Illinois Estate Planning & Elder Law Blog

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, the state determines how your property is distributed. A Will also appoints a legal representative (called an executor or a personal representative) 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 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 durable 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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Once you have created an estate plan, it is important to keep it up to date. The following is a list of events which may trigger an estate plan update.

Whether it is your first marriage or a later marriage, you may need to update your estate plan after you get married. In Illinois if you die without a Will, a spouse gets one-half of your estate, and the rest will go to other relatives. You need a Will to spell out how much you would like your spouse to get.

Your estate plan may get more complicated if your marriage is not your first. You and your new spouse need to figure out where each of you wants your assets to go when you die. If you have children from a previous marriage, this can be complicated. There are a number of options to ensure your children are provided for including creating a trust for your children, making your children beneficiaries of life insurance policies and giving your children joint ownership of property.

It is important to name a guardian for your children in your Will. You may also want to set up a trust for your children so that your assets are set aside for your children when they get older.

When your children get older, you may want to update your plan to reflect the changes. They will no longer need a guardian, and they may not need a trust. You may want your children to act as executors or hold a power of attorney.

If you get divorced or your spouse dies, you will need to revisit your entire estate plan. It is likely that your spouse is named in some capacity in your estate plan such as beneficiary, executor or agent under power of attorney. If you have a trust, you will need to make sure your spouse is no longer a trustee or beneficiary of the trust. You will also need to change the beneficiary on your retirement plans and insurance policies.

One part of estate planning is estate tax planning. When your estate is small, you usually do not have to worry about estate taxes. In Illinois in 2012, only estates with more than $3.5 million are subject to Illinois estate tax and estates with more than $5 million are subject to federal estate tax. As your estate approaches these levels, a plan that takes tax planning into account needs to be considered.

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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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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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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 before 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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The Cost of Living adjustment for Veterans’ Compensation is a 3.6% increase in benefits, effective December 1, 2011 for benefits to be payable in January of 2012. This adjustment applies to the rates of compensation for veterans with service-connected disabilities and the rates of dependency and indemnity compensation for the survivors of certain disabled veterans. No increase in pension benefits was announced.

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A recent analysis reveals that the largest for-profit facilities maintain staffing levels nearly one-third lower than non-profit and government-owned nursing homes, resulting in a significantly lower quality of care.

The study, led by the University of California San Francisco (UCSF), looked at the relationship between staffing and quality of care at the ten largest for-profit nursing home chains.

“Poor quality of care is endemic in many nursing homes, but we found that the most serious problems occur in the largest for-profit chains”, said lead author Charlene Harrington, RN, PhD, professor emeritus of sociology and nursing at the UCSF School of Nursing. “The Top ten chains have a strategy of keeping labor costs low to increase profits. They are not making quality a priority”.

Although the top chains had the sickest residents, their total nursing hours were 30 percent lower than non-profit and government nursing homes, the UCSF study found. Moreover, the major chains were well below the national average for registered nurse and total nurse staffing, and below the minimum nurse staffing recommended by experts.

According to the study, the ten largest for-profit chains were cited for 36 percent more deficiencies and 41 percent more serious deficiencies than the best facilities. Deficiencies include failure to prevent pressure sores, resident weight loss, falls, infections, resident mistreatment, poor sanitary conditions and other problems that could seriously harm residents.

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An executor is the person responsible for managing the administration of a deceased individual’s estate. The executor is named in the Will. If there is no Will, an administrator is appointed by the Court. You are not required to accept the position of executor if you are named in the Will.

Estate administration in Illinois usually takes 14 months. The following are some of the duties of an executor or administrator.

• Locate Documents. You need to locate the original Will and have it recorded with the County Recorder’s office. You need to obtain the death certificate.
• Open Probate. The Court will grant Letters of Office to the executor or administrator.
• Notify Interested Parties. You will need to notify beneficiaries, heirs and known creditors. Publication needs to be made in the newspaper to unknown creditors.
• Manage the Deceased’s Property. You will need to prepare a list of the deceased’s assets and liabilities and collect any property in the hands of other individuals. The property must be protected from loss. An appraiser needs to be hired to assess property values.
• Pay Claims of Creditors. Once the creditors are determined, they need to be paid from the decedent’s funds.
• File Tax Returns. You need to be sure tax forms are filed within the required filing deadlines including estate taxes and income taxes.
• Distribute Assets to the Beneficiaries. Once the creditors’ claims are paid, the executor is responsible for making sure the beneficiaries get what they are entitled to.
• Keep Accurate Records. It is important to keep records of payments made and assets received. A final accounting will need to be created.

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A trust is a legal arrangement through which 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 holds the trustee to a higher standard than if the trustee were dealing with his 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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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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Wills and Trusts are useful estate planning devices which serve different purposes. Both work together to create a complete estate plan.

One main difference between a Will and a Trust is that a Will goes into effect only after you die, while a Revocable Living Trust goes into effect as soon as it is created and funded. A Will directs who will receive your property at your death, and it appoints a legal representative to carry out your wishes. A Revocable Living Trust can be used to distribute property before your death, at your death or afterwards.

A Will covers any property that is only in your name when you die. It does not cover property held in joint tenancy or in a Trust. A Trust covers only property that has been transferred to the Trust. In order for property to be included in a Trust, it must be put in the name of the Trust.

Another difference between a Will and a Trust is that a Will passes through probate. That means a court oversees the administration of the Will and ensures the Will is valid and the property gets distributed the way the deceased wanted. A Trust passes outside of probate, so a court does not oversee the process. Unlike a Will which becomes part of the public record and can be accessed by anyone, a Trust can remain private.

Wills allow you to name a guardian for children and specify funeral arrangements. Trusts can be used to plan for disability of beneficiaries and to save on taxes

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In her recent Wall Street Journal article titled IRS Clarifies Estate Rules, Laura Saunders refers to new rules which make clearer the procedure involved for a surviving spouse seeking to take advantage of the $5 million per individual and $10 million per married couple exemption from estate taxes.

Ms. Saunders cites the example of a Wife who died in 2011 with assets totaling $1.5 million. $3.5 million of her exemption went unused.

Under the new rules, Wife’s executor can file an estate tax return which includes the value of Wife’s assets as of her date of death. This preserves her remaining $3.5 exemption which Husband can use at his death. It is crucial that Wife’s estate tax return is filed and within nine months after Wife’s death.

Portability of the deceased spouse’s unused exemption expires at the end of 2012. Some estate planning experts believe portability will be renewed by Congress.

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