January 24, 2015

Illinois Law Regarding Being a Guardian

In its pamphlet about Being a Guardian, the Illinois State Bar Association outlines key issues regarding the duties of Guardians.

There are several types of Guardians: Guardian of the Person, Guardian of the Estate, Limited Guardian, Plenary Guardian, Temporary Guardian and Successor Guardian. A Personal Guardian takes care of the Ward, and an Estate Guardian manages the Ward’s estate (real estate, bank accounts, personal property). A Limited Guardian has only those powers granted by the Court, but a Plenary Guardian has all of the powers available to Guardians under the law. A Temporary Guardian’s powers are not effective for more than 60 days. A Successor Guardian takes over by Order of the Court for a previously appointed Guardian.

As Estate Guardian, an Inventory must be filed with the Court within 60 days of appointment listing all of the Ward’s assets including land, bank accounts, cash cars, boats, stocks, bonds, insurance policies and valuable artwork and jewelry.

The Estate Guardian is responsible for filing the Ward’s federal and state income tax returns if the Ward has enough income to require those filings. The Estate Guardian also has the duty to appear for the Ward in all legal proceedings. An attorney may be hired to handle any legal matters involving the Ward, and with the Court’s permission, the Ward’s funds may be used to pay for the attorney fees.

The Estate Guardian must submit an account to the Court each year listing all receipts and disbursements made for the Ward and all property in the Ward’s estate.

The Guardian’s responsibilities continue until the Court relieves him of the obligation. This happens upon the termination of the Guardianship, death of the Ward or the Guardian’s resignation or removal.

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January 17, 2015

Illinois Joint Tenancy and Income Taxes

When real estate is held by two individuals as joint tenants with rights of survivorship, the surviving joint tenant will not receive the full step-up in cost basis he would have received if he had inherited the real estate.

For example, Sue and her son, Sam, purchased a house as joint tenants twenty years ago for $50,000 and today it is worth $550,000. After Sue dies, only half of the real estate receives a step up in cost basis for tax purposes. If Sam sells the property for $550,000, Sam has a $250,000 gain on the sale which is subject to capital gains tax.

If Sue had kept title to the real estate in her name alone and left the real estate to Sam in her Will or in her revocable living trust, upon Sue’s death the real estate would receive the full step up in cost basis. Sam would have no gain on the sale subject to capital gains tax.

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January 10, 2015

Illinois Law and Joint Tenancy with Rights of Survivorship

Joint tenancy with rights of survivorship is a type of ownership by two or more individuals, called joint tenants, who share equal ownership of the property and have the equal right to keep or get rid of the property. When one individual dies, the surviving individuals receive ownership of the property by operation of law. Probate does not need to be opened to transfer title to the surviving joint owners.

When only one owner remains, probate will need to be opened with the Court upon his death unless the surviving owner creates a new joint tenancy with another individual or titles the property in a trust.

If a joint tenant becomes incapacitated, the property cannot be sold unless the joint tenant has a Power of Attorney for Property in place or a guardianship is opened with the Court giving the guardian capacity to transfer title to the property.

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December 22, 2014

Illinois Inherited IRAs and Distributions to Beneficiaries

In Kelly Greene’s Wall Street Journal article regarding inherited IRAs, she points out that IRA owners must start taking required withdrawals from traditional IRAs by April 1 of the year after they turn 70 ½. If they are past that age and die before taking the current year’s withdrawal, their IRA beneficiary takes the distribution based on the owner’s life expectancy and reports it as ordinary income on the beneficiary’s own tax return.

Ms. Greene goes on to state that many IRA custodians require the beneficiary to set up an inherited account and transfer the assets to it before taking the current year’s withdrawal.

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December 11, 2014

Illinois Law and Independent Estate Administration

Under Illinois law, the executor or administrator of an estate may open the Probate proceedings with the court as an Independent Administration.

Under Independent Administration, the executor or administrator has authority to administer most aspects of the estate without court supervision. He has authority to sell estate real estate without first seeking approval from the court. This reduces the expense of the Probate process.

Most individuals who name an executor in their wills have confidence in the person they have chosen and prefer to include language stating that it is their intent that the estate shall be independent of the supervision of any court. While a judge has the authority to make any independent administration a supervised administration, a judge will give weight to a statement in a Will specifying independent administration and will grant a request to terminate an independent administration specified in a Will only upon demonstrated good cause by the party requesting termination.

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December 5, 2014

Illinois Estate Planning and Retirement Plans

In Kelly Greens’s article in the Wall Street Journal, she points out that having a Will or a Living Trust doesn’t necessarily affect your estate planning for your retirement assets. This is because retirement benefits are passed to the beneficiary named in the plan.

An individual should feel confident that his family has the ability and desire to carry out the prescribed plan. This plan includes the two spouses leaving their retirement benefits to each other, with the surviving spouse rolling over the inherited retirement plan into his individual retirement account (IRA). Then the surviving spouse would name a child and grandchildren as beneficiaries of that IRA. This way the surviving spouse would get the maximum income tax deferral from the assets, and the child and grandchildren could split up the account and stretch their withdrawals across their life expectancies.

However, if the assets are large enough to be subject to estate tax (assets over $5.34 million for federal taxes in 2014), a trust may provide the most benefit. Some income tax deferral may be sacrificed on the assets’ growth, but the savings on estate taxes will likely exceed the lost income tax deferral.

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November 25, 2014

Illinois Law and Your Virtual Estate

In an article in Smart Money Magazine, Tania Karas points out the importance of securing and transferring your virtual estate upon death. Your virtual estate is the body of nontangible, digital assets an individual creates and stores on his computer and the Internet.

One way to address the matter is to make a list of all digital accounts and their passwords and store this information on a flash drive locked in a safe. Another way is to look into websites like Legacylocker.com and AsetLock.net which allow users to release account information to specific individuals after they die.


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November 22, 2014

Funding an Illinois Revocable Living Trust

For a Revocable Living Trust to function property, it is not enough for the Grantor (the individual who made the trust) to simply sign the trust agreement. He must fund his assets in the name of the trust.

Funding refers to taking assets that are titled in the individual Grantor’s name or in joint names with others and retitling them into the name of the Grantor’s Revocable Living Trust, or taking assets that require a beneficiary designation and renaming the Grantor’s Revocable Living Trust as the primary beneficiary of those assets.

The goal of funding a Revocable Living Trust is to insure that the Grantor’s property is governed by the terms of the trust agreement. This allows the Disability Trustee to manage accounts held in the name of the Grantor’s trust in the event the Grantor becomes mentally incapacitated and allows the Death Trustee to easily manage and then transfer accounts held in the name of the Grantor’s trust to the ultimate beneficiaries named in the trust agreement after the Grantor’s death.

The Trustee of a Revocable Living Trust has no power over the Grantor’s property that has not been retitled in the name of the Grantor’s trust. If the Grantor becomes mentally incapacitated, the Grantor’s loved ones will need to establish a court supervised guardianship to manage the Grantor’s assets that are not held in the name of the Grantor’s trust.

This means the Grantor’s property which has not been retitled into the name of the Grantor’s Revocable Living Trust will have to be probated after the Grantor’s death. This defeats one of the main benefits of a Revocable Living Trust which is avoiding probate.

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November 15, 2014

Checklist to Leave with Your Will

Leaving those who survive you an organized estate with accurate records will save time and money.

At a minimum, leave information regarding the following in a place where your heirs can easily find it:

• Your personal history including names, addresses and telephone numbers for yourself and all of your current family members and family members from previous marriages;
• Your military service including your branch and dates of service;
• Your employment including present employer and employment benefits (life insurance, stock options, pension plans and contact information for each);
• Real estate you own including copies of deeds;
• Financial accounts including name of institution and account numbers;
• Stocks and bonds held in brokerage accounts and the name and phone number for the brokerage firm;
• Automobile make, model and year and location of title and any loan information;
• Business interests including type and amount of ownership
• Safe-deposit boxes
• Insurance policies
• Funeral/Burial instructions
• Tax returns
• Wills
• Trusts
• Power of Attorney for Property
• Power of Attorney for Health Care
• Living Will
• Name and phone number for your lawyer, accountant and doctor
• Important friends to notify upon your death.


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November 8, 2014

Small Estate Affidavits and Illinois Probate

A small estate affidavit may be used in place of a formal estate proceeding (opening an estate before a judge) to collect the decedent’s personal property when the total value of the deceased individual's (decedent's) personal property is less than $100,000 and the decedent owned no real estate.

An affidavit must be completed which states the names and addresses of the heirs at law if the decedent died without a will or the beneficiaries’ names and addresses if the decedent had a will. The affiant (individual who signs the affidavit) must state that no estate proceeding before a court is pending nor is one contemplated. He must also state that all funeral expenses have been paid and that there is no known claimant (debtor) and no known claims against the property. All assets must be listed on the affidavit as well.

No notice is required to heirs, beneficiaries or creditors. The affiant holds harmless all creditors and heirs of the decedent and other persons relying upon the affidavit who suffer a loss because of their reliance.

The affidavit does not need to be filed with the Court.

It is a useful tool when there is no question about debts of the decedent and there are assets in the decedent's name which need to be accessed.

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October 31, 2014

Chicago Estate Planning and Inherited Roth IRAs

Withdrawals are usually tax-free when one inherits a Roth IRA, but minimum withdrawals are required each year using the same rules as for any inherited IRA.

A non-spouse beneficiary should have the account retitled as an inherited Roth IRA using this format: “John Doe, Deceased (date of death) Roth IRA F/B/O (for the benefit of) John Doe, Jr., Beneficiary”.

Roth IRA owners are not subject to required withdrawals during their lifetimes; however, their heirs are, beginning the year after the owner’s death. The IRS Publication 590 provides the amount to take out each year based on the heir’s life expectancy. A 50% penalty is imposed for not taking a distribution from an inherited IRA.

For multiple beneficiaries, it is preferable to split the original account into separate inherited accounts for each heir before taking the original owner’s distribution for the year he died, if it was not already withdrawn before the death. This way each heir can take distributions using his own life expectancy – a big advantage if the heirs range widely in age.

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October 25, 2014

Illinois Law and Children with Disabilities

A concern for parents or grandparents of children with disabilities is how to assist with the child's financial future. One way to assist is to set up a Third Party Special Needs Trust.

Any funds left for a disabled child, whether from an estate or the proceeds of a life insurance policy, should be held in trust for the child's benefit. Leaving money directly to anyone with a disability jeopardizes his public benefits. Many people with disabilities cannot manage funds, especially large amounts. Some families disinherit disabled children, relying on their siblings to care for them. This approach has potential problems including the sibling being sued, getting divorced, disagreeing with other siblings regarding responsibilities and taking the funds for the sibling's own use. It can also cause tax problems for the sibling. The best approach is a Third Party Special Needs Trust for the disabled child.

If a Third Party Special Needs Trust is created for the benefit of the child, grandparents and other family members should be told about it so that they can direct any bequest they may like to leave to that child through the trust.

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