February 27, 2015

Illinois Powers of Attorney

An agent, in the context of a Power of Attorney document, is a person authorized by another to act for him. The principal (the person giving the power) and the agent must be adults who are both mentally competent when the Power of Attorney document is signed.

It used to be that if the principal became disabled, the Power of Attorney document became invalid. Today, Illinois has adopted The Uniform Statutory Power of Attorney Act which allows a Power of Attorney document to contain the words “this power of attorney shall not be affected by the subsequent disability of the principal”. This language allows the Power of Attorney document to continue to be valid and used despite the disability of the principal. It is commonly referred to as a Durable Power of Attorney.

By using this durable provision, an individual has the ability to select in advance who serves as his agent after he becomes disabled. When a Power of Attorney for Property and a Power of Attorney for Health Care have been put in place, there is no need for a guardianship through the Court. The Agents under the Powers of Attorney have the legal ability to handle all affairs of the disabled individual.

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February 25, 2015

Illinois Living Revocable Trusts

It is often best to avoid probate, the court supervised process which makes sure that a deceased person’s assets are properly distributed. The probate process is costly and time consuming (usually 12 -14 months depending on the county). It also is a matter of public record, so your financial affairs become public information.

A Living Revocable Trust is a basic estate planning tool used to avoid probate. A living trust is drafted and assets such as real estate, accounts at financial institutions and other investments are titled in the trust. A trustee (relative, close friend, lawyer or financial institution) is given authority to distribute your assets when you die.

Because the trust is revocable, you can change its terms or get rid of it completely if you like.

For income tax purposes, the living trust has no effect. The income from the assets in the trust is reported on your Form 1040 as are any deductions related to those assets.

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February 21, 2015

Stand Alone Retirement Trusts

Investing money in an Individual Retirement Account is a secure financial planning decision. A great deal of protection has been afforded to the money set aside specifically for retirement. Included with these protections is the ability to shield your retirement assets from creditors.

In the past creditor protection afforded by placing your assets in designated retirement accounts extended to the beneficiaries of those accounts. Any retirement assets passed to children or other beneficiaries would enjoy the same level of creditor protection they did when they were first set aside.

In June of last year, the Supreme Court stripped inherited IRAs of their creditor protection making these assets available to the creditors of your heirs and legatees. This major change in the exempt status of inherited IRA accounts has motivated estate planning professionals to look for new ways to protect retirement assets from creditors.

The need to restore creditor protection while maintaining the favorable tax treatment of IRAs makes adding a Stand Alone Retirement Trust to your estate plan worth considering. When drafted properly, the Stand Alone Retirement Trust has the power to protect inherited IRAs from creditors, including a beneficiary's divorcing spouse.

Also, the Stand Alone Retirement Trust will allow your beneficiaries to stretch out the distribution of retirement funds and enjoy the favorable tax treatment afforded these assets by the IRS. Traditional revocable trusts can not accomplish this.

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January 31, 2015

Illinois Estate Planning and Estate Tax Deductions

Your funeral expenses, debts you owe at your death and expenses required to administer your estate are expenses which will need to be paid from your assets when you die. These expenses are deductible on your estate tax return which can result in estate tax savings for your family. If you do not owe estate taxes at your death, many of these expenses can be taken as income tax deductions.

Four types of expenses which qualify as estate tax deductions:

Funeral Expenses. These expenses include funeral and cemetery charges and payments to officiating clergy.

Administrative Expenses. These expenses include fees paid to prepare your final income tax return, income tax returns for your estate or trust and your estate tax return. They also include attorney fees, executor fees, trustees fees, probate costs, appraisal fees and expenditures to maintain property prior to distribution to beneficiaries.

Claims. These expenses include final utility bills, credit card bills and income taxes due for income you earned in the year you died.

Mortgages. These include any indebtedness secured by a mortgage on real estate you own at your death.

In addition, casualty losses resulting from theft, fire or flood occurring during the administration of your estate not compensated by insurance are deductible.

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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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