A living trust is an arrangement that is set up by the grantor – the person giving assets to a trust for the benefit of the trust beneficiaries. The trust sets out the terms and conditions of how those assets are going to be held.

In a sense, a trust is like a box. At the time it is created, it is empty. It will only come to hold what is placed inside of it. Thus, after the trust is created, it must be funded with the assets it is meant to hold and govern. Trust benefits will only apply to the trust assets. If no assets are transferred into the trust, the structure of the trust may remain in place, but only as an empty container – and any intended benefits of the trust will not materialize.

Funding a trust means transferring assets into the trust. For example, real estate is transferred by recording a deed that names the trust as the owner. For bank and brokerage accounts, the accounts themselves may need to be retitled so that the ownership of the accounts are properly reflected with the financial institution. Transfer of various kinds of personal property may be reflected through documents that memorialize the transfer, together with any filings required by law or any pre-existing contractual arrangements.

What are the advantages?

One advantage is that trust assets do not go through probate when the grantor passes away. Instead, the trust will continue to own them. The trust may provide that the property is distributed to beneficiaries, or it may provide that the property is to be held in the trust and, for example, the income used for a beneficiary’s health, education, or welfare. The administration of trust assets also enjoys greater privacy. When property goes through probate, it is a matter of public record, which potentially may be reviewed by third parties. A trust avoids that, as the trustee is responsible for administration of trust assets.

What is a trustee?

The trustee is the person who administers the trust, who makes sure that the provisions in that trust agreement get followed, and who maintains and manages the property that the trust holds. In a living trust, the grantor may also be the first trustee during his life. Successor trustees are named to serve after the initial trustee is either no longer alive, no longer wants to serve, or is no longer able to serve.

What, then, is the effect of the transfer?

When property is transferred into trust, legal title passes from the individual to the trust. That does not necessarily mean that the individual becomes unable to use that property, however. Use of the trust property depends on the terms of the trust, but a living (or inter-vivos) trust generally provides that the trustee may use the trust property, enjoy it during his lifetime, and perhaps even sell, gift, or transfer it. (In contrast, some irrevocable trusts are structured to limit such uses.)

The risk of not funding the trust

Although it is possible to have a trust agreement in place without funding it, the intended benefits of such a trust may go unrealized. The assets of the person will remain titled to him individually, but will therefore remain subject to probate, as well as to personal liabilities which may accrue. The trust would be able to receive assets in the future, but will remain as an empty vessel until actually funded.

Let’s talk about a living trust cost and the bottom line: Namely, is there a significant savings? A living trust arises from and is governed by a trust agreement. The trust continues after the grantor (or settlor) of the trust dies. The assets held by the living trust are not subject to probate, so it has the potential to save costs and expenses affiliated with a probate proceeding.

Instead of probate, a trustee (or successor trustee) administers that trust and its assets, so the trustee can make decisions regarding the operation, preservation, and distribution of trust assets. The trustee also can address situations such as guardianship of minors or persons with special needs, to the extent allowed by the trust agreement. Avoiding the need for court time and costs on these types of issues can streamline decision-making.

A living trust can also preserve money. It can preserve assets by putting a structure in place so that a beneficiary does not have a sudden windfall of a large amount of money but rather receives the benefit of the trust assets over time or in connection with certain milestones, or may be tailored to a particular purpose, such as educational attainment, acquisition of real estate, or launching a company.

By limiting the uses of trust assets, a living trust can preserve them and avoid dissipation. Saving costs is one benefit, and preservation of assets is another.

What If A Beneficiary Isn’t Good With Handling Money?

When a family member or other beneficiary traditionally hasn’t been responsible with managing money, a trust can include appropriate restrictions that limit the amount and tempo of distributions to them.

For example, distributions can be limited by age, by amount, or by purpose (such as for health, education, and welfare). They can also be subject to trustee approval in some situations, such as when the beneficiary is a minor or under a disability. This ensures that the beneficiary is not given more than he can handle, and limits the ability of a beneficiary to deplete the trust assets needlessly.

Ultimately, a main purpose of the living trust is to set up a structure that maintains the trust assets, preserves them, and benefits the family or other beneficiaries. It’s not just an approach made for today, but one that should provide stability into the future. Should you have any questions regarding living trust cost, setting up a living trust and its benefits, talk to us at Windy City Legal.

A couple doing an estate plan struggled with the designation of their agents and executors – the people who would step in to assist them if they were to become disabled, or who would administer their estate should they pass away.

It was apparent that they hadn’t yet spoken with any of the people they were considering. But having such conversations is vital to the strength of the plan.

First, the people being appointed should know what they are being asked to do. If they don’t, they may be taken by surprise when they are needed. Or worse, they may have no idea that they are supposed to step in, resulting in delays and inaction when decisiveness is important.

Second, they should consent to being so designated. Being an agent or an executor requires taking on responsibility. An appointment of someone without his knowledge or consent carries a risk that the appointment will fail – but the principal is unlikely to know until his agent’s service is needed. At that point, if he is not able or not willing to serve, it may be too late to appoint someone more suited to the task.

Third, having such a conversation is an opportunity to ensure that such personal representatives share your values, and will assist you in fulfilling them in the event they must act on your behalf. Alternatively, if there are conflicts, it allows you to appoint someone else. That way, you can be confident that someone suitable will be ready to act for you should the need arise.

Estate planning is an opportunity to build a stronger, brighter future for yourself and your family. Part of that planning should include conversations with your agents. Doing so can ensure that your agents can be effective in the functions you anticipate for them. Keeping your agents in the dark consigns the results, and your legacy, to chance.

One of the features of the tax reform legislation has been to double the federal estate tax exemption to over $10 million. Regardless of whether this becomes law, undertaking an appropriate level of estate planning remains important.

First, there is still a need to take care of family, to take steps to protect children, and to make sure a plan is in place to protect your home and the assets that you have accumulated. In that sense, estate planning is very much about taking care of those who are close to you. This should remain a priority regardless of when the estate tax kicks in.

Second, health care planning remains critical to ensure that your wishes will be carried out and values upheld, if you are in a situation where you are unable to articulate them.

Third, estate planning remains a mechanism to work towards life time goals, and to prepare beneficiaries to both receive assets and the knowledge, experiences, and values that are needed to preserve them.

Fourth, without estate planning, the assets that one does accumulate likely will be subject to probate. Estate planning can sometimes provide alternatives to probate, so that assets are transferred without the delay, expense, and stress that can accompany probate proceedings.

Finally, tax planning still may be necessary. The federal estate tax threshold does not affect the Illinois estate tax. That remains at $4 million. Therefore, it is possible for some families or individuals to have an estate that is exempt from the federal tax but still subject to Illinois estate tax.

For these reasons, estate planning remains an important thing to do and to keep current. Regardless of what happens with the federal legislation, neither the needs of families nor applicable state tax rates appear likely to change in the foreseeable future.

What happens to an estate plan done in another state? Here are a few areas of concern.

1. Adequate execution of documents
The documents that make up most estate plans are subject to state law requirements, including the requirements for how documents are executed. This includes the number of persons who must witness the signing of a document, and whether such signatures must be notarized. Written instructions prepared by an individual that are not properly incorporated into a will are another potential problem. Documents and attachments that are not fully and properly executed may be given no effect, which can have potentially costly and far-reaching consequences.

2. Tax thresholds
State-level estate tax is another potential problem. To the extent that an estate plan contemplates tax thresholds that are higher than those of Illinois, the plan may be exposed to more taxation than otherwise may be required.

3. Real estate
What happened to the real estate owned in the previous state? If it was sold, the distribution scheme in the prior estate plan may now be unbalanced, particularly if intended for only certain beneficiaries. If the real estate is still owned, the manner in which it was held may or may not be optimal from the standpoint of Illinois residency. For example, if owned outright rather than through a trust or business entity, then it may be subject to a probate or an ancillary probate proceeding on the death of the owner.

4. Agents
Powers of attorney for healthcare and property contemplate the appointment of an agent to assist you in conducting your affairs in the event of a period of incapacity. If moving from far away, it may become very burdensome for your agent to continue to serve in that manner, particularly to the extent that travel to Illinois becomes necessary. Therefore, it is worth considering whether to designate someone more proximate as an agent.

5. Beneficiaries
Many types of accounts, including bank accounts, investment accounts, retirement plans, and life insurance policies offer or require beneficiary designations. They should be updated with any new contact information to avoid delays or other problems when a distribution becomes due.