that only half of a decedent's estate passes to the spouse, the other half passes directly to the children of the decedent. If the children are minors, a guardianship may be required for the children's benefit. The guardianship must remain open until the child reaches 18 years of age and up until that point, the court strictly monitors all aspects of the guardianship.
Any type of plan to manage one's assets, either before or after death, is an Estate Plan, including a Will. Although Estate Plans vary widely in complexity and scope, the cost of implementing an Estate Plan almost always saves the estate a tremendous amount before and after death. Implementing an Estate
Plan can save you anywhere from a few hundred dollars to several hundred thousand dollars. Plus, a proper Estate Plan can avoid expensive and embarrassing Guardianships.
The legal requirements needed to form a valid Will are very strict. If the document does not strictly adhere to the requirements, it will be an invalid Will and the assets will pass according to the statutes of intestacy. Only a qualified expert, such as an attorney should determine and draft the instrument that will correctly and efficiently provide the financial stability and security you require during your life, plus distribute your assets to those individuals or institutions you request.
No one really dies without an Estate Plan. We all have an Estate Plan, which is provided by statute. Illinois intestacy statutes mandate how and to whom our assets are to be distributed when we die without an Estate Plan. Illinois has set out a standardized line of succession that determines what relatives receive a portion of your estate. If you are married with children, your estate does not necessarily pass directly to your spouse. A portion may pass directly to your children, which if they are minors, will require opening Guardianships on their behalf with the court. Additionally, if minor children are left without a surviving parent, the court will be forced to appoint a Guardian for their minor children, without considering the wishes of the parents.
The intestacy statute does not contemplate that a decedent may have wanted to make distributions to one relative more than another. Nor does the statute allow for any types of donations to charity. In fact, the statute rarely encompasses the true wishes of the decedent; in fact, it often imposes significant restrictions on the heirs and on the estate. Additionally, Illinois legislation requires that the administrator of an intestate estate file a bond with a surety. This is a device to safeguard the assets of the estate from dissipation by the administrator. The practical effect of the bond requirement is the addition of another significant cost to the large amount of administration expenses incurred by the estate. Overall, a person without an Estate Plan will impose significant hardships on those that they care about and can severely dissipate the legacy they intended to leave for them.
Intestate is a legal term that means that an individual has died without a Will. Testate is the term used to describe a person's estate who has a validly drafted Will upon their death.
A trust is an Estate Planning device into which property is transferred to be managed by a fiduciary, or commonly known as a "trustee", for the benefit of an individual, or more commonly known as a “ beneficiary”. The settlor or creator of the trust states in the trust how, when and for whom the trust's assets are to be distributed. The settlor assigns these fiduciary duties upon the trustee. The trust ends and is dissolved if the assets are completely depleted or if all of the terms in the trust have been satisfied.
One common form of a trust used in Estate Planning is a Revocable Living Trust, as described above.
Property in a Revocable Living Trust remains under the full and complete control of the settlor. The property may be sold, gifted, transferred, etc. There are no restrictions placed upon it or upon the owner. Furthermore, the trust is completely revocable up to the time of death.
Most Estate Plans can be formed and executed in two to three meetings with the attorney and be completed within one to two weeks. If a trust is involved additional time may be required to transfer assets to the trust as necessary.
Everyone who has any property or assets should have some type of Estate Plan. Anyone with minor children should strongly consider planning their Estate and designating a Guardian for their children. Powers of Attorney for Health or Property can be especially useful in a medical emergency or in the case of an unexpected disability.