May 22, 2015

Illinois Joint Tenancy Law Liberalized

The creation of and the termination of rights of parties who hold title to property as joint tenants have been liberalized in Illinois.

In the case of Sathoff v. Sutter, 373 Ill. 3d App. 795, 869 N.E.2d 354 (Fifth District, 2007), the parties involved were an individual and a couple. The three acquired title in 1981 as joint tenants with rights of survivorship. After fifteen years, the couple sought to hold title as joint tenants only as between themselves. In 1996, they executed a deed conveying title to themselves as joint tenants.

The husband died first. Then the wife died. The third joint tenant claimed that he was now the owner of the entire interest in the property. His argument was that the 1996 conveyance failed to create a joint tenancy because the Joint Tenancy Act does not allow an existing owner to be a sole grantee in a conveyance. The executor of the wife’s estate took exception. The executor claimed that by virtue of the deed executed in 1996, the third joint tenant owned only an undivided one-third interest as a tenant in common and that the estate owned the other two-thirds interest.

The Fifth Circuit affirmed the trial court which held in favor of the executor. The reasoning was based on a view that the Joint Tenancy Act calls for courts to adopt a more liberal view regarding transactions of this nature. The court ruled that the deed the couple executed in 1996 conveying title to themselves effectively severed the joint tenancy created between them and the third person. It also ruled that the 1996 deed created a valid joint tenancy as between the couple regarding their two-thirds interest in the property. Accordingly, the estate held title to the two-thirds interest. The single individual owned his one-third share as a tenant in common.

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May 15, 2015

Wills vs. Trusts

Wills and Trusts are useful estate planning devices which serve different purposes. Both work together to create a complete estate plan.

One main difference between a Will and a Trust is that a Will goes into effect only after you die, while a Revocable Living Trust goes into effect as soon as it is created and funded. A Will directs who will receive your property at your death, and it appoints a legal representative to carry out your wishes. A Revocable Living Trust can be used to distribute property before your death, at your death and afterwards.

A Will covers any property that is titled in your name when you die. It does not cover property which has been titled in a Trust. A Trust covers only property that has been transferred to the Trust. In order for property to be included in a Trust, it must be titled in the name of the Trust.

Another difference between a Will and a Trust is that a Will is sometimes required under Illinois law to be administered through the probate process with the Courts. If the person who died owned real estate titled solely in his name or owned assets valued at over $100,000, probate is required. That means a court oversees the administration of the Will and ensures the Will is valid and the property gets distributed the way the deceased person directed. A Trust passes outside of probate, so a court does not oversee the process. Unlike a Will which becomes part of the public record and can be accessed by anyone, a Trust can remain private.


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May 9, 2015

Chicago Law & Updating Your Estate Plan

Once you have created an estate plan, it is important to keep it up to date. The following is a list of events which may trigger an estate plan update.

Whether it is your first marriage or a later marriage, you may need to update your estate plan after you get married. In Illinois if you die without a Will, a spouse gets one-half of your estate, and the rest will go to other relatives. You need a Will to spell out how much you would like your spouse to get.

Your estate plan may get more complicated if your marriage is not your first. You and your new spouse need to figure out where each of you wants your assets to go when you die. If you have children from a previous marriage, this can be complicated. There are a number of options to ensure your children are provided for including creating a trust for your children, making your children beneficiaries of life insurance policies and giving your children joint ownership of property.

It is important to name a guardian for your children in your Will. You may also want to set up a trust for your children so that your assets are set aside for your children when they get older.

When your children get older, you may want to update your plan to reflect the changes. They will no longer need a guardian, and they may not need a trust. You may want your children to act as executors or hold a power of attorney.

If you get divorced or your spouse dies, you will need to revisit your entire estate plan. It is likely that your spouse is named in some capacity in your estate plan such as beneficiary, executor or agent under power of attorney. If you have a trust, you will need to make sure your spouse is no longer a trustee or beneficiary of the trust. You will also need to change the beneficiary on your retirement plans and insurance policies.

One part of estate planning is estate tax planning. When your estate is small, you usually do not have to worry about estate taxes. In Illinois in 2015, only estates with more than $4 million are subject to Illinois estate tax and estates with more than $5.43 million are subject to federal estate tax. As your estate approaches these levels, a plan that takes tax planning into account needs to be considered.

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May 4, 2015

No Contest Clauses in Illinois Wills

A No Contest Clause, sometimes referred to as an in terrorem clause, is used in wills to prevent a beneficiary from challenging provisions in a will. The No Contest Clause would state that if a beneficiary challenges the validity of the will, he receives nothing.

A beneficiary might challenge the validity of the will if he stands to receive a greater amount without a will. If a will is declared invalid, the property in the estate is transferred in accordance with state law as far as who receives the property. The distribution under state law might be very different from the distribution indicated in the will.

In Illinois, No Contest Clauses are allowed, but the courts construe them strictly. One Illinois case allowed a challenge to a will with a no contest clause citing that the challenge was brought in good faith.

A strategy sometimes used to keep a beneficiary from challenging a will is to leave him something of value so that he does not want to risk losing it if he is unsuccessful with his will challenge.

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April 24, 2015

Naming Minors as IRA Beneficiaries

A minor can be a beneficiary of an IRA, and the advantages are many.

When an IRA is inherited, the required withdrawals can be stretched across the life expectancy of the individual who is inheriting the IRA. This defers taxes until withdrawals are made.

If an IRA of $100,000 is left to a granddaughter born the year you die, her life expectancy begins at age 1, the year after your death. Using the IRS’s life-expectancy table for inherited IRAs, her life expectancy is 81.6 years, which means she could stretch the account withdrawals across eight decades. The first required withdrawal would be $1225. If the IRA has an average growth rate of 8% during her life expectancy, the account would be worth $8 million by the time she must empty the account at age 83.

Because a minor cannot inherit an IRA in his name, a trust would need to be put in place so the trustee could handle the account and make the annual withdrawals on the child’s behalf.

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April 17, 2015

Custodial Accounts for Minors in Illinois

Custodial accounts are created by adults as custodians for minor children. Both the custodian and the minor must be residents or resident aliens of the United States. The accounts are established under the Uniform Transfers to Minors Act (UTMA).

A custodial account is an account created with property gifted by an adult. It is a gift under the Internal Revenue Code and can be used for annual gift tax exclusions up to $14,000 per year per child to whom the gift is made.

The account is irrevocable and cannot be terminated by the adult.

Money, securities, U.S. savings bonds, life insurance, annuities, partnership interests, real property and tangible personal property can be transferred to the UTMA account.

The account assets can be used for the benefit of the minor prior to the minor reaching the age of majority. The custodian is the only individual who can access the account.

The identification number on the custodial account is the minor’s social security number. Any income earned will be reported to the IRS under the minor’s social security number and taxed to the minor.

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March 27, 2015

Duties of the Executor

Your executor is the person who is responsible for distributing your assets after you die. Your Will specifies who you name as your executor.

The following are some of the duties of an executor:

• Locate Documents. The executor locates the original Will and files it with the County Clerk of Court after you die. He also obtains original death certificates for use in administering the estate.

• Open Probate. If needed, the executor will go before a judge and get authority from the judge to pay the debts and distribute the assets. Letters of Office is a document issued by the judge giving the executor this authority.

• Notify Interested Parties. The executor will contact the relatives of the person who died (the decedent) as well as the individuals to whom the decedent left assets in his Will.

• Pay Claims of Creditors. The executor pays from the decedent's assets any valid debts of the deceased person.

• Distribute Assets to the Beneficiaries. After the debts have been paid, the executor distributes all remaining assets to the individuals the decedent has specified.


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March 21, 2015

QTIP Trusts

Generally, to qualify for the marital deduction and avoid estate tax (imposed on estates with assets over $5.43 million in 2015) when you die, your property must pass to your spouse directly or in a trust where he has complete control over the principal. A Qualified Terminable Interest Property Trust (QTIP Trust) is an exception to this rule.

A QTIP Trust allows you to separate your property into two parts. One part is the interest or income the principal generates. The other part is the principal itself. An example is stocks and bonds (the principal) and dividends and interest (income).

By separating your property this way, you can direct that each piece benefits a different person. So long as the QTIP Trust directs that your spouse receives all of the income from the trust during his lifetime, the QTIP Trust will qualify for the marital deduction and no estate tax will be due.

QTIP Trusts are commonly used in the situation where there is a second marriage. The spouse who has children from a first marriage wants to ensure that his children receive the principal and also wants to ensure that his surviving second spouse will benefit from the interest generated. The QTIP Trust allows for both.

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March 13, 2015

Special Needs Trusts

A Special Needs Trust (a/k/a Supplemental Needs Trust) is set up to ensure that a disabled individual receives benefits, such as Supplemental Security Income and Medicaid, while also enjoying extras that provide for a good quality of life.

A Third Party Special Needs Trust is funded by a friend or family member's assets. A Self-Settled Special Needs Trust is funded by the disabled person's assets.

The disabled person is always the beneficiary and is never the trustee of the Special Needs Trust (SNT). In practice, the way a SNT works is the beneficiary asks the Trustee to make a distribution. If the Trustee feels the distribution is allowed under the terms of the SNT and it is in the best interest of the beneficiary, the trustee pays for the goods or services directly from the trust account. The Trustee can also determine on his own that the beneficiary is in need of or would enjoy an allowed good or service. The money never passes through the beneficiary’s hands. This is important because any money the beneficiary controls may reduce his Supplemental Security Income or may cause a loss of Medicaid benefits.

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March 10, 2015

Long Term Care Insurance and Long Term Disability Insurance

Long Term Care Insurance is insurance that will cover the cost of long-term care from a disability due to illness, injury or age. This assistance includes care at home or at a nursing home.

The insurance coverage includes payment of room, board and skilled care by nurses and doctors. Long-term care insurance premiums and coverage vary regarding length of waiting period before coverage begins, coverage period and maximum monthly benefit.

Disability insurance coverage is intended to be income replacement insurance. It is typically acquired prior to age 65 and provides benefits of up to 60% of current income if you become disabled due to injury or illness.

As with Long Term Care Insurance policies, premiums and coverage vary including length of waiting period before coverage begins, coverage period and maximum monthly benefit.

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February 27, 2015

Illinois Powers of Attorney

An agent, in the context of a Power of Attorney document, is a person authorized by another to act for him. The principal (the person giving the power) and the agent must be adults who are both mentally competent when the Power of Attorney document is signed.

It used to be that if the principal became disabled, the Power of Attorney document became invalid. Today, Illinois has adopted The Uniform Statutory Power of Attorney Act which allows a Power of Attorney document to contain the words “this power of attorney shall not be affected by the subsequent disability of the principal”. This language allows the Power of Attorney document to continue to be valid and used despite the disability of the principal. It is commonly referred to as a Durable Power of Attorney.

By using this durable provision, an individual has the ability to select in advance who serves as his agent after he becomes disabled. When a Power of Attorney for Property and a Power of Attorney for Health Care have been put in place, there is no need for a guardianship through the Court. The Agents under the Powers of Attorney have the legal ability to handle all affairs of the disabled individual.

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February 25, 2015

Illinois Living Revocable Trusts

It is often best to avoid probate, the court supervised process which makes sure that a deceased person’s assets are properly distributed. The probate process is costly and time consuming (usually 12 -14 months depending on the county). It also is a matter of public record, so your financial affairs become public information.

A Living Revocable Trust is a basic estate planning tool used to avoid probate. A living trust is drafted and assets such as real estate, accounts at financial institutions and other investments are titled in the trust. A trustee (relative, close friend, lawyer or financial institution) is given authority to distribute your assets when you die.

Because the trust is revocable, you can change its terms or get rid of it completely if you like.

For income tax purposes, the living trust has no effect. The income from the assets in the trust is reported on your Form 1040 as are any deductions related to those assets.

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