Illinois Estate Planning & Elder Law Blog

When a Seller assures a Buyer that he will stand behind the title to the property he is conveying, the Seller executes a Warranty Deed. With a Warranty Deed, the Seller discloses to the Buyer all of the encumbrances on the property and certifies to the Buyer that no other outstanding claims against title to the property exist. The Seller stands behind this certification by guaranteeing that if there is a problem with the title, the Seller will compensate the Buyer for any loss.

When a Seller does not assure the Buyer that he will stand behind the title he is conveying, the Seller executes a Quitclaim Deed. With a Quitclaim Deed, the Seller conveys to the buyer only the right, title and interest that he has, whatever that may be. The Seller does not guarantee that other parties do not have an interest in the property, and the Seller does not agree to compensate the Buyer for any loss because of these outstanding interests.

Both Warranty Deeds and Quitclaim Deeds have there useful place when parties are interested in transferring title to property.

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Posted by Anne Rabuck | Permalink | Email This Post

Posted In: Real Estate

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Authority to appoint the property of an original trust to a second trust is commonly referred to as decanting authority. The Federal Taxpayer Certainty and Relief Act of 2009 would provide this authority to a trustee and allow him to adapt the terms of a trust on account of unforeseen circumstances or drafting errors.

Statutory decanting authority allows for modification of undesirable terms of an irrevocable trust when doing so would be in the best interests of the beneficiaries. Some examples of these modifications including changing the situs of a trust to a state with more favorable law; relocating trust assets to a state with no income tax imposed; combining multiple trusts to reduce administrative costs and dividing trusts to resolve conflicts among beneficiaries; correcting errors in drafting; and conforming the distribution provisions of a trust to the requirements of a special needs trust.

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Under current law, any estate tax exemption amount that a spouse does not use by the time of his death cannot be used by a surviving spouse and expires upon the first spouse’s death.

Portability, as proposed in the Taxpayer Certainty and Relief Act of 2009, would allow the surviving spouse to be credited with the deceased spouse’s unused exclusion amount.

The Act includes safeguards including provisions which limit the unused exclusion amounts which a surviving spouse of multiple deceased spouses can use. The entire exclusion available to the surviving spouse would be the applicable exclusion amount otherwise available to a decedent.

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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.

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In 2010, the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) gets rid of the income ceiling that prevented individuals with modified adjusted gross income in excess of $100,000 from making a qualified rollover to a Roth IRA.

After 2009, any kind of IRA (Individual Retirement Account) can be converted to a Roth IRA, including traditional deductible, nondeductible, rollover and inherited IRAs.

A Roth IRA rollover in 2010 is subject to income tax (payable over two years in 2011 and 2012) because it has not been previously taxed. The distributions are not subject to income tax. The minimum required distribution rules do not apply.

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The Illinois Power of Attorney Act includes provisions for powers of attorney for healthcare.

A power of attorney for healthcare allows an individual (Principal) to give another individual (Agent) authority to act on the Principal’s behalf as far as healthcare decisions. The Principal may specify when the Agent has authority to act on his behalf and when this authority ends; the rights, powers, duties, limitations and immunities applicable to the Agent and to all persons dealing with the Agent; and other terms applicable to the Agent.

There is no authority for euthanasia, assisted suicide or any course of action which violates state or federal law. A Principal can impose limitations on the Agent as far as when to withdraw life sustaining treatment, whether certain treatments should be denied based on religious beliefs or an instruction to continue foods and fluids in all circumstances.

Once a court enters a judgment of dissolution of marriage or legal separation between the principal and his or her spouse following the signing of the agency, the spouse is treated as dead for purposes of the Power of Attorney agency at the time of judgment.

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A durable power of attorney for property is executed by an individual when he is competent. The agent is given power to do things that the individual could do whether the individual is now competent or now incompetent. Because it is durable, the power of attorney can still be used after the individual becomes incompetent.

The standard categories of powers that a principal can give his agent are:

1) Real Estate Transactions – allowing the agent to buy, sell, exchange, rent and lease real estate

2) Financial Institution Transactions – allowing the agent to open, close, continue and control all accounts and deposits in any type of financial institution including banks, trust companies, saving and loan associations, credit unions and brokerage firms

3) Stock and Bond Transactions – allowing the agent to buy and sell all types of securities including stocks, bonds, mutual funds and all other types of investment securities and financial instruments

4) Tangible Personal Property Transactions – allowing the agent to buy and sell, lease, exchange, collect, possess and take title to all tangible personal property

5) Safe Deposit Transactions – allowing the agent to open, continue and have access to all safe deposit boxes

6) Insurance and Annuity Transactions – allowing the agent to procure, acquire, continue, renew, terminate or deal with any type of insurance or annuity contract

7) Retirement Plan Transactions – allowing the agent to continue to withdraw from and deposit funds in any type of retirement plan

8) Social Security, Unemployment and Military Service Benefits – allowing the agent to prepare, sign and file a claim or application for Social Security, unemployment or military service benefits

9) Tax Matters – allowing the agent to sign, verify and file all of the principal’s federal, state and local income, gift, estate, property and other tax returns

10) Claims and Litigation – allows the agent to institute, prosecute, defend, abandon, compromise, arbitrate, settle and dispose of any claim in favor of or against the principal or any property interest of the principal

11) Commodity and Option Transactions – allows the agent to buy, sell, exchange, assign, convey, settle and exercise commodities futures contracts and call and put options

12) Business Operations – allows the agent to organize or continue and conduct any business in any form

13) Borrowing Transactions – allows the agent to borrow money, mortgage or pledge any real estate or tangible or intangible personal property

14) Estate Transactions – allows the agent to accept, receipt for, exercise, release, reject, renounce, assign, disclaim, demand, sue for, claim and recover any legacy, bequest, devise, give or other property interest

15) All Other Property Powers and Transactions – allows the agent to exercise any powers of the principal regarding any types of property and interests in property except to the extent limited by the principal by striking out a category on the power of attorney document or including a specific limitation in the power of attorney document

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In his article titled Estate Planning for a Family with a Special Needs Child, Sebastian V. Grassi, Jr. lists five estate planning options for parents of a special needs child:

1. Distributing assets directly to the special needs child;
2. Disinheriting the special needs child;
3. Leaving property to another family member;
4. Establishing a third-party discretionary support trust for the special needs child; and
5. Establishing a third-party created and funded Special Needs Trust for the child.

Only number 5, establishing a third-party created and funded special needs trust, is recommended because it will not disqualify the child from receiving means-tested government benefits, it is legally enforceable and it does not subject the assets to creditors of family members.

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You can withdraw your original contributions to a Roth at any time. But you must wait five years to avoid paying the tax on earnings on regular contributions.

If you inherit a Roth from your spouse, the taxable period ends either five years after the account was opened by your spouse or five years after the surviving spouse opened his own Roth, whichever is earlier.

A surviving suppose can name his children as equal beneficiaries of the same Roth. It is in the children’s interest to do so. Any heir other than a spouse who treats the Roth account as his own must take the required distributions from the Roth beginning by December 31st of the year after the year of the previous owner’s death. If the children keep the account intact and they want to stretch the withdrawals as long as possible, they are restricted to using the oldest child’s age. However, if they split the account, each sibling can stretch the distributions across his own lifetime. This means younger siblings can spread withdrawals over more years, leaving more assets in the account for a longer time and most likely realizing more tax-free earnings.

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The components of Medicare are:

1) Part A, mainly hospital coverage;
2) Part B, outpatient coverage; and
3) Part D, drug coverage.

Medigap coverage pays the uncovered portions of most Medicare bills.

There is also Medicare Advantage coverage which provides most of the coverages in items 1), 2), 3) and Medigap coverage combined in one package. When creating your estate plan, medical bills and their coverage by insurance needs to be addressed.

Medigap coverage is important because Medicare is not enough coverage for people with average to above-average medical costs.

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Effective January 1, 2010, the income tax limit for transferring assets from a traditional Individual Retirement Account (IRA) to a Roth IRA is permanently dropped. These conversions will be subject to income tax, but future withdrawals (that meet holding requirements) will be tax free.

There are three options for paying income taxes throughout the year and thereby avoiding penalty and interest for underpayment of income tax when the conversion is made:

1) Pay 100% of last year’s tax (110% if your Adjusted Gross Income was over $150,000). Then pay any income tax for a 2010 Roth conversion as part of the 2010 tax return.

2) Pay 90% of the current year’s tax. If a large amount is being converted to a Roth in 2010, this is a way to have less to pay quarterly or have withheld from your paycheck in 2011.

3) Estimate your income each quarter and pay tax on it for that quarter. You can have the tax withheld from your paycheck, make quarterly payments or a combination of both.

Roth IRA conversion will also affect your Illinois Income Tax Return.

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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 First Party Special Needs Trust should be established to preserve the child’s eligibility for the government benefits.

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