July 19, 2014

Components of a Good Estate Plan in Illinois

Many people believe that if they have a Will, their estate planning is complete, but there is much more to a solid estate plan. A good plan should be designed to avoid probate, save on estate taxes, protect assets if you move into a nursing home and appoint someone to act if you become disabled.

All estate plans should include a durable power of attorney for property and a Will. A trust can also be useful to avoid probate and to manage your estate both during your life and after you are gone. In addition, medical directives allow you to appoint someone to make medical decisions on your behalf.

A Will is a legally binding statement directing who will receive your property at your death. If you do not have a Will, state law determines how your property is distributed. A Will also appoints a legal representative (called an executor) to carry out your wishes. A Will is important if you have minor children because it allows you to name a guardian for the children. However, a Will covers only probate property. Many types of property or forms of ownership pass outside of probate. Jointly owned property, property in trust, life insurance proceeds and property with a named beneficiary, such as IRAs or 401(k) plans, all pass outside of probate and are not covered under a Will.

A trust is a legal arrangement through which one person (or an institution, such as a bank or a law firm), called a “trustee”, holds legal title to property for another person, called a “beneficiary”. There are several reasons for setting up a trust. The most common reason is to avoid probate.

Certain trusts can result in tax advantages for the beneficiary. These are referred to as credit shelter trusts. Other trusts can be used to protect property from creditors or to help the donor qualify for Medicaid.

A durable power of attorney for property allows the person you appoint to act in your place for financial purposes if you become incapacitated. In that case, the person you choose will be able to step in and take care of your financial affairs. Without a durable power of attorney for property, no one can represent you unless a court appoints a guardian. That court process takes time and money, and the judge may not choose the person you would prefer. In addition, under a guardianship, your representative may have to seek court permission to take planning steps that he could implement immediately under a durable power of attorney.

A power of attorney for health care allows you to designate someone to make health care decisions if you are unable to do so yourself. A living will instructs your health care provider to withdraw artificial life support if you are terminally ill or in a vegetative state.

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July 12, 2014

Illinois Estate Planning & Letters of Instruction

There is a lot of information your heirs should know that does not necessarily fit into a Will, Trust or other components of an estate plan. The solution is a letter of instruction, which can provide your heirs with guidance if you die or become incapacitated.

A letter of instruction is a legally non-binding document that gives your heirs information crucial to helping them tie up your affairs. Without such a letter, heirs can miss important items.

The following are some items that can be included in a letter:

• A list of people to contact when you die and a list of beneficiaries of your estate plan

• The location of important documents such as your Will, insurance policies, financial statements, deeds and birth certificate

• A list of assets such as bank accounts, investment accounts, insurance policies, real estate holdings and military benefits

• Passwords and PIN numbers for online accounts

• The location of safe deposit boxes

• A list of contact information for lawyers, financial planners, brokers, tax preparers and insurance agents

• A list of credit card accounts and other debts

• Instructions for funeral or memorial service

• Instructions for distribution of sentimental personal items

Once the letter is written, store it in an easily accessible place and tell trusted family members about it.

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July 8, 2014

Estate Planning and Spousal Social Security Benefits

Social Security also provides benefits to a worker’s spouse or ex-spouse and to a deceased worker’s surviving spouse.

Spouses are entitled to benefits if the marriage lasted at least 10 years. A spouse is entitled to an amount equal to one-half of the worker’s full retirement benefit. To receive this benefit, the spouse must be at his full retirement age or caring for a child who is under 16 years of age. In addition, the spouse must file for Social Security benefits even if he is not receiving them.

If you could receive more from Social Security based on your own earnings record than through the spousal benefit, the Social Security Administration will automatically provide you with the larger benefit. If you have reached your full retirement age, you may also elect to receive spousal benefits and delay taking your benefits, allowing your own delayed retirement credits to accrue, and switch to your own benefits at a later date. You cannot elect to receive spousal benefits below your retirement age and later switch to your own benefits.

An ex-spouse is also entitled to receive one half of the worker’s full retirement benefit so long as the marriage lasted at least 10 years. Unlike a current spouse, a divorced spouse can begin receiving benefits even before the worker has applied for benefits. The worker must be at least 62 years old and the divorce must have been final for at least two years.

If you are a surviving spouse at full retirement age, you are entitled to the worker’s full retirement benefits. If the worker delayed retirement, the survivor’s benefit will be higher. Survivors are entitled to benefits even if they are divorced as long as they had been married for at least 10 years. If you file for benefits after you are over age 60 but below full retirement age, you will receive a reduced percentage of the worker’s benefits. Surviving spouses who are younger than 60 receive benefits only in limited circumstances, such as cases of disability or caring for a disabled child.

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June 26, 2014

Estate Planning for your Eighteen Year Old

As she points out in her article titled, Estate Planning For Your Eighteen Year Old: What You Need To Do Now May Surprise You, Lauren Keenan Rote points out that becoming an adult comes with certain privacy rights and independence under the law.

An eighteen year old has rights under HIPAA (Health Insurance Portability and Accountability Act) and medical professionals will require a release to be signed by your child before sharing his health care information or records with you.

In the event your child is incapacitated, even temporarily, he will be unable to consent to you accessing his vital health records or authorize you to make decisions on his behalf. Without Medical and General Durable Powers of Attorney, you will likely find that you are unable to act on your child’s behalf and that court intervention is required for you to do so.

There are two critical documents any individual over the age of eighteen should have:

1. Medical Power of Attorney – This document appoints an agent to make health care decisions, including end-of-life care decisions, on your child’s behalf. This document should include a HIPAA release authorizing the agent to access important health records.

2. General Durable Power of Attorney – This document appoints an agent to handle financial transactions on your child’s behalf. This includes transactions involving bank accounts, scholarship funds from school and rental agreements.

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June 21, 2014

Estate Planning and Digital Assets

In his recent article, Estate Planning 101: Don’t forget digital assets, Eric McWhinnie points out the need to consider intangible property when creating your estate plan.

The internet is increasingly becoming the main storage of an individual’s financial life. A survey from Pew Research shows that 51% of American adults bank online and 32% bank using their mobile phones. Nine out of 10 Americans use the Internet.

“Digital assets hold both financial and sentimental value to family and friends that should be addressed in the estate planning process”, said James Lamm, an estate planning and tax attorney. “The first challenges are finding that person’s digital property and identifying which digital property is valuable or significant. Additional obstacles with digital property are passwords, encryption, computer crime laws, and data privacy laws. Any one of them can make it practically impossible to do anything with the digital property unless you’ve planned ahead.”

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June 13, 2014

Common Estate Planning Objectives

In his article in Forbes magazine, Lewis Saret lists eight of the most common estate planning objectives that influence a couple’s estate plan.

1. Provide for Loved Ones
The most important estate planning objective for most married couples is to ensure that their loved ones are provided for if one or both spouses become incapacitated or die.The loved ones are the surviving spouse, children (especially minor children), relatives and pets.

2. Minimize Taxes
Another important objective is to minimize taxes. This includes federal estate taxes and state estate taxes.

3. Protect Assets Passing to Surviving Spouses and Heirs
Married couples want to protect their assets which should pass to their surviving spouses and their children from going to creditors and future spouses in the case of divorce.

4. Simple and Inexpensive plans
Couples want their plans to be as straight forward and of the lowest cost possible.

5. Privacy
Couples prefer their finances remain private to protect the surviving spouse from being targeted by fraudulent schemes and solicitations.

6. Control over Assets
Many couples prefer to retain control over their assets so the assets are not subject to the claims of their children’s creditors. Couples with significant amounts of wealth they have created themselves rather than inherited express concern about the impact of the wealth on their children.

7. Incapacity
Couples take steps to deal with incapacity by putting in place durable powers of attorney for property and powers of attorney for health care.

8. Asset Management
Couples want in place a system which manages their assets when they are no longer able to do so.

All of these objectives can be attained by consulting with an estate planning attorney.

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June 7, 2014

The Importance of Beneficiary Designations

In his recent article, When Your 401(k) Has a Bad Heir Day, Jason Zweig draws attention to why it is important to update paperwork concerning beneficiary designations.

He cites the example of three adult children of a wealthy telemarketing executive who died suddenly last month. His Will states that all of his assets are to go to his children. Most of his assets were in a 401(k) account which named his wife, married only two months earlier, as the beneficiary of the account.

The executive should have asked his wife to sign a waiver and then name his children as the beneficiaries of the 401(k). It is important to remember that a beneficiary designation overrides the provisions of a Will.

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May 31, 2014

Another Reason to Avoid Joint Wills

A recent 2014 decision by the Supreme Court of Montana, In the Matter of the Estate of Marilyn Hendrick, the Court overturned a lower court ruling concerning a joint will.

The facts of the case are as follows: Marilyn and Stanley Hendrick executed a joint will. Each had three children from previous marriages. Stanley died in 1995. In 1996, Marilyn transferred much of her property to her trust. Marilyn’s three daughters and one of Stanley’s children were the beneficiaries of the trust.

Marilyn died in 2012. Under the terms of the joint will, the residue of Marilyn’s estate was to be divided equally among the six children. The residue consisted of assets totaling about $235,000. Those same assets comprising the residue were transferred in 1996 by Marilyn to her trust.

One of the children from Stanley’s marriage who was not a beneficiary under Marilyn’s trust filed a petition objecting to the distribution of the trust assets according to the terms of the trust which did not include her as a beneficiary.

The lower court ruled in favor of the child and ordered that the trust assets were to be distributed equally among the six children.

On appeal, the Supreme Court of Montana reversed the lower court’s decision holding that because the joint will left to the surviving spouse (Marilyn) the “entire residue” of the property owned by the deceased spouse (Stanley) at the time of his death, the will plainly left the entire residue of Stanley’s estate to Marilyn. The only explicit restriction on this devise was that Marilyn was not allowed to alter, amend or revoke the will.

The Supreme Court went on to state that it may not construe the general purpose of the will in a way that alters its specific provisions by imposing further restrictions on Marilyn’s inheritance or granting additional rights to the children.

Joint wills are an invitation to litigation. It is always best for each spouse to have his own will. The same applies to joint trusts. The cost of putting in place a second will or trust for the other spouse is miniscule compared to the cost of litigation. Pennywise and pound foolish is the appropriate analogy.

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May 23, 2014

Chicago Estate Planning and Trustee Duties

A trust is a legal arrangement where one person (or institution such as a bank or law firm), called a trustee, holds legal title to property for another person, called a beneficiary.

A trustee’s duties include locating and protecting trust assets, investing assets prudently, distributing assets to beneficiaries, keeping track of income and expenditures and filing taxes. A trustee has a fiduciary duty to the beneficiaries of the trust to act in their best interest. This fiduciary duty holds the trustee to a higher standard than if the trustee were dealing with his own personal finances.

A trustee may hire an attorney and an accountant to assist in trust administration. The attorney and accountant fees are paid from the trust assets.

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May 17, 2014

Important Estate Planning Questions

In a recent article in US News and World Reports, Scott Holsopple sets out questions which everyone should ask when planning for what happens when they are no longer alive and handling their financial affairs.

One important question is: Does my spouse know about all of our accounts and how to access them? Make a list of all of your accounts. For on line accounts, include passwords. Include on the list all of your estate planning documents (Wills, Trusts, Powers of Attorney) and their location. Do not make the mistake of putting these documents in your safe deposit box. In a safe deposit box, the documents can be accessed only by someone on the bank's signature card. If the Power of Attorney for Health Care is needed immediately, the bank may not be open.

Another important question is: Are our wills and beneficiary designations up to date? If there has been a significant change such as marriage, divorce, death of an executor or birth of a child, the will may need to be updated. You may decide to avoid Probate with the Court and put a revocable trust in place. Also, assets which allow you to name a beneficiary (and avoid Probate) such as 401(k)s, IRAs, Life insurance, Annuities and accounts with a transfer on death (TOD) designation may need to be updated.

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May 10, 2014

Estate Planning and Powers of Attorney

A Power of Attorney allows someone you designate (your agent or attorney in fact) to make decisions for you if you become incapacitated. For this document to be effective, your agent may need to be able to access your medical information. Medical information is private. The Health Insurance Portability and Accountability Act (HIPAA) protects health care privacy and prevents disclosure of health care information to unauthorized people. HIPAA authorizes the release of medical information only to a patient’s personal representative.

HIPAA can be a problem if you have a springing power of attorney. A springing power of attorney does not go into effect until you become incapacitated. This means your agent does not have any authority until you are declared incompetent. Under HIPAA, the agent will not be able to get the medical information necessary to determine incompetence until the agent has authority.

To eliminate this problem, your Power of Attorney should contain a HIPAA clause that indicates that the agent is also the personal representative for purposes of health care disclosures under HIPAA. A HIPAA authorization form should also be signed which explains what medical information can be disclosed, who can make the disclosure and to whom the disclosure can be made.

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May 3, 2014

Illinois Estate Planning & IRAs

Individual Retirement Accounts (IRAs) are an investment tool and need to be taken into account when doing estate planning.

It is important to name a beneficiary of an IRA. A spouse is often a beneficiary. A contingent beneficiary should also be named so that the IRA does not pass to your estate and require the opening of a probate administration with the Court in the event that your spouse dies before you.

When a spouse inherits an IRA, he can roll it over into his own IRA. When a non-spouse inherits an IRA, the heir will need to start taking distributions within a year after the IRA owner dies.

If you do not need the funds in your IRA for retirement and want to use them to provide for your beneficiaries instead, you may be interested in "stretching out" your IRA. To do this, when you reach 70 1/2, take only the required minimum distribution, leaving more assets in your IRA. When you die, your beneficiary can also stretch distributions out over his lifetime and then designate a second-generation beneficiary. It makes sense to name a young beneficiary because the younger the beneficiary, the smaller each distribution must be, which gives the funds in the IRA extra tax deferred years to grow.

In some cases, it makes sense to name a trust as a beneficiary such as if you have minor children, children with special needs or a beneficiary with poor spending habits. The trust must be properly drafted to avoid negative tax consequences. It is possible to set up the trust in a way which allows distributions from the IRA to the trust after the participant's death to be stretched out over the life expectancy of the oldest trust beneficiary.

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