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Recent Blog Posts
Obamacare and Estate Planning in Illinois
The Affordable Care Act has recently dominated news across the country. Regardless of what you think of the law, it is going to have an impact on your estate planning in the very near future. Two authors recently wrote a helpful piece in the latest Illinois State Bar Association Trusts and Estates newsletter giving an overview of what to expect.
It is important to understand if and how the Affordable Care Act may affect your estate planning. Some of the provisions may have a relatively uncomplicated impact on your future. For example, non-medical withdrawals from health savings accounts will be taxed at 20%. Additionally, using pre-tax flexible spending accounts on nonprescription medications will be prohibited. Other parts of the ACA's provisions, though, are exceedingly complex. Careful planning and advice will be necessary to ensure that you can reduce your overall tax liability. One of the largest effects to your estate comes from the investment income surtax of 3.8%, which applies to the lesser of the investment income or the amount that income exceeds over the threshold.
Common Estate Planning Mistakes
For some people, going through the process of estate planning is a difficult one because they lack familiarity with what to expect or simply underestimate the role that proper planning can play in your future. As a result, there are several common estate planning mistakes that are completely avoidable with the assistance of a trained Illinois estate planning attorney.
Mistake #1: Assuming You're Too Young For Estate Planning
Talking about estates immediately calls to mind images of grandparents or older adults, so individuals and families in their 30's have a tendency to think that estate planning isn't necessary at their age. Estate planning is actually much more comprehensive than determining what beneficiaries get what assets, and it's prudent to have an estate plan that reflects your needs at all stages of life.
Ways to Transfer a Family Business to a Successor
You have put a lot of time and effort into your business. If you have a family successor in mind, then it is important to make sure that the transfer goes smoothly. Now might be the best time to work up a succession plan while interest rates are still low which means transfer tax costs will be low.
There are a few different ways to transfer ownership rights. Depending on your specific situation each option has certain benefits.
The first way to transfer ownership is an outright sale. Selling your business in this manner allows you to receive payment right away which is nice for your retirement plans or if you need cash right away for any reason. Then your successor will be able to take control of the family business right away.
Another way to protect your business is by making a buy-sell agreement. The benefit of this sort of transfer is that the price and terms of the sale are set up in advance of the sale to protect both parties in case the owner is no longer capable of operating the business. This kind of contract kicks in when a specific event occurs such as retirement, incapacity, and death.
Including Pets in Your Estate Plans
Including your pets in your estate plan is a very important concept that can help to protect your furry family members if something happens to you. In Texas recently, two dogs were spotted roaming the streets for several months after their owner died. The dogs were seen by one community member, Geri Alexander, who finally took the dogs, named Ellie and Hannah, into her home to provide care. Alexander found the dogs emaciated near a discount store and took them to a local veterinarian, where she discovered that the micro chipped pets belonged to a now-deceased owner. The dogs had been in the woman's backyard when she passed away from a heart attack at a local hospital.
A comprehensive estate plan may include a will, trusts, medical directives, and powers of attorney. Including plans for pets, however, is something that many individuals don't think about. Determining where your pets fit into your estate plans can be discussed with your DuPage County attorney, and it can include ideas as simple as carrying around a card with the names of and details about your pets. If someone uncovers this information and something has happened to you, your pets may get some attention and comfort much more quickly. Those who wish to include more specific details should consider setting up a specific trust to fund the care of the animals.
Should I Use An Irrevocable Life Insurance Trust?
It's very likely that during a conversation about estate planning that life insurance has come up as a topic. As a tool for planning for your family, life insurance can be a cornerstone of your financial plan, giving your family a sense of security in case something happens to you. When chosen properly and combined with an irrevocable life insurance trust drafted by your attorney, you can ensure that your family will remain safe and protected in the future.
An irrevocable life insurance trust is one way to protect the proceeds from any life insurance policies you own at death being included in your estate. If the policy owner was able to withdraw cash value and alter the beneficiary, then the IRS views this as "incidents of ownership" and state taxing authorities and the IRS can step in to tax proceeds at death.
This specific type of trust is designed entirely for life insurance policies. You can transfer the ownership of the life insurance policies to the Trustee of your ILIT, therefore giving up "incidents of ownership" and protecting the proceeds from your policies from being taxed.
Trusts, Estate Tax, and Exemptions: The Basics
The term "estate planning" throws some people off because of its association with the very wealthy. Yet estate planning is just as important for families without large financial reserves. According to CNN Money, "such a plan ensures that your family and financial goals are met after you die"—and that's something every family can get behind. CNN Money cites that an estate plan is made up of three major elements: a will, the choosing of a power of attorney, and a living will (sometimes called a medical power of attorney). Every person's estate plan will be different, depending on individual needs, and this is why it's important to work with a qualified attorney to find out what's best for you and your family.
Sometimes a trust, "legal mechanisms that let you put conditions on how and when your assets will be distributed upon your death," is an important addition to estate planning because they allow the reduction of your estate and gift taxes. Trustees will exact the trust. According to the Illinois Trusts and Trustees Act, a trustee can be "appointed by or pursuant to the instrument creating the trust, by order of court or otherwise, and includes an individual and a corporation qualified to administer trusts in this State." The trustee will have access to all processes regarding the estate and estate plan, upon death or incapacitation of the trust's owner.
Special Needs Trusts
Many people do not think about planning for their estate until they reach middle-age, but life is different for people with disabilities. Many people create trusts in their older age to clearly state what will be done with their money, assets and other belongings, along with funeral and death arrangements.
Special needs trusts provide for the needs of disabled people without creating a situation in which the disabled person loses government benefits such as Social Security and Medicaid. Special needs trusts appoint a trustee, just like any other trust, to be in charge of making sure everything goes correctly as stated in the trust.
The World institute on Disability has also helped to clarify a concern of many people who have a disabled family member. The government says that disabled people who receive government benefits cannot have trusts, however, a special needs trust does not belong to the special needs person.
The special needs person is only nominated as a beneficiary of the trust by the trustee, who establishes and administers the trust.
Conservation Easements as an Estate Planning Option
A conservation easement is a legal agreement between a property owner and a conservation land trust or a government agency that specifies certain restrictions about the use or development of that land. Landowners are still permitted to use the land and are also allowed to sell or bequeath to their heirs. In addition to protecting wildlife, conservation easements can be a valuable estate planning option as well.
Conservation easements are flexible documents and can be drafted to satisfy both the property owner's needs and the wildlife protection. And the easements are permanent, meaning they stay in place even when/if the land is sold.
According to the Land Trust Alliance, there are many tax benefits, including real estate taxes and income tax deductions, associated with conservation easements.
- Property taxes - The value of the easement is calculated by taking the difference between the present value of the property and what the value of the land would be if developed. This can reduce the value of the property by 30 to 90 percent, depending on the location. This reduction in the value of the property can mean a significant savings in property taxes.
Should I Create My Will On My Own?
If you're looking to save money and have been persuaded by commercials and internet ads that a will you write yourself or using an online service is just as good as one written by a lawyer, don't be fooled by the advertising. Although purchasing an online service is a step up from writing the will on your own, it's a small step that could have serious ramifications if anything regarding your estate planning extends beyond the simplest form. A study from Consumer Reports involved individuals obtaining three different types of DIY documents from legal drafting services and found that unintended consequences are perhaps the biggest downfall of skipping the visit to your DuPage County estate planning attorney's office.
One of the biggest appeals of these online services is that they appear to steer you through questions or interviews that seem to be "personalizing" the will to your needs. If you are not familiar with legal terminology or the tax consequences of structuring something a particular way, however, you can end up doing a disservice to your beneficiaries or articulating estate planning wishes that you did not actually want. According to the experts who reviewed these planning services, making mistakes is all too simple to do. Some individuals who seek out these services might learn before it's too late that their will does not actually say what they think it says, leading them to an attorney's office anyway.
4 Mistakes to Avoid when Planning your Estate
You work your entire life to build up worth and prepare for planning your estate. There are four very important mistakes you should avoid making when preparing your will for your loved ones.
- Not turning to an expert for help. It's very common for people to create their own documents for estate planning by utilizing templates they have found online. However, even if you choose to do things on your own, it's always best to double-check with an expert to make sure there are not any silly mistakes.
- Forgetting to connect your business to your estate plan. Some parents who double as business owners don't necessarily want to talk with their children about what will happen with their business in the future and ultimately just leave it to the kids in their wills. This can often lead to issues with children who don't work for the business but still want to receive income from it, or those who have been working for the business and will continue to try to run it.
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