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Fall 2007 Newsletter
Winter 2008 Newsletter

Should I have a Will or Living Trust?

To answer this question you need to consider your particular financial and family situation.

  • What assets are in your estate?
  • What is the value of these assets, including IRAs, annuities, life insurance policies and 401(k)s?
  • How are these assets owned?
  • Are they in your name alone?
  • Are they held in joint tenancy with your spouse, child, friend or relative?
  • Who are your heirs and whom do you want your assets to pass to upon your death?
  • These are all important questions that must be answered in order for your attorney to advise if a Will or Living Trust best suits your Estate Plan.

What is a Will?

A Will is a written instrument signed by you in the presence of two witnesses wherein you designate the person or persons or charitable institutions that should receive your assets upon your death. The Will can be changed or amended at anytime by you prior to your death provided you are of sound mind and memory.  The Will only passes those assets that are in your name alone at the time of your death. If your Life Insurance Policy, 401(k) or Annuity designates a beneficiary who survives you the proceeds will pass to that named beneficiary. The same applies to property you hold in joint tenancy where the other joint tenant survives you.

In order for the property you own in your sole name to pass to the people named in your Will it will be necessary for the Will to be admitted to Probate, unless your estate qualifies as a “small estate”.

In Illinois, probate estates generally must be opened a minimum of six months before distribution can be made to beneficiaries named in the Will.

In addition to the time factor, there are court costs and attorney fees that must be considered in a probate estate.

A Will would be suitable when the person has no real estate, the value of his or her personal estate does not exceed $100,000.00 and there are no beneficiaries, such as minor children, that require their share of the estate be held in trust for their benefit until they reach the age or ages when you would like them to receive their share of your estate.

What is a Living Trust?

A Living Trust is a written instrument signed by the maker usually in the presence of a Notary Public wherein you designate the person or persons or charitable institutions who should receive your assets upon your death. Like a Will, it can be changed or amended anytime by you prior to your death provided you are of sound mind and memory. Unlike a Will, the Living Trust takes effect when you sign it.

In order for your assets to pass to the beneficiaries you have named in the Trust Agreement, it is important that the title of your assets, i.e. real estate, certificates of deposit, brokerage accounts, mutual funds, etc., are transferred to your name as trustee of your Trust Agreement.

You are the trustee of your own Trust Agreement. You can sell, transfer and acquire property as trustee, the same as you did in your individual name. Nothing changes other than placing title or ownership of your assets in your name as trustee of the Trust Agreement.

In the event you become mentally disabled and you are unable to make financial decisions you can designate an individual or individuals to step in and act as successor trustee(s). They will manage your assets and pay from the income and principal of the Trust Estate such amounts as are necessary for your care, support and comfort.

Upon death, if your assets are held in your name as trustee of the Trust Agreement, Probate will not be necessary. The successor trustee will distribute the trust assets to those persons and/or charities you designate in the Trust Agreement.

If you have young children or beneficiaries, you can establish a trust for that person within your Trust Agreement. You can provide at what age or ages and in what percentages that person can receive their share of the trust upon reaching the designated ages.

A living trust is best suited for the person who owns real estate, their estate exceeds $100,000.00 or if the person wishes to establish trusts for children, grandchildren and/or other beneficiaries.

Estate Taxes

Your estate may be subject to U.S. and Illinois estate taxes. This depends on the value of your estate, the estate tax exclusion of the year in which a person dies and the beneficiary or beneficiaries of your estate.

Based on the current law, the federal estate-tax exclusion is $2,000,000.00 in 2007 and 2008. This exclusion is scheduled to rise to $3,000,000.00 in 2009. Then, in 2010, the federal estate tax disappears entirely, but only for that one year. It returns again in 2011, with an exclusion of $1,000,000.00.

Prior to 2010 Congress is expected to make changes that will keep the exclusion at $3,500,000.00 or increase it.

For the years of 2007 and 2008 if the value of your assets exceeds $2,000,000.00 your estate may be subject to an Estate Tax. There are ways to reduce and in some instances avoid Estate Taxes by creating Marital Deduction Shelter Trusts with your spouse. Transfers to a spouse typically are not taxed.

If your assets do not exceed $2,000,000.00, although your estate is not in subject to Estate Tax, a Trust Agreement may still be the best and least expensive estate-planning instrument for you to pass assets onto your desired beneficiaries.

Important Contents for Your Will or Living Trust

Regardless, if your decision is to pass your estate by Will or Living Trust Agreement, the following items must be contained in either document:

  1. The name or names of the executor of your Will or the successor trustee of your Trust Agreement. It is the duty of this person or institution to collect assets, pay bills and any taxes and make distribution to the persons named as your estate beneficiaries in the Will or Trust Agreement.
  2. The names of your beneficiary or beneficiaries. You should provide for secondary beneficiaries in the event a primary beneficiary should predecease you.
  3. If you have children you may want to establish trusts for them if they have not reached an age or ages when you want them to receive their inheritance. The successor trustee can continue to hold their share of the estate in trust for them using so much of the income and principal of their share for their health, education and welfare until they reach such age or ages when you want them to receive their share of your estate.
  4. Guardian of the person of any child who has not reached the age of 18 should also be named in your Will in the event your spouse does not survive you.

I hope the above brief explanation of Wills and Trust answers some of your questions.

You should consult with an attorney to receive professional advice as to what you should do based on your particular estate and family situation.

If we may be of service, please contact us at the above telephone number.

Delanty & Lamberis
Attorneys at Law