October 17, 2014

Third Party and Self-Settled Special Needs Trusts

When parents set up a Third Party Special Needs Trust, it is created by and funded with the assets of the parents. The parents are considered to be the “third party”. The trust is not set up with the assets of the special needs child and the transfer may not be created to make the parents eligible for Medicaid paid nursing home care.

The Trustee has wide discretion in making distributions to or for the benefit of the special needs child. For this reason, the Trustee should be familiar with and responsive to the particular needs of the special needs child, should have knowledge of the government benefit programs and the effect the trust may have on eligibility for these programs, and should be in good health, reliable and financially astute.

If a special needs child has received an inheritance, gift, bequest, lawsuit award or settlement, child support, alimony or divorce property settlement, the receipt of these assets can disqualify a child for means tested benefits such as Medicaid and Supplemental Security Income. In cases like these, a Self-Settled Special Needs Trust should be established to preserve the child’s eligibility for the government benefits. Better practice is to have a Third Party Special Needs Trust already in place so that the inheritance, gift, bequest, lawsuit award or settlement, child support, alimony or divorce property settlement can be made payable to the Third Party Special Needs Trust thereby allowing any Special Needs Trust funds remaining after the death of the special needs child to be distributed to remaining family members.

Continue reading "Third Party and Self-Settled Special Needs Trusts" »

Bookmark and Share

October 10, 2014

5 Ways Your Will Can Become Useless

Wills do not expire, but certain changes can render them useless. It is important to review your will periodically to ensure it still does what you want. The following are five ways your will can become out of date.

1. Your beneficiaries have died. For example, if your will leaves your estate to your two siblings and both die before you, your will is still valid, but it will have no effect on who will inherit from your estate. Instead, your estate will be distributed according to the law in your state, just as if you had died without a will.

2. You have potential new beneficiaries. A will that was written before you got married will be of little assistance in distributing your estate. Illinois law includes provisions that provide for a spousal share. In this case, Illinois law is dictating where your estate is going, not you.

3. Your executor is dead or unable to serve. The executor is the person named in your will who oversees the distribution of your property. If the person you named as executor is unable to serve, the court will have to appoint someone else. Beneficiaries may have a say in who is chosen, but it may not be someone you would have wanted in the position.

4. You no longer own property named in the will. If your will attempts to divide your estate equally by giving cash to your daughter and property of equal value to your son and the property is sold before you die, your son will receive nothing. In this case, your will is no longer ensuring your estate is divided equally.

5. The law changes. If your estate plan was designed specifically to avoid estate taxes and the estate tax law changes, your will may no longer serve its purpose.

Continue reading "5 Ways Your Will Can Become Useless" »

Bookmark and Share

October 3, 2014

Illinois Living Will Act

The Illinois Living Will Act has been in effect since 1984. It is based on the common law doctrine of informed consent. This right gives individuals the authority to refuse medical treatment. It also gives individuals the ability to record directions about future medical care should they become terminally ill and unable to communicate their choices. A Living Will can authorize the withdrawal or withholding of medical procedures which delay death for terminally ill patients.

A Living Will is often executed by an individual at the same time he executes a Power of Attorney for Health Care. A Living Will can provide a clear indication of the individual’s wishes to family members who are reluctant to withhold or withdraw medical procedures. In the case where the provisions of a Living Will conflict with a Power of Attorney for Health Care, the Power of Attorney supersedes the Living Will.

Continue reading "Illinois Living Will Act" »

Bookmark and Share

September 19, 2014

Making a Will in Illinois

The ability to make a will involves the issue of mental capacity.

In Illinois, there is a presumption that every man is sane until the contrary is proven and the burden is upon him who asserts the lack of testamentary capacity. In other words, everyone is presumed to have the mental capacity to make a valid will. It is up to the person challenging the validity of the will to prove otherwise.

Illinois courts also recognize that someone who suffers from some mental impairment can still have testamentary capacity. There is a case where a 74 year old woman executed a will after she was diagnosed with senile dementia and had the intelligence level of a 12 year old child. Despite these short comings, she read newspapers, was aware of and interested in current events, knew her relatives and asked about their well being and could transact business. The court ruled that she had the capacity to execute a valid will.

In summary, Illinois law requires three things for someone to have the mental capacity to make a valid will:

1) He must know who his spouse, children, grandchildren and other relatives are;
2) He must generally understand what assets he owns; and
3) He must be able to form a plan in his head regarding how he wants his property distributed.

Continue reading "Making a Will in Illinois" »

Bookmark and Share

September 12, 2014

Illinois Long-Term-Care Estate Planning

Like all insurance policies, Long-Term-Care insurance policies require a good deal of research before they are entered into. Often different insurance companies offer coverages that at first glance appear similar, but upon closer examination are very different.

A Wall Street Journal article titled, Insurer Casts Off Long-Term-Care Policies written by M.P. McQueen references seven ways to protect yourself before signing up for a long term care policy.

First, look into the stability of the premium payments. Long-term-care policy premiums are not like life insurance policy premiums which remain constant. Long-term-care policies can rise unexpectedly. It is often the case that large insurers which are financially stable and have high credit and financial strength ratings initially charge a higher premium but the premiums increase very little over the years.

Second, know how much the policy will cover in daily costs. Because the daily cost of nursing home expenses varies widely from state to state, it is important to know if the policy will cover the costs in your state.

Third, be aware that the length of coverage is limited. Coverage for a lifetime is difficult to obtain and very expensive. Policies covering two to four years are typical. It is unlikely that a nursing home stay will exceed four years.

Fourth, be aware that many policies require you to pay for the first three months of care before the policy takes over. If you want to shorten or eliminate paying for the first three months, the cost of the premium will increase.

Fifth, seek built-in inflation protection which increases at a rate approximating the increase in care costs. This rate should be well above the current rate of inflation.

Sixth, look into expense-incurred benefits. This is additional money paid directly to you or the care provider to reimburse for eligible costs up to a daily benefit maximum.

Finally, look into indemnity benefits. Although this coverage is more expensive, it is often worth the cost as it provides cash to you to cover costs which are not always eligible expenses.

Continue reading "Illinois Long-Term-Care Estate Planning" »

Bookmark and Share

September 6, 2014

The Role of Representative in Illinois Probate

A personal representative is the individual who handles the matters of an estate as it makes its way through the probate process. If there is a will, the personal representative is the executor. If there is no will, the personal representative is the administrator.

The personal representative has specific powers even before the Probate Court issues his Letters of Office. He can carry out any gift the decedent has made of his body, arrange the burial of the decedent, make payment of funeral charges and take acts necessary to preserve the estate.

After his Letters of Office are issued, the representative can exercise all powers given to him in the will. In addition, the representative can lease, sell or mortgage the estate’s property, borrow money with or without security, continue the decedent’s unincorporated business, perform any contract of the decedent and take possession, administer and grant possession of the decedent’s real estate.

For a complete list of powers of a representative, check out 755 ILCS 5/, which is the Illinois Probate Act.

Continue reading "The Role of Representative in Illinois Probate" »

Bookmark and Share

August 28, 2014

Illinois Children's Trusts

Children under the age of 18 cannot directly inherit more than a small amount of money. If you make no provisions in your Will, a court will appoint a property guardian to manage your child’s assets until he reaches 18.

That property guardian may be a stranger who will add another layer of bureaucracy to the situation. When your child needs money, formal requests will need to be made through the court system.

One solution is to set up a custodial account for your child. You are allowed to choose the custodian, and the custodian makes decisions regarding how the money is spent. Once your child turns 18, the money is your child’s to spend as he pleases.

As Stacy L. Bradford points out in her Wall Street Journal piece titled, “Deciding if Your Kid is Trust-Worthy”, a better alternative may be to set up a trust. A trust allows more control over how money is spent once the parents are gone. The parents can specify how the trust money is to be spent, for example on college tuition, and a trust can delay the age at which the child has access to the money, for example the child gets half at age 30 and the other half at 35.

The trustee makes all of the decisions, so it is important to pick a person who is trustworthy, financially astute and diligent.

Continue reading "Illinois Children's Trusts" »

Bookmark and Share

August 23, 2014

Probate Law Regarding Beneficiaries

A holding by the U.S. Supreme Court in Kennedy, executrix of the estate of Kennedy, deceased v. Plan Administrator for DuPont Savings and Investment Plan, et al. makes clear the importance of keeping on top of estate planning matters.

In that case, a divorced father did not take all of the steps necessary to change with his pension plan the name of the beneficiary of his plan. When he died, the pension plan paid all of the benefits to the person named as the beneficiary. That person was his ex-wife. The father's estate sued, claiming that it should have received the benefit because the ex-wife had waived her right to receive the benefit.

The law in that state held that a divorce ends the right of a spouse to an interest in the other spouse's pension benefits.

The trial court ruled that the estate should receive the benefit. The 5th U.S. Circuit Court of Appeals reversed and ruled that the ex-wife should receive the benefit. The U.S. Supreme Court confirmed.

When naming beneficiaries, it is good to keep the following in mind:

1) It is easy to change beneficiaries. Most financial firms make copies available online or you can call and ask for them. The forms are simple. Once completed, it is good to make a copy of the form after submitting it and include the form with other estate planning documents;

2) Name an alternate beneficiary. This addresses the situation where the primary beneficiary dies before you do. It also provides for the instance where the primary beneficiary disclaims the interest.

3) Your will has no effect regarding who receives accounts with beneficiary designations like IRAs, 401(k)s, insurance policies and annuities. You must designate a beneficiary on the account's forms. If you do not designate a beneficiary, the account will be distributed according to state rules on distribution.

Continue reading "Probate Law Regarding Beneficiaries" »

Bookmark and Share

August 16, 2014

Chicago Estate Planning and Individual Retirement Accounts

Individual Retirement Accounts (IRAs) need to be taken into account when doing estate planning.

The most important thing to remember with an IRA for estate planning purposes is to name a beneficiary. While a spouse is usually the logical choice for a beneficiary, you should be sure to name contingent beneficiaries as well. If you and your spouse die at the same time and there was no contingent beneficiary, then the IRA would go to your estate and may require the opening of Probate (the legal process of administering the estate of a deceased person before a judge). When a spouse inherits an IRA, he can roll it over into his own IRA. When a non-spouse inherits an IRA, the beneficiary will need to start taking distributions within a year after the IRA owner dies.

If you don’t need the funds in your IRA for retirement and you 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 ½, take only the required minimum distributions, 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 may make sense to name a trust as a beneficiary. This is particularly true if you have minor children, children with special needs or a beneficiary with poor spending habits. But the trust must be properly drafted to avoid negative tax consequences. If the trust is a “see-through” trust or a “conduit” trust, then the distributions from the IRA to the trust after the participant’s death can be stretched over the life expectancy of the oldest trust beneficiary.

Continue reading "Chicago Estate Planning and Individual Retirement Accounts" »

Bookmark and Share

August 9, 2014

Chicago Estate Planning and Trustee Issues

An individual takes on legal responsibilities when he agrees to be a trustee. If the trustee does not perform his duties properly, he could be personally liable.

A trust is a legal arrangement through which one person (or an institution, such as a bank or law firm), referred to as a trustee, holds legal title to the property of another person.

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 tax returns. A trustee has a fiduciary duty to the beneficiaries of the trust, meaning that the trustee has an obligation to act in the best interest of the beneficiaries at all times. It also means the trustee will be held to a higher standard than if the trustee were dealing with his personal finances.

A trustee is entitled to hire an attorney and other professionals like an accountant to assist in the trust administration. The attorney, accountant and other professional fees are considered an expense of trust administration and are paid from the trust funds.

Continue reading "Chicago Estate Planning and Trustee Issues" »

Bookmark and Share

August 2, 2014

Estate Planning and Claiming a Parent as a Dependent

If you are caring for your mother or father, you may be able to claim your parent as a dependent on your income taxes. This would allow you to get an exemption for her or him.

There are five tests to determine if you can claim a parent as a dependent:

1) The person you are claiming as a dependent must be related to you. This should not be a problem if you are claiming a parent (in-laws are also allowed). Keep in mind that foster parents do not count at a relative. To claim a foster parent, he must live with you for a year as a member of your household.

2) Your parent must be a citizen or resident of the United States or a resident of Canada or Mexico.

3) Your parent must not file a joint return. If your parent is married, he must file separately. There is an exception if your parent is filing jointly, but has no tax liability. If your parent files a joint tax return solely to get a refund, you can claim him as a dependent.

4) Your parent must not have a gross income exceeding the allowable exemption amount for that year. Gross income does not include Social Security payments or other tax-exempt income.

5) You must provide more than half of the support for your parent during the year. Support includes amounts spent to provide food, lodging, clothing, education, medical and dental care, recreation, transportation and similar necessities. Even if you do not pay more than half of your parent’s support for the year, you may be able to claim your parent as a dependent if you pay more than 10 percent of your parent’s support for the year, and, with others, collectively contribute to more than half of your parent’s support. To receive the exemption, all those supporting your parent must agree on and sign the applicable Multiple Support Declaration (Form 2021).

If you cannot claim your parent as a dependent because he filed a joint tax return or has a gross income above the limit for that year but you have been paying for your parent’s medical expenses, you may still be able to deduct those expenses from your own taxes.

Continue reading "Estate Planning and Claiming a Parent as a Dependent" »

Bookmark and Share

July 26, 2014

Illinois Law & Giving Assets to Children

When you give anyone a gift valued at more than $14,000 in any one year, you have to file a gift tax form. This is so that the government can keep track of gifts you make during your lifetime. You can give a total of $5,340,000 over your lifetime without incurring a gift tax.

Keep in mind that if you decide to give your children your home, while you may not have to pay gift taxes on the gift, if your children sell the house right away, they may be facing steep taxes. The reason is that when you give away your property, the tax basis (original cost) of the property for the giver becomes the tax basis for the recipient. For example, suppose you bought the house years ago for $150,000 and it is now worth $350,000. If your give your house to your children, the tax basis will be $150,000. If the children sell the house, they will have to pay capital gains taxes of the difference between $150,000 and the selling price. The only way for your children to avoid the taxes is for them to live in the house for at least two years before selling it. In that case, they can exclude up to $250,000 ($500,000 for a couple) of their capital gains from taxes.

Inherited property does not face the same taxes as gifted property. If the children were to inherit the property, the property’s tax basis would be “stepped up”, which means the basis would be the current value of the property. However, the home will remain in your estate, which may have estate tax consequences.

Beyond the tax consequences, gifting a house to children can affect your eligibility for Medicaid coverage of long-term care. There are other options for giving your house to your children, including putting it in a trust or selling it to them.

Continue reading "Illinois Law & Giving Assets to Children" »

Bookmark and Share