Illinois Estate Planning & Elder Law Blog

If you live in Illinois, you are married and you own your home, it is worth becoming familiar with the meaning of holding title to your home in the form of a tenancy by the entirety.

A tenancy by the entirety differs in several important ways from the other two ways title to real estate may be held by two or more people (tenancy in common and joint tenancy with rights of survivorship).

First, only married couples may hold title as tenants by the entirety. There is no marriage requirement to hold title as tenants in common or as joint tenants with rights of survivorship.

Second, the property must be a primary personal residence. No restriction exists regarding the type of property which can be held by tenants in common or joint tenants with rights of survivorship.

Third, there must be agreement between the tenants by the entirety if the tenancy is to be broken by them. No such agreement is required if fewer than all tenants in common or all joint tenants want to change how they hold title.

Fourth, only joint creditors (creditors of both the husband and the wife) may reach the home of the husband and wife where the home is held in tenancy by the entirety. If a creditor has a claim against only the husband or only the wife, the home held in tenancy by the entirety cannot be partitioned, sold or encumbered without the permission of both spouses.

Fifth, specific terminology must be used to create a tenancy by the entirety. In Illinois, the deed language must indicate that the parties are married and must use specific words creating the tenancy by the entirety. The following language is commonly used to create a tenancy by the entirety between Sam and Sally Smith: "to Sam Smith and Sally Smith, husband and wife, not as tenants in common nor as joint tenants with rights of survivorship but at tenants by the entirety".

As stated earlier, a tenancy by the entirety may be terminated by agreement of the tenants. It may also be terminated by a court ordered sale to satisfy a joint debt of the husband and the wife, by a divorce or by the death of either the husband or the wife.

One last point, in many states, a husband and wife who take title jointly will automatically take title to their home as tenants by the entirety. Illinois is not one of those states. The specific language referenced earlier must be used for a tenancy by the entirety to be created in Illinois.

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Few dogs are lucky enough to be left $12 million by their owners like Leona Hemsley’s Maltese named Trouble. But this doesn’t mean that your pet can’t be provided for when you consider how you want your possessions to be handled in your will.

In “Heirs to the Bone – Estate Planning for Pets” written by Attorney Frances Carlisle, Ms. Carlisle gives several options to individuals drafting wills and looking to have their pet cared for when they, the pet owners, are no longer around.

Number 1: Make a gift of your pet to someone who will be its caretaker after you die and then have your attorney include a provision in your will leaving the animal to that person. Leave money for expenses the new owner will incur caring for the pet.

Number 2: In your will, give your executor discretion to choose from several people to take your pet. Also give your executor discretion to find a suitable adoptive home in the event there is no one who is willing and able to care for the pet.

Number 3: Make arrangements with a local animal rescue and placement charity to take your pet after you die and find a home for the pet. Name the charity in your will and leave money to the charity.

It is important to include a statement in your will that you are bequeathing all of the animals owned by you at your death. If you name a specific animal in your will, other animals you own will not be covered.

Creating a trust for your pet is another option available to pet owners. The applicable Illinois statute, Ill. Comp. Stat. 760 ILCS5/15.2 which became effective on January 1, 2005, specifically states, “A trust for the care of one or more designated domestic or pet animals is valid”.

You can create a trust which is in existence while you are alive or you can create a trust that comes into existence upon your death. The advantage of creating a trust while you are alive, an inter vivos trust, is that you will have arrangements ready should you be incapacitated or have to go into a nursing home.

Estate planning by pet owners insures that their pets will continue to enjoy a happy life after the owner is no longer around.

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An Illinois decision makes it clear that an individual unrelated to the person who died (the decedent), may be appointed by the court to serve as administrator of the estate.

In re Estate of Gage involves a man with three children, whose mother he never married, who died without a will. The man’s sister petitioned the court to serve as administrator of his estate. The mother of the man’s three children also petitioned the court to serve as administrator.

The court appointed the mother as administrator based on the language of Article IX, Section 9-3 of the Probate Act which specifically gives the children of the decedent priority over the sister of the decedent as far as entitlement to obtain issuance of letters of administration. The court pointed to the language of the Probate Act which states:

“Only a person qualified to act as administrator under this Act may nominate, except that the guardian of the estate, if any, otherwise the guardian of the person, of a person who is not qualified to act as administrator solely because of minority or legal disability may nominate on behalf of the minor or disabled person in accordance with the order of preference set forth in this Section.”

In this case, the mother was the guardian of the three children and as such, the court ruled, had authority to nominate herself as administrator. The court further ruled that because the mother made her nomination on behalf of the decedent’s children, her nomination had priority over that of the sister of the decedent.

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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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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 or 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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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 2013, only estates with more than $4 million are subject to Illinois estate tax and estates with more than $5 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.

Continue reading "Chicago Law & Updating Your Estate Plan" »

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 may seek to increase the amount he is to be given under a will by challenging the will’s validity. If a will is declared invalid, the property in the estate is transferred pursuant to the rules of intestacy. The beneficiary may receive a greater amount under these rules.

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 is to leave the individual who may challenge the will's validity enough so that he is not willing to risk losing it.

Continue reading "No Contest Clauses in Illinois Wills" »

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 distributions on the child’s behalf.

Continue reading "Naming Minors as IRA Beneficiaries" »

A Charitable Remainder Unitrust (CRUT) has advantages over a Charitable Remainder Asset Trust (CRAT).

Unlike the CRAT, a CRUT allows you to make as many contributions as you would like. Also the asset’s current market value is not its value on the date it was transferred to the CRAT but it is the asset’s current market value.

The CRAT allows you to benefit from a financial market that is doing well. In years when the financial market is not doing well, a make-up provision can be included in a CRAT to allow for additional income in future years which makes up for the down years.

A CRUT requires that you receive a minimum income of 5% of the asset’s current market value and not more than 50%. You can choose a percentage or the trust’s net income, whichever is less.

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Conservative investors who want a predictable income year after year may prefer a Charitable Remainder Annuity Trust (CRAT) to a Charitable Remainder Trust (CRT).

A CRT pays a fixed annuity which equals a percentage of the fair market value of the assets transferred to the CRT or a percentage of the fair market value of the CRT’s assets as they are revalued annually. However, a CRAT provides a fixed annual income regardless of the investment performance of its assets. Because the tax deductions and income are based on the value of the asset as of the day it is transferred to the Trust, a CRAT is better if you expect the CRAT’s assets to lose value in the future.

Regardless of what happens to the economy, the income is fixed. If the CRAT’s assets do not earn enough to pay your annual income, more principal will be used to make up the difference. But if the market improves and the CRAT’s assets outperform expectations, the surplus will be added to the principal and benefit the charity in the end.

The CRAT protects against swings in the financial markets. In a stagnant or declining market, you come out head. In a strong market experiencing investment growth, the charity will benefit.

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A Charitable Remainder Trust (CRT) allows you to donate to your favorite charity while benefitting yourself. It allows you to defer capital gains on the sale of appreciated asset, receive income, take advantage of a current income tax charitable deduction and receive future estate tax deductions.

A CRT works best with a highly appreciated assets like real estate or stocks which provide little or no income. Owning this kind of asset has problems because you cannot sell it without paying high state and federal capital gains taxes. But if the asset is still in your estate when you die, it will increase your estate taxes. If you donate the asset to a charity today you will enjoy the tax deduction but you will miss out on the income the asset could generate. A CRT overcomes all of these problems.

A CRT is created as follows: You designate your trustee so you remain in control of the investment decisions. The term of the CRT is based on a term of years (not to exceed 20) or over an individual’s lifetime. The CRT states that whenever the term of years or the lifetime is over, the remaining trust assets go to the charity.

You transfer the highly appreciated asset to the CRT in return for the trust’s obligation to pay you an income stream over the term or lifetime in an amount computed using expected length of the income stream and the expected earnings rate.

The CRT sells the appreciated asset but pays no tax because of its favorable tax status. It pays from its liquid assets an income stream for the term you have designated. After the term is over, the CRT distributes any remaining assets to the charity and the CRT terminates.

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One way which a parent, relative or friend can help fund the education of a child is by the creation of a Crummey Trust. This kind of trust, which qualifies the parent or other donor for the gift tax annual exclusion ($14,000 per beneficiary), gives the trust beneficiary the power to withdraw contributions for a limited time (usually 30 days) after a contribution is made to the trust. It is unlikely that the withdrawal powers will be used while a child is a minor because only the child’s parents (or guardians) can exercise the withdrawal rights.

Once the withdrawal period passes, the property can be held in trust for the child’s benefit for whatever time period the grantor of the trust chooses, including for the child’s lifetime or beyond.

Crummey Trusts are good creditor protection vehicles because they can contain language which does not give the child rights to income or principal which can be garnished or attached by a creditor or made part of a property settlement in a divorce.

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