Trusts, wills and estate planning is a broad topic covering the laws applicable to documents in which legal title is held by one party for the benefit of another (trusts), documents in which you declare how your possessions are to be disposed of after your death (wills), and the preparation of those documents to best help your heirs (estate planning).
This area is a mixture of federal and Illinois law. The tax laws applicable to trusts and wills are highly complex and are generally beyond the scope of this discussion, but we'll touch on the most important ones throughout the discussion.
Anyone interested in estate planning should contact an attorney experienced in estate planning matters. The attorney can explain whether trusts, wills, or some combination of the two makes the most sense for you.
Trusts. Trusts are legal documents in which someone transfers ownership of property to a second person, who manages the property for the benefit of a third person. The legal terms for the three parties are, respectively, the grantor, the trustee, and the beneficiary. A common trust example is where a parent transfers money to a relative, who acts as trustee for the grantor's minor son. When the son reaches adulthood, the money is distributed to him. Trustees don't have to be relatives, or even people; they can be institutions, such as a bank.
There are testamentary trusts and living trusts. A testamentary trust is one created at a person's death. The example used above is a common example of a testamentary trust. Living trusts are those created while the person is still alive. They can continue after he or she dies, or they can terminate at death. An example of a living trust is where a person creates a college trust fund for his daughter and names himself as trustee. He manages the funds until his daughter graduates from college, at which point the trust terminates. If he should die before she graduates, the trust would continue, but with a different trustee, until the daughter graduates.
Advantages and disadvantages. One advantage of a trust over a will is that it gives the grantor more control over how the money or property is to be used and when the beneficiary is to receive the funds, which may be significant in certain circumstances. Under a will, the decedent's assets are dispersed to his or her heirs, usually the spouse. In many cases, that is sufficient. But what if the person getting the funds is 10 years old? What if the spouse who gets the funds is mentally incapacitated? What if the spouse wants no part in managing the funds? In those cases, a trust would be more appropriate than a will.
The disadvantage of a trust over a will is the loss of control. In a will, the person retains control over his or her assets until death. In a trust, control is given to the trustee upon execution of the trust.
The decision whether to use a will or a trust are not mutually exclusive. Many estate plans combine the two to provide maximum benefit to the individual.
Living trusts create tax advantages that someone who creates a testamentary trust cannot enjoy because that trust doesn't go into effect until after the person dies. Living trusts also can help a person's heirs avoid probate. Testamentary trusts generally have to go through probate.
Irrevocable trusts. Generally, the grantor of a trust can revoke the trust whenever he or she wants. There is a type of trust, however, called an irrevocable trust, in which the grantor is forbidden to revoke it. Why would anyone want an irrevocable trust? The reason is that irrevocable trusts enjoy significant tax advantages over revocable trusts. There are situations where irrevocable trusts make sense, such as where a minor is involved. Talk to your estate-planning attorney about whether those situations make sense for you.
Wills. A will is a document setting forth how a person wants his or her assets to be distributed at death. In the absence of a will, Illinois laws determine who gets the assets. The will gives the person, called the testator, the opportunity to determine exactly who gets what.
Illinois law sets forth the requirements for a valid will. To make a will, a person must be at least 18 years old and be of sound mind. The requirements for the document itself are strict because the will serves as the sole source of the testator's wishes. It must be in writing, it must be signed by the testator, and it must be witnessed by two others, whose signatures are properly notarized. It will remain valid until it is either revoked or superseded by a new will.
Generally, the first provision in a will names an executor or executrix, who will be responsible for carrying out the testator's wishes expressed in the will. The testator usually names his or her spouse, but he or she does not have to.
In addition to naming an executor, a will usually also names a guardian for any children in the event the testator's spouse dies before him or her. Most of the rest of the will sets forth who is to get which assets. A testator's right to distribute his or her property may be limited by the provisions in other valid documents. For example, a provision in a will cannot override beneficiary designations in life insurance policies or pension plans. Most spouses own their home as joint tenants, which mean that the surviving spouse owns the property upon the death of the other spouse, without regard to the will. Thus, a will provision giving the home to someone else would have no validity. An executor who wanted his portion of the home to go to someone other than the spouse would need to change the property away from a joint tenancy before his or her death.
Disinheritance. The testator's right to disinherit certain people is restricted by Illinois law. The spouse is entitled to $10,000, and any dependent children are entitled to $5,000 each. The law actually provides that the surviving spouse and children are entitled to support for nine months after death, in an amount not less than $10,000 or $5,000. Thus, if the spouse and children can establish that they need more than that for their support, they can get the higher amount.
This law does not apply to grown children, only to dependent children. A testator has the right to disinherit grown children.
Renunciation. A surviving spouse has the right in Illinois to renounce a will, regardless of whether the spouse was actually named in the will. A spouse who renounces the will in entitled to 1/3 the estate if there are descendants (children, grandchildren, etc.) and 1/2 if there are no descendants. The spouse has seven months from the date the will is admitted to probate to renounce it.
Furthermore, this marital interest cannot be defeated by the acts of the deceased spouse. Thus, a surviving spouse may be able to set aside transfers of property made by the deceased spouse if the surviving spouse can show that the transfer was made to defeat his or her marital interest.
Modifications. Executors can change an existing will, such as by adding a new provision covering a child who was not born when the earlier will was executed. The change is called a codicil, and it has to meet the same requirements that the original will had to meet.
Probate. Probating a will is the process of filing a will with a special court, called the probate court. If ownership of any of the decedent's property passes by reason of his or her death, probate will be necessary. Thus, if all of a decedent's assets were transferred to a trust, and nothing transfers by reason of his death, probate will not be necessary.
Smaller estates, those of $50,000 or less, can use a quicker procedure known as summary administration, if certain conditions are met. Once the survivor or survivors file an affidavit, the holders of certain assets, such as safety deposit boxes, are permitted to turn them over to the survivors without the need for further proceedings.
Estate planning. Estate planning is the process of combining the available tools, such as wills and trusts, in a way that is the most advantageous to that person. The primary goal of estate planning is the reduction of federal estate taxes (there are no Illinois estate taxes). The estate plan may also include documents in addition to a will and trusts, such as a power of attorney for health care, which sets out how a person wants his or her medical care handled should he or she become incapacitate.