Illinois Estate Planning & Elder Law Blog

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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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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In her recent article in The Wallstreet Journal, Jennifer Hoyt Cummings gives tips regarding setting up a trust so that parents can protect their assets from free-spending or other problem heirs. She advises that a trust should be put in place so that a spendthrift or other problem heir cannot get title to a home. A trust can buy real estate on behalf of the heir.

She also advises setting up the trust so that the child’s creditors cannot access the inheritance. This is commonly referred to as an asset protection trust.

Ms. Cummings cautions that a trust could go on for a hundred years or more, so clauses should not be too specific or too narrow. In addition, legal jargon in the trust should be expanded upon with a letter attached to the trust explaining your decisions.

Finally, she suggests considering distributions for children who want to take on special projects like studying abroad.

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