Illinois Estate Planning & Elder Law Blog

When you give anyone property valued at more than $13,000 in any one year, you have to file a gift tax form. Also, under current law you can gift a total of $5 million over your lifetime without incurring a gift tax. If your residence is worth less than $5 million, you likely will not have to pay any gift taxes, but you will still need to file a gift tax form. Keep in mind Congress may change the gift tax exemption, which is currently scheduled to revert to $1 million at the end of 2012 unless Congress acts.

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 fact 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" »

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.

Continue reading "Chicago Law & Components of a Good Estate Plan" »

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.

Continue reading "Chicago Law & Updating Your Estate Plan" »

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.

Continue reading "Chicago Estate Planning & Letters of Instruction" »

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.

Continue reading "Illinois Inherited IRAs and Distributions to Beneficiaries" »

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.

Continue reading "Chicago Estate Planning and Spousal Social Security Benefits" »

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.

Continue reading "Chicago Estate Planning Veterans' Compensation COLAs" »

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.

Continue reading "Chicago Estate Planning and Executor Duties" »

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.

Continue reading "Chicago Estate Planning and Trustee Duties" »

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.

Continue reading "Chicago Estate Planning and Powers of Attorney" »

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

Continue reading "Chicago Estate Planning & Differences Between a Will and a Trust" »

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.

Continue reading "Federal Estate Tax Rules Clarified" »

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.

Continue reading "Chicago Estate Planning & IRAs" »

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.

Continue reading "Chicago Estate Planning for Spendthrift Children" »

Long-tern care can be very expensive, but many long-term care expenses can be deducted from your taxes.

In a recent decision by the U.S. Tax Court, it ruled that payments to non-medical caregivers are still deductible as medical expenses. In Estate of Lillian Baral (U.S. Tax Ct., No. 3618-10, July 5, 2011), Lillian Baral suffered from dementia, and her doctor recommended that she get 24 hour care. Her brother hired caregivers to assist Ms. Baral with daily activities. On her tax return, Ms. Baral included a deduction for medical expenses for the payments of the caregivers. The IRS said the expenses were not deductible and asked for more money. Following Ms. Baral’s death, her estate appealed the matter to the U.S. Tax Court.

Under tax law, expenses for medical care may be claimed as an itemized deduction if they exceed 7.5 percent of adjusted gross income. (Note that this threshold will rise to 10 percent of adjusted gross income in 2012.) The definition of medical expenses includes the cost of long-term care if a doctor has determined you are chronically ill. Chronically ill means you need help with activities list eating, going to the bathroom, bathing and dressing, or you require substantial supervision due to a severe cognitive impairment.

The Tax Court agreed with Ms. Baral that the payments to the caregivers for assisting and supervising Ms. Baral are deductible medical expenses. The expenses qualified as long-term care services even though the caregivers were not medical personnel because a doctor had found that the services provided to Ms. Baral were necessary due to her dementia.

Continue reading "Chicago Estate Planning & Long Term Care Expenses" »

Most seniors prefer to stay at home as long as possible before moving into a nursing home. For many families, this means eventually hiring a caregiver to look after an aging relative. Caregivers can be hired directly or through a home health agency.

When a caregiver is hired directly, you need to consider all of the tax and liability issues. As an employer, you are responsible for filing payroll taxes, tax forms and verifying that the employee can legally work in the United States. If you pay $1700 or more in wages in 2011 to any one employee, you need to withhold and pay Social Security and Medicare taxes. If you pay more than $100 in wages in 2011, you need to pay unemployment taxes. Insurance for an accident which occurs on the job should also be addressed.

The benefit of hiring a caregiver directly is that you have more control over who you hire and can choose someone who you feel is right for your family. In addition, hiring privately is usually cheaper than hiring through a home health agency.

When you hire through a home health agency, the agency is the employer, so you do not need to address the tax and liability issues. The agency takes care of screening the employees, doing background checks and providing insurance. A licensed home care agency must provide ongoing supervision to its employees. It can help the employees deal with difficult family situations or changing needs. The agency may also be able to provide back-up if a regular caregiver is not available.

The downside of going through an agency is not having as much input into the selection of a caregiver. Caregivers may change or alternate, causing a disruption in care and confusion.

Continue reading "Illinois Estate Planning and Hiring a Caregiver" »

Amy Winehouse’s death at age 27 illustrates the importance of having a Will, at any age. Ms. Winehouse and Blake Fielder-Civil were married briefly. Under English law, marriage negates any Wills made before the marriage, but if a couple divorces and there is no new Will, the ex-spouse is the favored beneficiary. Ms. Winehouse updated her Will to ensure that Fielder-Civil, who is currently in jail for burglary and possession of an imitation fire arm, would not inherit any of her estate. Under Winehouse’s Will, her estate, estimated at $16 million, will go to her parents and her brother.

In Illinois, if you die without a Will, the state dictates who will inherit from you as set forth in Illinois laws. If you are married, your spouse gets one-half of your estate and the rest is divided among your children.

If you have assets or have young children that will need a guardian, a Will is an important document to have. Planning your estate with a Will and a Trust is the best way to ensure your estate is distributed as you want it without your assets being made public.

Continue reading "Importance of a Will in Illinois" »

1. LOSS OF CAPACITY. What if you become incompetent and unable to manage your own affairs? Without a plan the courts will select the person to manage your affairs. With a plan, you pick that person through a power of attorney.

2. MINOR CHILDREN. Who will raise your children if you die? Without a plan, a court will make that decision. With a plan, you are able to nominate the guardian of your choice.

3. DYING WITHOUT A WILL. Who will inherit your assets? Without a plan, your assets pass to your heirs according to your state’s laws of intestacy. Your family members will receive your assets without benefit of your direction or of trust protection. With a plan, you decide who gets your assets and when and how they receive them.

4. BLENDED FAMILIES. What if your family is the result of multiple marriages? Without a plan, children from different marriages may not be treated as your would wish. With a plan, you determine what goes to your current spouse and to the children from a prior marriage.

5. CHILDREN WITH SPECIAL NEEDS. Without a plan, a child with special needs risks being disqualified from receiving Medicaid or SSI benefits, and may have to use his inheritance to pay for care. With a plan, you can set up a Supplemental Needs Trust which will allow the child to remain eligible for government benefits while using trust assets to pay for non-covered expenses.

6. KEEPING ASSETS IN THE FAMILY. Would you prefer that your assets stay in your own family? Without a plan, your child’s spouse may wind up with your money if your child passes away prematurely. If your child divorces his current spouse, half of your assets could go to the spouse. With a plan, you can set up a trust that ensures that your assets will stay in your family and pass to whomever you wish.

7. FINANCIAL SECURITY. Will your spouse and children be able to survive financially? Without a plan and the income replacement provided by life insurance, your family may be unable to maintain its current living standard. With a plan, life insurance can mean that your family will enjoy financial security.

8. RETIREMENT ACCOUNTS. Do you have an IRA or similar retirement account? Without a plan, your designated beneficiary for the retirement account funds may not reflect your current wishes and may result in burdensome tax consequences for your heirs. With a plan, you can chose the optimal beneficiary.

9. BUSINESS OWNERSHIP. Do you own a business? Without a plan, you do not name a successor, thus risking that your family could lose control of the business. With a plan, you choose who will own and control the business after you are gone.

10. AVOIDING PROBATE. Without a plan, your estate may be subject to delays and excess fees, and your assets will be a matter of public record. With a plan, you can structure avoidance of probate entirely.

Continue reading "10 Reasons to Create an Illinois Estate Plan" »

Prenuptial agreements have become an important estate planning tool. Without a prenuptial agreement, a second spouse may be able to invalidate your existing estate plan. Prenuptial agreements are especially helpful if you have children from a previous marriage or important heirlooms which you want to keep on your side of the family.

It is important to make sure that your prenuptial agreement is valid. The following need consideration:

• IN WRITING. To be valid, a prenuptial agreement must be in writing and signed by both spouses. A court will not enforce a verbal agreement.
• NO PRESSURE. A prenuptial agreement will be invalid if one spouse is pressured into signing it.
• REVIEW. Both spouses must read and understand the agreement. Each spouse should seek advice from separate attorneys.
• FULL DISCLOSURE. Both spouses must fully disclose assets and liabilities. If either spouse lies or omits information about his or her finances, the agreement can be invalidated.

Continue reading "Illinois Law & Prenuptial Agreements" »

Once the Will is located, it should be given to the Estate’s attorney. Instead of reading the Will out loud (as seen on television), the Estate’s attorney will send copies of the Will to individuals who may have an interest in it.

The Estate’s attorney will send a copy of the Will to the Executor, the person who is responsible for filing for Probate, managing the decedent’s property and making sure the provisions of the Will are carried out.

The Estate’s attorney will also send a copy of the Will to anyone who is named as a beneficiary. If any minor children or incapacitated individuals are named as beneficiaries, their guardians will receive a copy of the Will. Copies will also be sent to the deceased person's heirs at law -- in most cases this is the spouse and children.

If the Will funds a revocable trust, the successor trustee of the trust is entitled to a copy of the Will. Once a Will is probated, it is available to the public and anyone can read it. For this reason and others, many individuals choose to have a revocable trust so that they can keep their financial and personal business private.

Continue reading "Illinois Law and Will Copies" »

Thinking about a time when you will need help taking care of yourself is not fun. That is why most people put off discussing long-term care until it can't be ignored. But it is better to start long-term care planning early. Here are some reasons to start planning now:
• People are living longer and are more likely to need long-term care. Life expectancies keep increasing, which means you are more likely to need help at some point. At least 70 percent of people over age 65 will require some long-term care services at some point in their lives, according to the U.S. Department of Health and Human Services.
• Care expenses are high. Whether you receive care in a nursing home or at home, expenses are rising. According to the 2010 MetLife Market Survey of Long-Term Care Costs, in 2010 the average cost of a room in a nursing home was $83,585 a year and home care aides averaged $21 per hour. Those figures aren't going to start going down.
• Family caregivers may not be available. In more and more households, both partners work. In addition, children often move far away from their parents. This means that your adult children may not be able to easily take of you when the time comes.
• The earlier you plan, the better. By planning ahead, you may be able to preserve your assets instead of using them all up paying for long-term care. In addition, if you plan early, you may have more options for care.
Planning steps may include executing advance directives and a power of attorney, putting assets in a trust, purchasing long-term care insurance, getting a reverse mortgage, creating a caregiver contract with an adult child, or transferring a house to children.

Continue reading "Updating Your Illinois Estate Plan" »

A federal judge has ruled that retirees cannot dis-enroll from Medicare Part A without also losing their Social Security benefits and refunding all of the money paid to them.

Anyone who has reached age 65 and who is entitled to Social Security benefits is also automatically entitled to Medicare Part A without charge. However, the three plaintiffs in a recent case brought by three federal employees, wanted to drop their Medicare coverage because they claimed it threatened their coverage under the Federal Employee Health Benefit program, which they said was superior. They argued that Medicare law allows them to drop out of the program without losing their Social Security benefits.

The judge acknowledged that the three retirees had a legitimate point that the law does not specifically say that avoiding Medicare Part A means losing Social Security benefits. But the judge found that requiring a mechanism for Plaintiffs and other similarly situated individuals to dis-enroll would be contrary to congressional intent, which was to provide mandatory benefits under Medicare part A for those receiving Social Security Retirement benefits.

The judge also pointed out that the plaintiffs would not gain much by renouncing their Medicare coverage.

Continue reading "Illinois Law, Social Security & Medicare" »

The maximum contribution to a Roth IRA in 2010 and 2011 is $5000, and if you are 50 years or older by the end of the year it is $6000. The top modified Adjusted Gross Income (AGI) for a full contribution for Single individuals in 2010 is $105,000 and in 2011 is $107,000. The AGI for Married individuals filing jointly is $167,000 in 2010 and $169,000 in 2011.

Typically, individuals choose to convert to a Roth IRA because they believe their taxes will be higher in retirement or they are decades away from needing the cash. However, a Roth is an excellent way to pass on wealth. There is no distribution requirement with a Roth as there is with a traditional IRA. Once funds are in a Roth, you will never have to pay income taxes again and neither will your children, grandchildren or anyone else who inherits the Roth account.

Keep in mind that a conversion from a traditional IRA to a Roth is worthwhile only if you can pay the taxes for the conversion from outside savings.

Continue reading "Illinois Estate Planning and Roth IRAs" »

You become eligible for Medicare as soon as you turn 65, and delaying your enrollment can result in penalties, so it is important to act right away.

There are different options to consider when signing up for Medicare. Medicare consists of four major programs: Part A covers hospital stays, Part B covers physician fees, Part C permits Medicare beneficiaries to receive their medical care from among a number of delivery options, and Part D covers prescription medications. In addition, Medigap policies offer additional coverage to individuals enrolled in Parts A and B.

Medicare enrollment begins three months before your 65th birthday and continues for seven months. If you are currently receiving Social Security benefits, you do not need to do anything. You will be automatically enrolled in Medicare Parts A and B effective the month you turn 65. If you do not receive Social Security benefits, then you will need to sign up for Medicare by calling the Social Security Administration at 800-772-1213 or online at http://www.socialsecurity.gov/medicareonly/. It is best to do it as early as possible so your coverage begins as soon as you turn 65.

If you are still working and have an employer or union group health insurance plan or if you are retired and still covered under your employer’s health plan, it is possible you do not need to sign up for Medicare Part B right away. You will need to find out from your employer whether the employer’s plan is the primary insurer. If Medicare, rather than the employer’s plan, is the primary insurer, then you will still need to sign up for Part B. Even if you are not going to sign up for Part B, you should still enroll in Medicare Part A, which may help pay some of the costs not covered by your group health plan.

If you don’t have an employer or union group health insurance plan, or that plan is secondary to Medicare, it is extremely important to sign up for Medicare Part B during your initial enrollment period. Your Medicare Part B premium may go up 10 percent for each 12-month period that you could have had Medicare Part B, but did not take it. In addition, you will have to wait for the general enrollment period to enroll. The general enrollment period usually runs between January 1 and March 31 of each year.

With all the deductibles, copayments and coverage exclusions, Medicare pays for only about half of your medical costs. Much of the balance not covered by Medicare can be covered by purchasing a Medigap insurance policy from a private insurer.

Medicare also offers Medicare Part C (also called Medicare Advantage). You must be enrolled in Medicare Parts A and B to join a Medicare Advantage plan (the name for private health plans that operate under the Medicare program). If you join a Medicare Advantage Plan, the plan will provide all of your Part A and Part B coverage, and it may offer extra coverage, such as vision, hearing, dental and other health and wellness programs. Most plans include Medicare prescription drug coverage.

Finally, Medicare offers prescription drug coverage under Medicare Part D. If you are not going to sign up for a Medicare Advantage plan with prescription drug coverage, then you will want to enroll in a prescription drug plan at the same time you sign up for Parts A and B. For every month you delay enrollment past the initial enrollment period, your Medicare Part D premium will increase at least one percent. You are exempt from these penalties if you did not enroll because you had drug coverage from a private insurer, such as through a retirement plan, at least as good as Medicare’s. This is called creditable coverage. Your insurer should let you know if its coverage will be considered creditable.

Continue reading "Signing Up For Medicare" »

Just as we create estate plans for our eventual demise, we also need to plan ahead for the possibility that we will become sick and unable to make our own medical decisions. Medical science has created many miracles, among them the technology to keep patients alive longer, sometimes indefinitely. As a result of many well-publicized “right to die” cases, Illinois has made it possible for individuals to give detailed instructions regarding the kind of care they would like to receive should they become terminally ill or are in a permanently unconscious state.

If an individual becomes incapacitated, it is important that someone have the legal authority to communicate that person’s wishes concerning medical treatment. Similar to a power of attorney for property, a power of attorney for health care allows an individual to appoint someone to act as his agent, but for medical, as opposed to financial, decisions. The health care power of attorney is a document executed by a competent person (the principal) giving another person (the agent) the authority to make health care decisions for the principal if he is unable to communicate such decisions. By executing a health care power of attorney, principals ensure that the instructions that they have given their agent will be carried out. A health care proxy is especially important to have if an individual and family members may disagree about treatment.

Accompanying a power of attorney for health care should be a medical directive. Such directives provide the agent with instructions regarding what type of care the principal would like. A medical directive can be included in the health care power of attorney. It may contain directions to refuse or remove life support in the event the principal is in a coma or a vegetative state, or it may provide instructions to use all efforts to keep the principal alive, no matter what the circumstances.

Living wills are documents that give instructions regarding treatment if the individual becomes terminally ill or is in a persistent vegetative state and is unable to communicate his or her own instructions. The living will states under what conditions life-sustaining treatment should be terminated. If an individual would like to avoid life-sustaining treatment when it would be hopeless, he needs to execute a living will. Like a health care power of attorney, a living will takes effect only upon a person’s incapacity. Also, a living will is not set in stone; and individual can always revoke it at a later date if he wishes.

A living will, however, is not a substitute for a power of attorney for health care. A living will simply dictates the withdrawal of life support in instances of terminal illness, coma or a vegetative state.

Do not confuse a living will with a “do not resuscitate” order (DNR). A DNR says that if you are having a medical emergency such as a heart attack or stroke, medical professionals may not try to revive you. This is very different from a living will, which only goes into effect if you are in a vegetative state. Everyone can benefit from a living will while DNRs are only for very elderly or frail patients for whom it wouldn’t make sense to administer CPR.

Continue reading "Illinois Health Care Decisions" »

Learning what not to do can be just as instructive as learning what to do. That is the premise of The 101 Biggest Estate Planning Mistakes, an entertaining and informative estate planning guide.

Author Herbert Nass, an estate planning attorney for 25 years who has represented several celebrities, uses examples from celebrity estate plans as well as his own practice to illustrate what not to do when conducting estate planning. According to Nass, the biggest mistake is not planning at all. Nass points out the problems caused when Sonny Bono, Tupac Shakur and Bob Marley all died intestate. He also documents, among other things, blunders involving personal property, real estate, executors, minors, prior marriages, taxes, disgruntled friends and family, and funerals and burials. While some mistakes are specific to celebrities or the super wealthy, most of the errors could be made by anyone.

Nass intersperses actual excerpts from celebrity wills and stories about celebrity estate plans throughout the book. For example, he cautions against leaving too much money to a pet, as Leona Hemsley did, or selling valuable property too soon after a death, something Jackie Onassis’ family did. Nass’ 101 mistakes range from the legal (e.g., not confirming how property is held before drafting an estate plan) to the practical (e.g., not draining water pipes in vacant houses) to the personal (e.g., disinheriting your children or grandchildren out of anger). Nass’ writing style is entertaining and his stories are interesting and instructive.

Continue reading "The 101 Biggest Estate Planning Mistakes" »

When choosing a beneficiary for a retirement plan, it is important to understand how your spouse will be treated under the plan. Surviving spouses are treated differently under 401(k)s and individual retirement accounts (IRAs). While a 401(k) provides protections for a surviving spouse, an IRA does not.

Because the 401(k) is an employee based retirement system, it is governed by a federal law, the Employee Retirement Income Security Act of 1974 (ERISA). Under ERISA, a surviving spouse is usually the automatic beneficiary of a retirement plan (There may be some exceptions. For example, the spouse may have to be married to the employee for a certain amount of time). The spouse must consent in writing if the employee wishes to name someone else as the beneficiary.

IRAs, on the other hand, are not governed by ERISA, so they do not include the same protections for spouses. This is true even if a 401(k) is rolled into an IRA. In a recent case, Charles Schwab v. Debickero (U.S. Ct. App. 9th Cir., No. 07-15261, Jan. 22, 2010), a husband rolled his 401(k) into an IRA with Charles Schwab & Company after he retired. He named his children as the IRA’s beneficiaries. After he died, his wife claimed that she was entitled to the account funds as his surviving spouse. She argued that because her husband rolled his 401(k) into the IRA, she should receive the same protections that the 401(k) gave her. The court disagreed, finding that the IRAs are excluded from ERISA coverage even if the funds originated in a 401(k).

If you have an IRA and want your spouse to be its beneficiary, you have to specifically name the spouse as a beneficiary. If you have a 401(k) and want your spouse to be the beneficiary, you should still fill out a beneficiary designation form, naming your spouse. And if you roll it over into an IRA, make sure you fill out a new beneficiary designation form. If you want someone other than your spouse to be the 401(k)’s beneficiary, you will need the spouse’s consent in writing, as noted above.

Continue reading "Illinois Estate Planning: Surviving Spouses and Retirement Plans" »

Once someone enters a nursing home, it isn’t always easy to move out again. While some residents may prefer nursing home care to living on their own, others would rather be independent. For residents who want to move out but need some assistance to live on their own, there may be help available. A federal program is trying to help nursing home residents in Illinois regain their independence.

Residents who have been in a nursing home for a long time may have to start all over again when they move out. They may need help finding a place to live, establishing a bank account, making a home accessible and locating home care.

In 2005, Congress established a federal program called Money Follows the Person that is designed to make it easier for nursing home residents to move out. Illinois participates in the program which provides personal and financial support to help eligible nursing home residents live on their own or in group settings. The new health reform law extends federal funding for the program until 2016. The law also reduces the amount of time an individual must reside in a nursing facility to qualify for the program from 180 days to 90 days.

Continue reading "Federal Program Helps Illinois Nursing Home Residents Move Home" »

Congress has passed and President Obama has signed into law the deal extending the Bush tax cuts that he struck with Congressional Republicans. The legislation restores the estate tax for two years at a 35 percent rate, with estates up to $5 million exempt from paying any tax ($10 million for couples). If Congress does not change the law in the interim, in 2013 the estate tax will revert to what it was scheduled to be in 2011 – a 55 percent rate and a $1 million exemption

The new $5 million estate tax exemption and 35 percent rate are retroactive to January 1, 2010. The heirs of those dying in 2010 will have a choice between applying the new rules or electing to be covered under the rules that have applied in 2010 – no estate tax but only a limited step-up in the cost basis of inherited assets. This will benefit the heirs of tens of thousands who dies in 2010 with relatively modest estates and who would have been subject to capital gains tax on inherited assets above a certain threshold.

The law makes the estate tax exemption “portable” between spouses. This means that if the first spouse to die does not use all of his or her $5 million exemption, the estate of the surviving spouse could use it.

Continue reading "Illinois Estate Planning & Federal Estate Tax Exemptions" »

Two federal courts in the past two months have ruled that Medicare’s coverage of skilled care does not require a beneficiary to show improvement. Instead, both courts said that Medicare can pay for skilled care if it is needed simply to preserve a patient’s current functioning or prevent further decline.

Home health agencies and nursing homes that contract with Medicare routinely terminate the Medicare coverage of a beneficiary who has stopped improving, adhering to what Medicare advocates have referred to as an “urban legend” that such beneficiaries are receiving “custodial care”, which Medicare does not cover. These beneficiaries could include those with chronic conditions and disabilities like multiple sclerosis, Alzheimers disease, ALS and broken hips.

In terminating the coverage, the Medicare contractors are not following the Medicare statute or its regulations, neither of which states that improvement is required for continued skilled care.

Continue reading "Illinois Medicare Nursing Coverage" »

During the annual open enrollment period for Medicare which runs from November 15 to December 31, you may switch Medicare drug or health care plans. This year it is particularly important because of changes brought on by the new health care law.

As the health care reform law goes into effect, there are a number of changes affecting seniors. Even if the new health law will not affect your plan, you should still review your options for 2011. Prescription drug plans can change their premiums, deductibles and the list of drugs they cover. Medicare Advantage plans – private managed care plans that compete with traditional Medicare – can change their entire benefits package as well as their provider network. Many plans are also consolidating options and closing some policies. If you take no action, you will remain in your current plan.

Under the new health law, Medicare will now pay 100 percent of preventive care. That means beneficiaries will not have to pay deductibles or co-pays for certain preventive services, such as annual wellness exams. While many Medicare Advantage plans already offered this benefit, it is not mandatory for all types of Medicare plans. If you had a Medicare Advantage plan primarily because of its preventive care coverage, you may want to reassess whether that or any other Medicare Advantage plan is still the best option for you.

In addition, under the new health reform law, subsidies to Medicare Advantage plans are being phased out. In response, Medicare Advantage plans may stop covering extra benefits like dental and vision. Check your Medicare Advantage plan to make sure you will still receive the benefits you want.

The biggest change for Medicare prescription drug plan beneficiaries is the lowering of prescription drug costs for those who reach the “doughnut hole”. In 2010, after meeting a $310 deductible, beneficiaries pay only 25 percent of drug costs until the costs total $2830. Coverage then stops completely until total out-of-pocket spending for covered drugs reaches $4550. This lack of coverage is called the “doughnut hole”. In 2011, beneficiaries in the doughnut hole will receive a 50 percent discount on brand-name drugs and a 7 percent discount on generic drugs. Medicare will continue to count the full retail price of medications in computing the coverage gap, so seniors will pay a lot less to get through the doughnut hole. The health reform law also eliminates the doughnut hole by the year 2020.

You will also want to make sure that your Part D plan still covers the drugs that you need because the list of drugs that each plan covers changes from year to year.

In the past, if you regretted your Medicare Advantage or regular Medicare decision, you could change things from January 1 through the end of March of the following year. But in 2011, this period will last only from January 1 to February 15, and the only change that will be allowed is if you want to shift from a Medicare Advantage plan to traditional Medicare.

To evaluate plans, go to https://www.medicare.gov/find-a-plan/questions/home.aspx?AspxAutoDetectCookieSupport=1.

Continue reading "Reviewing Your Medicare Plan" »

A durable power of attorney for property and a health care power of attorney are two very important estate planning documents. Both allow other people to make decisions for you in the event you are incapacitated. Because the individuals chosen will have to coordinate your care, it is important to pick two people who will get along.

A power of attorney for property allows a person you appoint – your agent or “attorney-in-fact” – to act in your place for financial purposes when and if you ever become incapacitated. A health care power of attorney is a document that gives an agent the authority to make health care decisions for you if you are unable to communicate such decisions.

While the agent under the health care power of attorney is the one who makes the health care decisions, the agent under the power of attorney for property is the one who needs to pay for the health care. If the two agents disagree, it can spell trouble. For example, suppose your health care agent decided that you need 24-hour care at home, but your property agent thinks a nursing home is the best option and refuses to pay for the at-home care. Any disagreements would have to be settled in court, which will take time and drain your resources in the process.

The easiest way to avoid conflicts is to choose the same person to do both jobs. But this may not always be feasible – for example, perhaps the person you would choose as agent for health care is not good with finances. If you pick different people for each role, then you should think about picking two people who can get along and work together. You should also talk to both agents about your wishes for medical care so that they both understand what you want.

Continue reading "Illinois Agents For Health Care and Property Powers of Attorney" »

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.

One must feel confident that one’s 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 the son and grandchildren as beneficiaries of that IRA. This way the surviving spouse would get the maximum income tax deferral from the assets, and the son 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 (likely over $1 million beginning January 1, 2011), a trust may provide the most benefit. Some income tax deferral may be sacrificed on the assets’ growth, but the savings on estate taxes may far exceed the lost income tax deferral.

Continue reading "Illinois Estate Planning and Retirement Plans" »

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.

Continue reading "Illinois Law Regarding Being a Guardian" »

One of the major concerns for parents of grandparents of children with disabilities is how to provide for their financial future. Here are some legal tips:

Set up a trust. Any funds left for a disabled child, whether from an estate or the proceeds of a life insurance policy, should be held in trust for his or her benefit. Leaving money for anyone with a disability jeopardizes public benefits. Many people with disabilities cannot manage funds, especially large amounts. Some families disinherit disabled children, relying on their siblings to care for them. This approach is fraught with potential problems. Siblings can be sued, get divorced, disagree on their responsibilities or run off with the funds. It can also cause tax problems for the siblings. The best approach is a trust fund set aside for the disabled child. While parents are usually fully cognizant of this problem when they create their estate plans, other family members who may leave funds to a child with special needs should also revisit their estate plans to make sure that a trust is created.

Even a carefully developed plan can be sabotaged by a well-meaning relative who leaves money directly to the child with a disability. As discussed above, if a trust is created for the benefit of the child, grandparents and other family members should be told about it so that they can direct any bequest they may like to leave to that child through the trust. Grandparents who are worried about the cost of long-term care should also be made aware that, in certain circumstances, they may be able to contribute to a special needs trust for a grandchild without affecting their own future Medicaid eligibility – a win-win situation.

Continue reading "Illinois Law and Children with Disabilities" »

In her Article about Wills, Julie Garber points out what happens if you do not make a will before you die.

If you die without a will, your estate will be divided up based on the intestacy laws of the state where you live at the time of your death and the intestacy laws of any other state where you own real estate or tangible personal property.

Many times the intestacy laws will give different results from what you would have wanted had you taken the time to make a Will. And if you own real estate or tangible personal property outside of your home state, then you could have two different sets of beneficiaries of your estate.

For example, In Florida, if you’re survived by a spouse and children from the marriage, then your spouse takes the first $60,000 plus 1/2 of the remaining balance and your children share equally in what’s left. But using the same facts in Virginia, your spouse will inherit 100% and your children will receive nothing.

Use the same set of facts, except that your children are from a different spouse. In Florida, your current spouse will inherit 1/2 and your children will share equally in the remaining 1/2, while in Virginia your current spouse will inherit 1/3 and you children will share equally in the remaining 2/3.

The examples illustrate what a difference state intestacy laws can make. The only way to insure that after your death your property will go to the beneficiaries of your choice, when you want them to receive it and in the way that you want them to receive it is to make an estate plan.

Continue reading "What Happens If You Die Without A Will?" »

A durable power of attorney is one of the most important estate planning documents there is. It allows someone you appoint – your agent or “attorney-in-fact” – to act in your place for financial purposes when and if you ever become incapacitated. However, many people experience difficulty in getting banks or other financial institutions to recognize the authority of an agent under a power of attorney.

Banks are sometimes reluctant to accept powers of attorney for fear of being sued if the power of attorney is not valid. A certain amount of caution on the part of financial institutions is understandable. Still, some institutions go overboard, for example, requiring that the attorney-in-fact indemnify them against any loss.

If a bank is giving you a hard time about accepting a power of attorney, you can try talking your way up the chain of command. You can also have the lawyer who prepared the power of attorney call the bank. If that doesn’t work, you may have to have a lawyer deal with the bank.

Continue reading "Illinois Estate Planning and Power of Attorney Documents" »

A report by the Government Accountability Office (GAO) warns that given the weak economy Continuing Care Retirement Communities (CCRCs) are facing challenging times.

CCRCs offer the entire residential continuum of care – from independent housing to assisted living to round-the-clock nursing services – under one “roof”.

In its new report, “Continuing Care Retirement Communities Can Provides Benefits, but Not Without Some Risk”, the GAO notes that although few CCRCs have failed, “challenging economic and real estate market conditions have negatively affected some CCRC’s occupancy and financial condition”. The GAO’s report notes that CCRC residents “are at a disadvantage because any claim they have on a CCRC that is forced into bankruptcy is subordinate to the claims of secured creditors, such as tax-exempt bondholders and mortgage lenders".

CCRCs generally depend on high occupancy rates to remain financially viable. Slow real estate markets like the current one can make it difficult for older Americans to sell their homes to pay CCRC entrance fees. As a result, occupancy levels at many CCRCs have fallen. In addition, some older Americans may be staying in their homes longer and thus moving into CCRCs when they need more care, which can worsen CCRCs’ long-term financial picture.

Continue reading "Continuing Care Retirement Communities and Estate Planning" »

Many people think that estate plans are for someone else, not them. They may rationalize that they are too young or don’t have enough money to reap the tax benefits of a plan. But as the following list makes clear, estate planning is for everyone, regardless of age or net worth.

1. Loss of capacity. What if you become incompetent and unable to manage your own affairs? Without a plan the courts will select the person to manage your affairs. With a plan, you pick that person through a power of attorney.

2. Minor children. Who will raise your children if you die? Without a plan, a court will make this decision. With a plan, you are able to nominate the guardian of your choice.

3. Dying without a will. Who will inherit your assets? Without a plan, your assets pass to your heirs according to Illinois intestacy law. Your family members (and perhaps not the ones you would choose) will receive your assets without benefit of your direction or of trust protection. With a plan, you decide who gets your assets and when and how they receive them.

4. Blended families. What if your family is the result of multiple marriages? Without a plan, children from different marriages may not be treated as you would wish. With a plan, you determine what goes to your current spouse and to the children from a prior marriage or marriages.

5. Children with special needs. Without a plan, a child with special needs risks being disqualified from receiving Medicaid or SSI benefits, and may have to use his or her inheritance to pay for health care. With a plan, you can set up a Supplemental Needs Trust that will allow the child to remain eligible for government benefits while using the trust assets to pay for non-covered expenses.

6. Keeping assets in the family. Would you prefer that your assets stay in your own family? Without a plan, your child’s spouse may windup with your money if your child passes away prematurely. If your child divorces his current spouse, half of your assets could go to the spouse. With a plan, you can set up a trust that ensures that your assets will stay in your family and, for example, pass to your grandchildren.

7. Financial security. Will your spouse and children be able to survive financially? Without a plan and the income replacement provided by life insurance, your family may be unable to maintain its current living standard. With a plan, life insurance can mean that your family will enjoy financial security.

8. Retirement accounts. Do you have an IRA or similar retirement account? Without a plan, your designated beneficiary for the retirement account funds may not reflect your current wishes and may result in burdensome tax consequences for your heirs. With a plan, you choose who will own and control the business after you are gone.

9. Business ownership. Do you own a business? Without a plan, you don’t name a successor, thus risking that your family could lose control of the business. With a plan, you choose who will own and control the business after you are gone.

10. Avoiding probate. Without a plan, your estate may be subject to delays and excess fees, and your assets will be a matter of public record. With a plan, you can structure things so that probate can be avoided entirely.

Continue reading "10 Reasons to Create an Estate Plan Now" »

Continuing-Care Retirement Communities (CCRC) offer comfortable living for older individuals and include the availability of fine dining, health clubs and on-site long-term health care.

Risks to consider are whether the CCRC might fail due to loss of membership. In the case of failure, residents can lose all or part of their entrance fee. The average entrance fee is about $250,000.

Two web sites which offer information about retirement communities and their financial stability are CARF International and The American Association of Homes and Services for the Aging.

Continue reading "Estate Planning and Continuing-Care Communities" »

Elder Law Attorney
An Elder Law Attorney is uniquely qualified to guide you through the complex maze of public entitlements, estate and trust planning, tax law, probate, incapacity planning and nursing home rights.

Home Care
Home Care encompasses a wide range of health and social services delivered at home. These services include skilled nursing care, rehabilitative care, custodial care, hospice and housekeeping services. In the appropriate case, services in the home can be supplemented by community services such as adult day care, where a person can be picked up and brought to an adult center for supervision, recreation, meals and community. Certified health care agencies, hospice, home care aide agencies, private agencies and individuals can provide home health care services.

Life Care Communities
Residents in Life Care Communities are offered a full range of housing options from independent living to assisted living to a full-service nursing home, in order to accommodate changing medical and custodial needs. This option is excellent for those who “sign up” before there is ever a diagnosis of illness and who can afford the private pay expense.

Continue reading "Common Terminology Concerning Older Adult Resources" »

Adult Day Care
Adults with mental or physical limitations can spend the day in a supervised environment that offers recreation, meals and other services. Having a safe place for the ailing person to go can provide the care giving family member with much needed respite.
Transportation to and from the site is usually provided.

Geriatric Care Manager
This professional, often a social worker, registered nurse or psychologist, coordinates the services that help people remain in their homes for as long as possible. They are equipped to assess the needs of the elderly; arrange for services; review legal, financial and medical issues to avoid problems and unnecessary expenses; coordinate the various government, private and community services available; offer counseling; and act as liaison for distant families.

Reverse Mortgage
This allows senior citizens who are house rich and cash poor to obtain a loan based on the equity in their home. They retain title to their home as long as they continue to live there and receive nontaxable income. With the terms of most mortgages, the loan, interest and other costs do not have to be paid back until the owner vacates the property through a move or death. Almost all reverse mortgages provide a guarantee of lifetime tenancy. Most reverse mortgages are a nonrecourse loan that means the lender can look only to the value of the home for repayment.

Continue reading "Common Terminology Concerning Older Adult Resources" »

Leaving those who survive you an organized estate with accurate records will save time and money.

At a minimum, leave information regarding the following in a place where your heirs can easily find it:

• Your personal history including names, addresses and telephone numbers for yourself and all of your current family members and family members from previous marriages;
• Your military service including your branch and dates of service;
• Your employment including present employer and employment benefits (life insurance, stock options, pension plans and contact information for each);
• Real estate you own including copies of deeds;
• Financial accounts including name of institution and account numbers;
• Stocks and bonds held in brokerage accounts and the name and phone number for the brokerage firm;
• Automobile make, model and year and location of title and any loan information;
• Business interests including type and amount of ownership
• Safe-deposit boxes
• Insurance policies
• Funeral/Burial instructions
• Tax returns
• Wills
• Trusts
• Power of Attorney for Property
• Power of Attorney for Health Care
• Living Will
• Name and phone number for your lawyer, accountant and doctor
• Important friends to notify upon your death.

Continue reading "Checklist to Leave with Your Will" »

Effective January 1, 2010, Illinois enacted its Virtual Representation Statute which enlarges the circumstances under which a trustee and certain beneficiaries can modify an irrevocable trust by nonjudicial agreement. This modification can be made without the expense of going to court.

The Virtual Representation Statute does two things. It greatly expands the application of virtual representation, under which certain beneficiaries who are adults with capacity can represent other beneficiaries, including minors, unborn children, disabled beneficiaries and beneficiaries with remote contingent interests. Also, it expands and clarifies the matters that can be resolved by the interested parties in a trust through nonjudicial agreement.

Continue reading "Illinois Virtual Representation Statute" »

A No Contest Clause (a/k/a in terrorem clause) is used in wills to prevent a beneficiary from challenging provisions in a will. A beneficiary may seek to increase the amount he is to be given under a will by challenging the will’s validity. If a will is declared invalid, the property in the estate will pass under the rules of intestacy. The beneficiary may receive a greater amount under these rules.

In Illinois, No Contest Clauses are allowed, but the courts construe them strictly.

One strategy is to leave the person who is to be disinherited enough so that he will be too afraid to risk losing it.

Continue reading "No Contest Clauses in Illinois Wills" »

In Illinois, estates can be administered under an Independent Administration or a Supervised Administration.

Unless requested by an interested person to go supervised, an estate is opened as an independent administration. Unlike the supervised administration, the independent administration does not require filing the inventory and accounting with the Court. The inventory and accounting are not subject to view by the Court, and they are not public record. However, they are sent to the beneficiaries for approval.

No Court authority is needed to sell real estate when there is an independent administration, and an independent administration may be converted to a supervised administration at any time by any interested party upon request to the Court.

With a supervised administration, the inventory and accounting are filed with the court and as a result are a matter of public record. The accounting is subject to approval by the judge, including the attorney and fiduciary fees. In addition, the representative needs court approval and personal service on all interested parties to sell real estate.

Continue reading "Illinois Probate -- Independent and Supervised Administration" »

If there is controversy in an estate, commencing a probate proceeding will provide a forum to resolve the controversy. This is a situation where one may not want to avoid probate.

Opening probate when there is controversy will also provide a forum to the other side. For example, all creditors’ claims are dismissed after two years under the probate act. By opening an estate, the period is shortened to six months, but the creditor is also provided a forum to file his claim. If no estate is opened, it is harder for the creditor to file his claim.

Continue reading "Estate Planning in Illinois and Avoiding Probate" »

The Personal Representative of an estate is responsible for the administration of the estate. If there is a will, he is often referred to as the executor. If there is no will, he is the administrator.

Before the court issues letters of office giving the personal representative all of the powers given to him in the will and given to him by statute, the personal representative can carry out any gift of the decedent’s body, make burial arrangements, pay funeral charges and take acts necessary to preserve the estate.

After appointment by the court as an independent administrator, the personal representative has all of the express and implied powers given to him in the will in addition to many statutory powers including the power to lease, sell or mortgage the personal estate of the decedent and distribute any of the personal estate the sale of which is not necessary; borrow money; continue the decedent’s unincorporated business; perform any contract of the decedent; employ agents, accountants and counsel, including legal and investment counsel; and hold stocks, bonds and other personal property.

Continue reading "Probate in Illinois and the Personal Representative" »

A small estate affidavit may be used in place of a formal estate proceeding (opening an estate before a judge) to collect the decedent’s personal property when the total value of the decedent’s personal property is less than $100,000.

An affidavit must be completed which states the names and addresses of the heirs at law if the decedent died without a will or the beneficiaries’ names and addresses if the decedent had a will. The affiant must state that no estate proceeding before a court is pending nor is one contemplated. He must also state that all funeral expenses have been paid and that there is no known claimant and no known claims against the property. All assets must be listed on the affidavit as well.

No notice is required to heirs, beneficiaries or creditors. The affiant holds harmless all creditors and heirs of the decedent and other persons relying upon the affidavit who suffer a loss because of their reliance.

The affidavit does not need to be filed with the Court.

Continue reading "Small Estate Affidavits and Illinois Probate" »

As outlined in U.S. News and World Report, Roth IRAs have many appealing characteristics. They grow income tax free. Owners are not required to take minimum distributions at age 70 1/2. The income limit has been removed on Roth conversions, so anyone can convert a regular IRA to a Roth IRA in 2010. If tax rates increase, the benefit to converting now will be even greater.

It is important to remember that it is not your will or trust that determines who will inherit your Roth IRA. Roth IRAs, like all IRAs, include their own beneficiary designation. The owner of the Roth stipulates the beneficiaries of the account. In some cases, it will be the most advantageous to stipulate the owner’s estate or the owner’s trust as the beneficiary. That way, an estate plan including a will and a trust can be further utilized.

Continue reading "Roth IRAs and Illinois Estate Planning" »

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.

Continue reading "Portability of Unused Estate Tax Exemption " »

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" »

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.

Continue reading "Roth IRA Conversions in 2010" »

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.

Continue reading "Illinois Powers of Attorney for Health Care" »

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

Continue reading "Illinois Estate Planning and Power of Attorney for Property" »

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.

Continue reading "Inheriting a Roth IRA and Your Estate Plan" »

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.

Continue reading "Illinois Medicap Coverage In Estate Planning" »

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.

Continue reading "Roth IRA Conversions for Estate Plans" »

Health Savings Accounts are available for individuals who have high-deductible health plans. In 2009, a plan is considered high deductible if it has an annual deductible of at least $1,150 and annual out-of-pocket expenses that the insured must pay for covered benefits cannot exceed $5,800.

Unlike Flexible Savings Accounts, Health Savings Account holders can carry over balances from year to year until the account holder’s death, and if planned properly, until the account holder’s spouse’s death.

All contributions to, distributions from and income earned in the account are free from federal income tax as long as the assets are used to pay for qualified medical expenses. Depending on the amount contributed and distributed from the account and how long the account has been established, Health Savings Account balances have the potential to be substantial.

Continue reading "Illinois Estate Planners' Checklist" »

Roth IRAs (Individual Retirement Accounts) allow for tax free withdrawals of both contributions and earnings.

The person who opens a Roth and makes periodic contributions can withdraw those original contributions at anytime without penalty and with no tax owed. The rules are spelled out in IRS Publication 590, “Individual Retirement Arrangements”.

As for earnings, a Roth contributor must wait five years (calculated by the IRS as beginning January 1st of the year for which the first Roth contribution was made) before earnings can be withdrawn tax free. And the Roth contributor must be 59 1/2 years old to avoid the 10% penalty for early withdrawal on the earnings and avoid income tax on the earnings.

The Roth contributor who converts to a Roth (as opposed to opening a Roth as in the preceding paragraph) must hold the assets in the Roth for five years or until he turns 59 1/2, whichever comes first, to make penalty-free withdrawals of the converted amount. The earnings on that converted Roth are treated differently. The converter must hold the Roth for five years to withdraw any earnings tax free. The age 59 1/2 category does not come into play. Fortunately, the withdrawal rules for Roth IRAs provide that any distributions come first from contributions, then from conversions, then from earnings so there is no need to keep separate the conversion amounts from the earnings.

Continue reading "Keeping Your Illinois Estate Plan Current" »

Estate planning involving inherited Individual Retirement Accounts (IRAs) can be tricky. Inherited IRAs are different from other IRAs. Only an IRA inherited from a spouse can be rolled into your own IRA. Also, IRAs inherited from different people can not be consolidated into one account.

If you take assets from an inherited IRA and deposited them in your own IRA, all of those inherited IRA assets will be taxable. In addition, you will have to remove any assets you deposited from the inherited IRA which are above your allowed IRA contribution for the year ($5000 if you are under age 50 or $6000 if you are 50 or older) or you will incur further penalties.

It is important to get the titling correct not only on your statements from the IRA custodian, but also on the records your IRA custodian provides to the IRS.

The advantage to retitling the inherited IRA is that you can extend withdrawals from the IRA the length of your lifetime instead of having to withdraw the assets sooner. With an inherited IRA you must make withdrawals every year beginning by December 31 of the year after the original owner’s death.

If you are not happy with the original custodian or investment, you can use a trustee-to-trustee transfer to move the IRA account to another financial institution provided the current IRA custodian allows it.

Continue reading "Titling Inherited Individual Retirement Accounts" »

When children are young and parents have fewer assets than they do now, choosing a guardian means finding a family you want your children to live in the same house with who share your values.

With older children, consideration of their wishes comes into play when choosing a guardian. Choices about where they want to live and personality conflicts are taken into account.

There are also the financial aspects of the guardian’s role which often include the position of trustee of a trust for the benefit of the children. With a testamentary trust, parents can stipulate an age when each child can receive the assets of the trust. Age 25 or 30 is typical. It is also common to see a staggered distribution of one-third at ages 25, 30 and 35.

Continue reading "Financial Guardians for Estate Plans" »

Reverse mortgages are available to homeowners age 62 and older. There is no minimum income or credit score requirement.

A provision in the economic stimulus package raised the maximum home value that can be counted for reverse mortgages from $417,000 to $625,500. However, the full value of the home is not available to the reverse mortgagor and a formula must be used to determine the amount that is available.

In addition to the regular closing costs, an origination fee of 2% on the first $200,000 of the loan balance will be charged and a 1% fee on any amount above $200,000 will be added. Also, a mortgage insurance premium of about 2% and a monthly service charge fee will be included.

Continue reading "Illinois Estate Planning and Reverse Mortgages" »

When a parent prepares a will, keeping distributions even among the children has advantages.

It is impossible to determine what one’s children will be doing in the future and what their incomes will be. The child who is a successful computer analyst today, might be out of work in five years and the actor now bussing tables may get his big break next year.

Gifts can be made as needed to children while you are alive and can afford it. For example, a child with children can be helped with college expenses by contributing to the grandchild’s 529 college savings plan. The IRS allows the equivalent of five years’ worth of gifts to be made all at once. Accordingly, one grandparent can give $65,000 per grandchild. Both grandparents can give $130,000 per grandchild.

On the other hand, a disabled child who is not independent will likely require a bigger share of the parent’s assets. A special needs trust can be utilized to get the maximum advantage from a gift by a parent or grandparent by keeping the gift from affecting eligibility of the disabled child for government programs and payments

Continue reading "Illinois Will Drafting for Parents" »

An excellent way to donate to a charity is through a traditional IRA.

Ordinarily, if you designate someone as the beneficiary of your IRA, he would owe income tax on the withdrawals and the value of the IRA would be included in your estate for tax purposes. But if you name a charity as the beneficiary, the charity would owe no tax on the withdrawals and you could reduce the taxes your estate would pay.

This strategy should not be applied to a Roth IRA because a Roth is funded with after tax dollars and whoever withdraws the funds will not have to pay income tax on the withdrawals.

If you prefer to give the funds to charity now, through the end of 2009 you can transfer up to $100,000 directly to a charity as long as you are 70 1/2 or older. You cannot claim a tax deduction for the contribution, but you will not owe income tax on the withdrawal.

Another option is a charitable remainder trust. The assets in the trust pay you an income for a specified number of years or for your lifetime. After the trust matures, the assets are distributed to the charity you designate. There is a requirement that at least 10% of the funds you put in the trust go to the charity.

The advantages of a charitable remainder trust are that you can take an immediate tax deduction based on the present value of the gift that the charity will receive; you get a fixed income stream of at least 5% of the trust’s value each year; and you can move assets that have appreciated in value and sell them in the trust without incurring capital gains taxes.

Continue reading "Illinois Charitable Giving in Estate Planning" »

Couples can give up to $26,000 per year without incurring any gift taxes. Singles are allowed up to $13,000 per year.

Because the federal estate tax exclusion is $3.5 million this year, taxes are not a concern for many people. A bigger concern is if your assets will be enough to last for the rest of your life. If you are a 65-year-old retiree and estimate you will need to draw $60,000 (adjusted for inflation) from your investments to maintain your standard of living, you will need about $1.5 set aside for yourself.

To hedge against the likely possibility that Congress will lower the federal estate tax exclusion, possibly as low as $1 million, gifting now will achieve that result. Now is an ideal time to give gifts of depreciated stock. For example, if you own American Express stock which sold for over $60 in June of 2007 and today sells for $25, you can give more than twice as much American Express stock today without triggering a gift tax as you could two years ago.

Continue reading "Timing Your Estate Planning" »

The following are typical mistakes people make when planning their estates:

• They have an outdated plan
• They have no will or an outdate will
• They rely on joint tenancy as a tool, especially children as joint tenants
• They incorrectly title an asset so an unintended beneficiary receives the asset
• They designate an inappropriate beneficiary for IRA accounts, insurance policies and retire benefits
• They fail to provide for a successor in interest if a primary beneficiary dies first or disclaims the gift
• They fail to provide for a guardian for themselves in the event of disability
• They rely on outdated or stale powers of attorney
• They do not properly coordinate their will and their trust or have no trust at all
• They fail to consider Medicaid planning

Continue reading "Common Mistakes in Estate Planning" »

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" »

When considering how to minimize or avoid the time and expense of going to court and becoming involved in the probate process, it is important to be familiar with the distinction between probate and non-probate property.

Upon death, an individual’s assets are divided into two categories: probate property and non-probate property. Those assets which are non-probate property bypass the probate process. Examples are real estate held in joint tenancy, insurance policies payable to a named beneficiary (other than the estate), IRA accounts, Keogh plans, 401(k) plans and pension and profit sharing plans.

Another asset which is non-probate in Illinois is real estate held by a land trust. A separate agreement is entered into which provides that the trustee holds title to the property and the beneficiary has a power of direction over the trustee and the right to receive the earnings, avails and proceeds of the property. It can be provided in the agreement, that upon the death of the beneficiary, his interest passes to a particular person thereby avoiding probate.

In addition, bank accounts can be set up in a way that avoids probate. These accounts are P.O. D. (payable on death) accounts to which a named beneficiary has the right to the balance in the account upon the death of the account holder. The beneficiary presents a certified copy of the death certificate of the account holder to receive the balance in the account.

Continue reading "Illinois Estate Planning – Avoiding Probate" »

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 recent 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" »

A recent 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's good to keep the following in mind:

1) It's 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 don't designate a beneficiary, the account will be distributed according to state rules on distribution.

Continue reading "Probate Law Regarding Beneficiaries" »

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" »

Hoping to give investors a chance for their accounts to recover from the losses incurred in 2008, Congress recently suspended the law requiring owners of IRAs and 401(k)s who are over age 70 1/2, and those who have inherited such accounts, to make a minimum withdrawal in 2009. But this simple idea -- a one year break from required withdrawals -- is turning out to be not so simple in its execution.

The particulars are set out in the Wall Street Journal article New IRA Law Bewilders Investors. Problems are arising because the IRS and the Treasury Department haven't provided adequate guidance.

401(k) plan sponsors must get approval from the federal government for their plan documents. These sponsors fear that their suspension of payments will violate their documents and feel compelled to get government approval before enacting any suspension of payments. This government approval is not something quick and easy to come by.

The article includes the following advice:

1) Contact your IRA custodian or the administrator of your 401(k) directly and ask what steps are needed to suspend distributions in 2009;

2) Regarding 2010, ask the custodian or administrator what steps are needed to get the automatic distributions started again; and

3) You may want to roll your traditional IRA assets into a Roth IRA so that in the future you have no required distributions or taxes on future earnings.

Continue reading "New IRA Law Affects Mandatory Withdrawals " »

For those of us who find the stock market far more interesting than politics, there's a great book by Joel Greenblatt, The Little Book That Beats The Market, (2006, John Wiley and Sons, ISBN 0-471-73306-7), which provides a proven method for picking stocks which will outperform the Dow . . . and then some.

This is a method which takes the earnings yield (earnings per share divided by price per share) and the return on capital (net operating profit divided by invested capital) for every stock listed on all of the U.S. stock exchanges. These two numbers are used to rank stocks according to those with the best combined earnings yield and return on capital.

It sounds simple, and it is. Plus, you can go to Mr. Greenblatt's website, and the calculations have already been made for you. All you choose is the minimum market capitalization size of the companies.

The most difficult part, as Mr. Greengblatt points out, is sticking with the system. You must be willing to stay with the formula and keep reinvesting using the formula year in and year out.

It's everything I am looking for as an investor -- a proven system with understandable parameters that allows me to choose from a selection of individual stocks. And as we all know, one of the few ways to get a return on your investment that will exceed what inflation and taxes take away is to invest in the stock market. Anyone serious about preserving wealth of any size and planning an estate of any size must develop and implement a winning investment strategy.

For those of us who find the stock market far more interesting than politics, there's a great book by Joel Greenblatt, The Little Book That Beats The Market, (2006, John Wiley and Sons, ISBN 0-471-73306-7), which provides a proven method for picking stocks which will outperform the Dow . . . and then some.

This is a method which takes the earnings yield (earnings per share divided by price per share) and the return on capital (net operating profit divided by invested capital) for every stock listed on all of the U.S. stock exchanges. These two numbers are used to rank stocks according to those with the best combined earnings yield and return on capital.

It sounds simple, and it is. Plus, you can go to Mr. Greenblatt's website, and the calculations have already been made for you. All you choose is the minimum market capitalization size of the companies.

The most difficult part, as Mr. Greengblatt points out, is sticking with the system. You must be willing to stay with the formula and keep reinvesting using the formula year in and year out.

It's everything I am looking for as an investor -- a proven system with understandable parameters that allows me to choose from a selection of individual stocks. And as we all know, one of the few ways to get a return on your investment that will exceed what inflation and taxes take away is to invest in the stock market. Anyone serious about preserving wealth of any size and planning an estate of any size must develop and implement a winning investment strategy.

In his article in The Wall Street Journal titled Obama Plans to Keep Estate Tax, Jonathan Weisman points out that President-elect Barack Obama and congressional leaders plan to retain the estate tax instead of allowing it to expire as scheduled in 2010.

Under the new plan, the estate tax would be locked in at the 2009 rate and exemption levels. This would mean that estates of $3.5 million ($7 million for couples) would be exempt from the estate tax. The value of the estate which exceeds $3.5 million would be subject to a tax of 45%.

If the tax were returned to the levels before the change in the tax law in 2001, the tax would exempt only $1 million with the excess over $1 million taxed at 55%.

The Obama plan could be looked at as a compromise position. It imposes a limit on exemptions from estate tax ($3.5 million) while at the same time it keeps the exemption at a level high enough that fewer than two percent of annual deaths would be subject to the estate tax.

Continue reading "Federal Estate Tax Law to Change" »

The first three steps which should be taken after the death of a loved one are to make the funeral arrangements, secure the house and find the important papers. In her article in The Wall Street Journal titled "Steps for Heirs to Take After a Death", Jilian Mincer discusses why these three steps are so important.

After the funeral has taken place, family members should secure the home if it is now empty. Changing the locks and adding a buglar alarm should be considered. Valuables such as jewelry should be moved to a safe deposit box or some other secure place. If items are moved, however, a list should be kept of where things were. This might be needed if the deceased's will identifies objects by location. For example, the will may say that gold jewelry in the top dresser drawer goes to a specific person.

The third step is to find the important papers. These are the most recent will, stock certificates, investment account information and insurance policies. It is sometimes helpful to look at the most recent tax return for references to assets of the estate. In addition, if the deceased was working, check with the employer regarding benefits like life insurance policies and 401(k) plans. Also, ask the funeral director for 10 certified copies of the death certificate which will be needed when transferring stocks and other assets and when filing for life insurance proceeds.

Continue reading "Steps for Illinois Heirs" »

It is sometimes the little things that count for a great deal where estate planning is involved.

A recent Wall Street Journal article by Rachel Emma Silverman titled "An Estate Plan Built for Special Needs" has this to say about the importance of attention to detail regarding the creation of a guidance letter to be included among the estate planning documents for an individual with special needs:

“It’s also smart to create a ‘letter of guidance’, a document spelling out everything another caregiver should know about their child’s special needs, including medical diagnosis, treatment and medications, specific likes and dislikes, and food preferences or aversions. ‘You know things about your children that no one else on this earth knows’, says Michael Gilfix, a Palo Alto, Calif. lawyer who does a lot of special-needs planning. ‘This includes little things, like what breakfast food makes them happy or what breakfast food makes them really angry’.

Ms. Valentine, a client of Mr. Gilfix, recently wrote a letter of guidance for her son, Gabe. The document describes how Gabe is a huge San Francisco Giants fan, so any caregiver should make sure he gets tickets to home games. He doesn’t like ice cream or cake, but likes pizza. His epilepsy medication affects his teeth, so the letter recommends that he get his teeth cleaned regularly. ‘He actually loves the dentist’, she says.”

In her article "When it comes to wills, how strange can you get?", Erline Andrews tells of a woman from Beverly Hills, California who stipulated in her will that she was to be dressed in her favorite nightgown and burried in her Ferrari. There is also the man from Springfield, Oregon who included a provision in his will stipulating that his skin was to be tanned like leather and used to bind a poetry book he had written.

Regardless of the request, there is nothing preventing someone from including that request among the provisions of his will. Whether those provisions are enforceable is another matter. A California court refused to enforce a provision in a will by a woman who ordered that her dog be put down after she died so that the dog would be saved the pain of living on after his beloved owner died. The request violated a law regarding the treatment of animals.

The best advice when deciding what to put in your will is to give the matter a good deal of thought. Give the attorney drafting your will as much information as you can regarding members of your family, all of your assets and how you would like those assets to be distributed in light of all the circumstances you are aware of. The more information you give to your attorney, the more options he can give you to maximize the benefit to those individuals you care most about.

If a husband dies with many unpaid debts, it is often tempting for the surviving wife to want to do nothing regarding opening a probate estate. She may feel that there are more debts than assets, so why get into it. However, there is good reason to pursue probating an insolvent estate.

The Illinois Probate Act addresses the situation where the debts and claims of an estate exceed the estate’s assets.

At Section 18-13 of the Probate Act, a determination of the priority of payment is set out. That Section provides that the estate shall pay all claims in order of their classification. The classification of claims is provided in Section 18-10 and reads as follows:

(1) Funeral and burial expenses, expenses of administration, and statutory custodial claims.
(2) The surviving spouse’s or child’s award.
(3) Debts due the Untied States.
(4) Money due employees of the decedent of not more than $800.00 for each claimant for services rendered within four months prior to the decedent’s death and expenses attending the last illness.
(5) Money and property received or held in trust by decedent which cannot be identified or traced.
(6) Debts due this State and any county, township, city, town, village or school district located within this State.
(7) All other claims. (General Creditors.)

In other words, a surviving spouse may pay the costs of the funeral and burial, the attorney’s fees and is entitled to receive a minimum of $10,000 for herself and a minimum of $5,000 for each child -- all before any creditor is entitled to payment. The creditors are entitled to receive a fractional share of whatever is left in the estate after the earlier claims have been paid.

The surviving spouse should bear in mind that if she does not open en estate because of the various claims that would be filed and charged against the estate, Section 9-3(j) of the Act gives creditors of the decedent the right to petition for Letters of Office and open the estate if the spouse or others designated with authority to do so will not.

In other words, if the wife doesn't open an estate because of the claims against it, the creditors very well might. This provision provides even more reason for the surviving spouse to open the probate estate despite its insolvency.

Few dogs are lucky enough to be left $12 million by their owners like Leona Hemsley’s Maltese named Trouble. But this doesn’t mean that your pet can’t be provided for when you consider how you want your possessions to be handled in your will.

In “Heirs to the Bone – Estate Planning for Pets” written by Attorney Frances Carlisle, Ms. Carlisle gives several options to individuals drafting wills and looking to have their pet cared for when they, the pet owners, are no longer around.

Number 1: Make a gift of your pet to someone who will be its caretaker after you die and then have your attorney include a provision in your will leaving the animal to that person. Leave money for expenses the new owner will incur caring for the pet.

Number 2: In your will, give your executor discretion to choose from several people to take your pet. Also give your executor discretion to find a suitable adoptive home in the event there is no one who is willing and able to care for the pet.

Number 3: Make arrangements with a local animal rescue and placement charity to take your pet after you die and find a home for the pet. Name the charity in your will and leave money to the charity.

It is important to include a statement in your will that you are bequeathing all of the animals owned by you at your death. If you name a specific animal in your will, other animals you own will not be covered.

Creating a trust for your pet is another option available to pet owners. The applicable Illinois statute, Ill. Comp. Stat. 760 ILCS5/15.2 which became effective on January 1, 2005, specifically states, “A trust for the care of one or more designated domestic or pet animals is valid”.

You can create a trust which is in existence while you are alive or you can create a trust that comes into existence upon your death. The advantage of creating a trust while you are alive, an inter vivos trust, is that you will have arrangements ready should you be incapacitated or have to go into a nursing home.

Estate planning by pet owners insures that their pets will continue to enjoy a happy life after the owner is no longer around.

A recent Illinois decision makes it clear that an individual unrelated to the person who died (the decedent), may be appointed by the court to serve as administrator of the estate.

In re Estate of Gage, ____ Ill. App. 3d _____, _____ N.E.2d ____, 2008 Ill. App. Lexis ____ (First District, 2008) involves a man with three children, whose mother he never married, who died without a will. The man’s sister petitioned the court to serve as administrator of his estate. The mother of the man’s three children also petitioned the court to serve as administrator.

The court appointed the mother as administrator based on the language of Article IX, Section 9-3 of the Probate Act which specifically gives the children of the decedent priority over the sister of the decedent as far as entitlement to obtain issuance of letters of administration. The court pointed to the language of the Probate Act which states:

“Only a person qualified to act as administrator under this Act may nominate, except that the guardian of the estate, if any, otherwise the guardian of the person, of a person who is not qualified to act as administrator solely because of minority or legal disability may nominate on behalf of the minor or disabled person in accordance with the order of preference set forth in this Section.”

In this case, the mother was the guardian of the three children and as such, the court ruled, had authority to nominate herself as administrator. The court further ruled that because the mother made her nomination on behalf of the decedent’s children, her nomination had priority over that of the sister of the decedent.

The Fifth Circuit recently handed down a ruling liberalizing the creation of and the termination of rights of parties who hold title to property as joint tenants.

In the case of Sathoff v. Sutter, 373 Ill. 3d App. 795, 869 N.E.2d 354 (Fifth District, 2007), the parties involved were an individual and a couple. The three acquired title in 1981 as joint tenants. After fifteen years, the couple sought to hold title as joint tenants only as between themselves. In 1996, they executed a deed conveying title to themselves as joint tenants.

The husband died first. Then the wife died. The third joint tenant claimed that he was now the owner of the entire interest in the property. His argument was that the 1996 conveyance failed to create a joint tenancy because the Joint Tenancy Act does not allow an existing owner to be a sole grantee in a conveyance. The executor of the wife’s estate took exception. He claimed that by virtue of the deed executed in 1996, the third joint tenant owned only an undivided one-third interest as a tenant in common and that the estate owned the other two-thirds interest.

The Fifth Circuit affirmed the trial court which held in favor of the executor. The reasoning was based on a view that the Joint Tenancy Act calls for courts to adopt a more liberal view regarding transactions of this nature. The court ruled that the deed the couple executed in 1996 conveying title to themselves effectively severed the joint tenancy created between them and the third person. It also ruled that the 1996 deed created a valid joint tenancy as between the couple regarding their two-thirds interest in the property. Accordingly, the estate held title to the two-thirds interest. The single individual owned his one-third share as a tenant in common.

A 2007 case from New York, In the Matter of Martin B., 17 Misc. 3d 198; 841 N.Y.S.2d 207 (N.Y. Surr.; 2007) involves a man who was married, had no children, and before he died, donated his semen to a laboratory. The man's father made provisions in a trust for all of his issue and descendants. Years after the son died, the son's widow underwent in vitro fertilization and gave birth to two boys, both conceived with the semen from her deceased husband.

The issue arose as to whether these two grandchildren, born after their father's death but conceived with his semen, were considered descendants under the terms of the trust established by the grandfather.

The New York court held as follows:

Finally, we turn to the instruments presently before the court. Although it cannot be said that in 1969 the Grantor contemplated that his "issue" or "descendants" would include children who were conceived after his son's death, the absence of specific intent should not necessarily preclude a determination that such children are members of the class of issue. Indeed, it is noted that the Restatement of Property suggests that "[u]nless language or circumstances indicate that the transferor had a different intention, a child of assisted reproduction [be] treated
for class-gift purposes as a child of a person who consented to function as a parent to the child and who functioned in that capacity or was prevented from doing so by an event such as death or incapacity" (Restatement [Third] of Property [Wills and Other Donative Transfers] 14.8 [Tenative Draft No. 4 204]).

The rationale of the Restatement, Matter of Anonymous and section 73 of the Domestic Relations Law should be applied here, namely, if an individual considers a child to be his or her own son, society through its laws should do so as well. It is noted that a similar rationale was endorsed by our State's highest court with respect to the beneficial interests of adopted children (Matter of Park, 15 N.Y.2d 413, 207 N.E.2d 859, 260 N.Y.S.2d 169). Accordingly, in the instant case, these post-conceived infants should be treated as part of their father's family for all purposes. Simply put, where a governing instrument is silent, children born of this new biotechnology with the consent of their parent are entitled to the same rights "for all purposes as those of a natural child" (id., at 418).

Although James probably assumed that any children born as a result of the use of his preserved semen would share in his family's trust, his intention is not controlling here. For purposes of determining the beneficiaries of these trusts, the controlling factor is the Grantor's intent as gleaned from a reading of the trust agreements (see, Matter of Fabbri, 2 N.Y.2d 236, 140 N.E.2d 269, 159 N.Y.S. 184; Matter of Larkin, 9 N.Y.2d 88, 172 N.E.2d 555, 211 N.Y.S.2d 175, Jewell v. Graham, 24 F2d 257, 57 App D.C. 391; O'Connell v Riggs National Bank, 475 A.2d 405). Such instruments provide that upon the death of the Grantor's wife, the trust fund would benefit his sons and their families equally. In view of such overall dispositive scheme, a sympathetic reading of these instruments warrants the conclusion that the Grantor intended all members of his bloodline to receive their share.

One thought that may be taken from this case is that there is a long list of things to consider when one creates a will or a trust. Deciding if a descendant who may not be conceived for another 50 years should receive a portion of the estate needs to be added to that list.