Are Trusts Recorded?

As a part of their estate plan, Jim and Mandy decided to create a trust for their home and certain accounts they wanted to set aside for their children. Then Jim wondered whether the trust would be a public record.

The central governing document for a trust is the Trust Agreement. The Trust Agreement functions similarly to a contract. They typically are not public records, so their terms – and the trust holdings — usually would be private.

There are some situations where certain aspects would be evident from the public record, however. For example, the transfer of real estate into or out of a trust occurs by recording a deed. The same procedure applies to other types of real estate sales and transfers. And at closing, the trustee may be required to certify that the trust still is in existence.

Similarly, a bank or financial institution may require certain documentation to establish the genuineness of the trust before opening a new account or re-titling existing accounts.

As a general matter, however, the terms governing the trust are intended to be private. This is a stark contrast to the nature of a probate proceeding, which may be necessary when someone dies without having established a trust, and relies instead on a will alone – or has no will at all. In such cases, the filings made in the probate case will be accessible as court records.

The privacy of a trust is one aspect that makes them popular. Their ability to avoid probate proceedings for the assets they hold is another, as is the continuity, stability, and security they can provide.

The trust that Jim and Mandy chose had these features.  When they learned this, they realized that their trust could become very beneficial to their family over time.

Have questions about how to start on an estate plan? Call us today at 312-278-1187 to schedule a strategy session.

Three Insurance Mistakes That Can Drain Your Assets

Most people don’t think about their insurance coverage while going through their daily routine. Yet some omissions can prove costly. Here are some risks that could potentially drain off everything that you’ve worked for, and some strategies to prevent that from happening.

Disability

Let’s start with your income. Financial well-being is often tied to income potential, including being able to go to work and earning a living. Yet, if an injury or illness interferes with your ability to work, you can quickly eat through your savings. You can’t necessarily prevent the injury or illness, but you can prevent having zero income as a result. One way to avoid an undue drain is with a disability insurance policy, which can cover a portion of the income lost during a long disability. This will provide funds for basic needs such as food, housing costs, medicines, and clothing. Although limited to the basics, it stems the losses by offsetting some of the income that would have been earned.

Life Insurance

If someone in your household were to pass away, how would you cover the mortgage or the cost of education? How would you cover the immediate loss of income to ensure that the surviving family members can weather that storm and figure out what their next steps are?

Life insurance can be critical here for covering existing liabilities and some of the lost income in the near-term. It’s especially important when there are young children in the picture, but can also be important to make sure that a spouse is taken care of and any existing liabilities or special needs are addressed.

There are different kinds of life insurance, with different features, costs, and benefits. Although beyond the scope of this post, there are multiple choices in how to meet this need. In each case, the death benefit provides relief of immediate financial needs.

Liability Insurance

Another aspect of planning involves creating an insurance strategy against potential liabilities. While home and auto insurance are familiar, the amount of coverage provided, and any limitations or exclusions are important considerations. Although the State mandates certain minimums for your automobile, and a lender may mandate certain coverage for a home, don’t rely on them. Explore higher levels of coverage. In many instances, significant upgrades in coverage may be available for small differences in premium. Also, consider adding an umbrella policy.  Layer it with other coverage to provide extra protection against liabilities in excess of your homeowner or automobile policy limits.

 

While planning for your estate, it’s important to fill any gaps which could become a drain on your assets. Let Windy City Legal help you to be aware of available options to make an informed decision.

DIY Estate Planning: Too Good To Be True?

Samantha, like so many people, knows deep down that she has to have an estate plan. But after putting it off, she jumped in when her sister Jill just told her about a new website for DIY estate planning that offers an array of templates that she can simply download off the Internet. How convenient, right?

Well…maybe not so fast.

Samantha is now learning the hard way that just because one is able to sign up for a service online and answer a few questions, it’s not the same as having a trained professional help her plan for occurrences down the road. Plus, a number of her questions don’t fit in a neat little box that’s easily addressed through some “FAQs” she has to sift through. Frankly, she doesn’t feel good about having to serve as her own attorney, which is precisely what she feels like. Too bad she’s already paid for something that may be able to deliver her paperwork but still can’t address all the answers she needs.

DIY (Do-It-Yourself) estate planning can be alluring for many of the reasons that lured Samantha in to give it a try, from speed to apparent cost-effectiveness. On the surface, the idea of getting your plan done quickly may be quite appealing. Yet, estate planning is an area that requires precision, and those templates that are so easy to download don’t provide such guidance for precise answers.

As a result, it can be entirely possible to run through the process of estate planning in a Do-It-Yourself format and all you receive from the platform is a product that isn’t going to work as a valid estate plan. This can be a tragedy with a number of unintended consequences. For one, imagine if your family members have been under the impression that you created an estate plan when, in fact, you did not.

Another example of where the DIY approach can fall through is naming an executor and heirs. Unfortunately, some templates invite answers such as, “One of my brothers or sisters should be an executor.” That may not be good enough.

Yet another potential problem is with distributions. For example, a template may not prevent something general like, “whatever my sister Susan decides is best.” That is not a definite provision — and it’s not Susan’s will, it’s yours.

Indecision of the above nature could invalidate your estate planning documents. So after you’ve gone through what may be a great deal of effort and expense, you could find yourself with very little to show for it if you plug in answers like that.

Another problem with the DIY approach to estate planning is a failure to account for all the assets. Estate plans have a number of functions, one being to guide the executor or successor trustee to what assets might exist, as well as making sure that those assets are conveyed or accounted for properly. When sitting in front of a screen, filling out a form, it’s unlikely that you may be fully taking stock of all your assets. A template that you download or fill out online may or may not actually remind you to look in all the categories that we might ask about. And should you leave out something, it could be a problem later, or may be transferred to someone you did not intend.

Long-Term Consequences of DIY Estate Planning

Online templates are also unlikely to advise you how to deal with retirement assets, or the benefits and costs of one strategy versus another. The value of such planning can serve as a foundation for significant growth or savings over time, however.

Another failure from doing it yourself is actually completing it yourself. At the end of the process, the documents need to be executed properly. Chances are you’re not going to be able to do that from the computer room of your house, but until it is it may not take effect.

Also, DIY estate planning generally is not going to look for potential sources of liabilities that you can address while you have time to do so, or provide alternatives which could be beneficial.

Finally, life happens and things change. Your estate plan needs to keep up but these forms and template-based systems are not necessarily going to keep pace with you. Nor are they going to change with you to reflect your current goals. Without the benefit of someone advising you, you’re probably not going to think about your estate plan very much in the future. Unfortunately, that could be the biggest cost of all, particularly if things change and you’re not keeping the plan up-to-date.

Look beyond the quick methods of doing estate planning, and remember the people you’re planning for deserve so much better – an approach that’s customized around your life’s ever-evolving journey. Talk to us about the difference of Estate Planning for Life today by arranging a strategy session with Windy City Legal.

Estate Planning When A Child Has Substance Abuse Issues

Cindy and Bill have raised four great kids and they have a close-knit family. Lately, however, the situation is far from picture-perfect with one of their children, Tony. Following a surgery, he became addicted to the pain killers that were prescribed for him, and Tony fell into a substance abuse problem that he continues to deal with. Cindy, Bill and their other children are trying to get Tony the help and support he needs. Meanwhile, Cindy and Bill found themselves struggling with how to treat Tony in their estate plans, torn between a desire to take care of their children while not wanting to feed Tony’s addiction.

One solution can be to provide for the beneficiary or child through a trust, subject to certain restrictions so that the individual doesn’t just get the money to do with it whatever they please. A trustee in place or a third party will make sure that the assets are not dissipated or used for improper purposes.

This way, the trust is limited to taking care of a beneficiary or child’s health, welfare, housing, or education as appropriate. The assets will be preserved, rather than provided directly to someone who is not capable of responsibly handling them.

Generally, there must be a deposit of certain money, investments, or other assets into the trust. Then all requests and payments can flow through the designated trustee, so they only are made for treatment or support, and then directly to the provider.

That way, the beneficiary does not have the ability to get to the assets directly, nor to handle any payments. Instead, the assets are used to cover their needs.

What happens once they get the help they need?

Let’s go back to the example of Tony, the troubled child of Cindy and Bill. He’s now gone through a treatment program successfully and after quite some time, it’s clear that he’s put this painful chapter of his life behind him. He’s living a healthier life. With this in mind, can he now get a different portion as outlined in the estate plan as his life has changed for the better? It depends on how the trust is structured.

Addictions are strong. It’s good to have certain options in your estate plan to protect against a relapse. If they have completed treatment and made a recovery, the question becomes whether the trust should continue as is, be distributed in whole or in part, or whether any terms should be changed. That depends on what the trust allows, as well as the inclination of the trustee based on the progress made by the beneficiary.

While a trust can act as a restrictive mechanism for the protection of the assets as well as the beneficiary, a trust also is a vehicle that can provide some hope, by making sure that there will be some ongoing support for the beneficiary during post-treatment recovery. When set up in this manner, it may alleviate the stress of re-entry into a normal routine.

If you’re seeking answers during the estate planning process of how to account for a family member struggling with an addiction or simply financial mismanagement, making a plan to account for them while reflecting your wishes is very possible. Talk to Windy City Legal to learn how to make it possible.

Estate Planning for your Digital Assets

When Michael was several years into his retirement, he felt that his estate plan was well up to date. He had addressed so many tangible assets in his life in that plan, from his home to his cars to a small but valuable art collection he and his wife had accumulated. Unfortunately, while the “physical” part of his estate plan was taken care of, Michael had neglected his digital estate planning. Specifically, he failed to address all the aspects of his digital life in that plan that were important – including all of his online accounts. So, once he passed away, he’d left behind quite the puzzle for his family to sift though and trace the answers to, which was the last thing they wanted to do in the midst of their grief.

How can your family prevent the same type of outcome?

Remember that digital assets need to be planned for in much the same way as the rest of your assets, so don’t marginalize them. Digital assets are easy to forget about because they become so ubiquitous to our daily life. Think about it – in a normal day, you’re on email, your smartphone, social media channels and using various web services. You’re also streaming entertainment services through music and television. Still, although it’s easy to not be conscious of it as you go about your routine, it doesn’t mean that it’s not something that needs to be addressed.

In an estate planning situation, you can decide to what degree that you’d like to inventory all of your digital assets, but one strategy is to have a list of service providers. It doesn’t mean including every account number or detail within that list, but by providing a list of banks, brokerages, advisors, and key online accounts, it will not be a complete mystery for whoever steps in later on.

What are digital assets?

And what needs to happen to ensure that this area of your life is as well covered as your tangible assets? Digital assets may include a range of things held electronically, from financial accounts, to files, photographs, social media, subscriptions, and on and on.

Financial Accounts
These can include:
– Bank accounts, such as checking, savings, certificates of deposit, etc.
– Brokerage accounts
– Retirement accounts

If you aren’t getting statements from these accounts through the mail and instead have set them up as paperless statements to be accessed online, some of these electronic communications take on a higher priority of your focus. An agent acting under a power of attorney needs to know what accounts exist, which bills need to be paid, and how to pay them. Similarly, an executor needs to be able to identify where assets are located, including where accounts are held.

Cloud Storage
Dropbox, Box, Google Drive, iCloud and other kinds of cloud services are vital because they may serve as a place where you currently store records, photos, documents, music and other types of files.

Business Records
Do you own a business and have a place where business records are stored? If you envision someone stepping in to take over your role or you’re trying to sell the business, having access to those business records may be very important.

Social Media
There are far too many social media services and platforms to mention, but to the extent that you have photos, subscriptions, etc., it’s smart to have a conversation now about these assets from your “digital estate” through our planning process.

Online Payment Systems
In the last several years, there has been a proliferation of online payment systems and applications in which people can exchange money back and forth, such as PayPal. There may be money sitting in those kinds of accounts, which would become part of the estate.

Subscriptions
Yes, that Hulu, Netflix or Amazon Prime subscription is going to be important for someone stepping in, either to maintain or deactivate. So keep track of any active ones you may currently have.

Passwords
With passwords, one has to be mindful of security risks should they fall into the wrong hands. As an alternate to writing passwords down, there are online password services that will allow you to set up access for a family member or an agent to use in case of an emergency. This is a way to expediently handle the proliferation of accounts and passwords, without compromising the security of the underlying accounts.

Cryptocurrencies
If you hold cryptocurrencies, you’ll want to provide instructions for how to access an account, identify the brokerage or exchange, and if necessary, conduct any exchanges. Since cryptocurrencies can be relatively volatile, it’s important for an agent or successor to have access without undue delay.

Cryptocurrency exchanges may be outside of Illinois jurisdiction, and possibly United States jurisdiction. Therefore, should things proceed to probate upon your passing, it’s essential that you provided a detailed set of instructions for the designated person who is going to step in for you.

We Can Help You Take Inventory Of Your Digital Assets

Besides a trustee, executor or agent, who else should be made aware of your digital asset list? It can include not only a contact list of people, but also a contact list for service providers, such as your accountant, financial planner, banks, brokerages, cloud storage providers, and more.

One thing is for certain – the scope of digital tools will continue to grow. That being the case, it’s a reason to take stock of them for an estate plan and if you have an existing estate plan that hasn’t been updated in the last couple of years, it’s time to take another look to ensure that it encompasses any digital assets. Windy City Legal can help you on two key fronts:

1) Advising you on how to assemble your inventory for a digital estate plan as far as what should go on your list, and

2) Creating the formal language necessary for a trustee, executor or agent to execute the appropriate steps necessary within certain documents pertaining to your digital assets.

Don’t view your digital assets as something nice to have in your estate plan. Many of them should have a place in your estate plan along with more traditional assets. Addressing them and incorporating them an estate plan will give your family the continuity and clarity they deserve. To get started on your digital assets estate planning, call Windy City Legal for a consultation at 312-278-1187 today.

What is the difference between a springing vs a durable power of attorney?

A power of attorney is a document that allows the principal – the person signing it – to appoint an agent, or someone else to act on the principal’s behalf. For both healthcare and property, there is springing power of attorney and durable power of attorney. The one you choose can have a big impact.

A durable power of attorney becomes effective when signed, or a particular date if specified. It will continue to be in effect until the person who created it either revokes it or dies, or a stated expiration date is reached. In the event of an incapacity, the power of attorney should be in effect without further action.

A springing power of attorney is intended to become effective (or spring into effect) in the event the person is incapacitated. In theory, a springing power of attorney would allow the designation of an agent to be made, as if in reserve.

Unfortunately, the springing powers of attorney generally require that a doctor designate the principal as incapacitated, or unable to make decisions for himself, before the agent has authority to act under the power of attorney. This has led to greater uncertainty with a springing power than with a durable power.

There are at least three problems with a springing power that do not exist with a durable power.

First, there is the potential for delay. With a durable power of attorney, the agent could act immediately in case of an emergency. With a springing power, the agent must obtain the determination that the principal is unable to act. This may take days or weeks.

Second, state and federal law and regulatory requirements may inhibit the ability of the agent to obtain such a designation until he is authorized. One example is HIPAA, the Health Insurance Portability and Accountability Act of 1996. Designed to protect patient privacy, among other things, it creates a conundrum: an agent under a spring power cannot act until the principal is designated incapacitated, and he may have problems receiving the designation unless he has appropriate documentation from the principal waiving HIPAA’s requirements.

Third, a medical provider may have other definitions, beliefs, or incentives as to what constitutes incapacity. So while the doctor has no exposure to the principal’s daily needs for care, or for financial and business affairs to be maintained, that same doctor has the ability to withhold the very certification that allows the agent to act. In other words, a springing power enables a third party to thwart both the principal’s decision-making and the agent’s ability to assist the principal.

Because a power of attorney needs to be reliably in place should the need arise, principals should give serious consideration to whether a durable power or springing power best suits their needs, and for the springing power how best to manage the risks of certification, or effectively a veto, by a doctor.

Myth: “I Have To Give Up Control Of Assets I Put In A Living Trust.”

Do you have to give up control of your assets once you put them in a living trust? The answer is no – not necessarily. There are a lot of different kinds of trusts, to address many different goals and objectives. Also, some trusts are revocable and others are irrevocable.

For the purposes of this question, we’re going to focus on the revocable living trust. The word revocable means it can be changed – the trust can be revoked or it can be amended. (Irrevocable trusts are the opposite. They often do involve giving up a certain degree of control, in exchange for tax savings or other benefits.)

With revocable grantor trusts, the person (or couple) who owns the property and creates the trust often serves as the initial trustee. In the capacity of trustee, the grantor will have control of the property that is held by the trust. The trustee can sell it or exchange it. Financial assets can be invested. Real estate can be held for use, or it can be sold or rented, or another property purchased. Administering the assets as trustees rather than as individuals does not necessarily prevent the use of those assets.

A popular formulation of such trusts is for the trust assets to be distributed only after the grantors pass away. When that is the structure that is elected and implemented, the grantors should have access to the assets they have titled into the trust.

For more questions about wills, trusts and the types of considerations associated with estate planning, talk to Windy City Legal. No matter which stage of your life you are in, we’re here to help develop your estate plan to reflect it, and can help you keep it current as things change. It’s what we call Estate Planning For Life. Experience it for yourself by calling Windy City Legal today at 312-278-1187.

Dividing a Family Business in Equal Shares Might Be a Bad Strategy

Clients often express a desire to leave their estate to their children in equal shares. But when the estate includes a family business, that might not work.

For example, consider a situation where the father, Frank, has spent the last several decades creating and building a family business. Now as Frank ponders retirement, he wants to leave the business to his three children, Amy, Brian, and Colleen.

Amy is intensely interested in the business and has been working in it for the last several years. She knows the systems, processes, products, and clients. In fact, as Frank wanted to step back, Amy picked up the slack. She is ready to go immediately, so that the business keeps making money.

Brian is totally uninterested. He is an outdoorsman at heart, and hates the idea of being behind a desk of any kind.

Colleen has the aptitude for the business, but has a consulting job that has her working long hours. She is often out of town at client locations, and does not have the time to put into the family business.

Dividing everything equally would be unfair and impractical. Amy would be putting in all of the work for only a third of the profit. That is a recipe for disputes among the three children. It also may create other problems that arise in operating a business with absentee owners, from morale problems to governance issues. Worse yet, it would be possible for Brian and Colleen to out-vote Amy in any significant business decisions, even though they do not have any experience with the business or its operations, employees, culture, or products.

In other words, this is a case where an equal division would be unfair to Amy – and potentially also harmful to the business itself and to its employees.

Instead, Frank might think about other allocations of assets. One possible way is to designate the business to Amy and other assets for Brian and Colleen. A different strategy may be for Frank to purchase life insurance for benefit of Brian and Colleen to give them reasonably equivalent value. And there may be other possible solutions.

Estate planning fortunately allows a lot of flexibility to tailor a solution, and to avoid the kinds of situations that can impose stress on both the business and the family. If a small business is in the family, it pays to make sure that it will not fall apart because of – or due to – an artificial allocation among beneficiaries.

How Do You Choose a Good Executor?

One of the inevitable questions that comes up in estate planning is who to designate as the executor of your will.

It should be:
– Someone you trust,
– Someone who is organized, and
– Someone who is diplomatic.

Why?

Nominating someone you trust is a clear necessity. An executor will be responsible for collecting information about the assets you own and the liabilities you owe, paying off any debts and taxes, and then eventually distributing the estate according to the terms of the will. You must have confidence in whoever is entrusted with such information and duties.

Gathering the assets and liabilities requires some organization, particularly as statements from creditors and accounts owed roll in. Creditors may include utility service providers, open credit card accounts, home loans and mortgages, car loans, consumer installment contracts, medical service providers, subscriptions, clubs and societies that you belong to, insurance, and on and on. Assets may include bank and brokerage accounts, retirement accounts, insurance policies, real estate, personal property, and more. There potentially can be a lot to get organized, and someone who will approach it systematically is likely to be a strong choice.

Finally, the larger the family, the greater the number of people who have a potential interest. That can also increase the potential for a dispute, whether based on emotions or family history or perceived unfairness. Having a diplomatic executor who can deal with such issues — particularly at a time when emotions can run high — may be best able to keep the family on track and focused on moving forward together, and to diffuse any tensions that build up.

Myth: The Estate Plan We Wrote Will Be Fine Forever.

When Shannon and Joe executed their Estate Plan, they were delighted to have a plan that reflects their true wishes, and even covers a variety of “what if” scenarios.

“Now we have that out of the way,” they thought.

Only a few years later, some things in Shannon and Joe’s life began to change. They became proud grandparents, then decided to move to be closer to them. Joe started talking about selling his business earlier than he originally thought he would. And they began talking about how to help fund college for the grandkids.

These are not rare and unheard of circumstances, but they can impact the estate plans. And other unplanned, less fortunate circumstances can arise too.

So how do you deal with the unplanned in estate planning?

1) Replace “One and Done” with “Estate Planning For Life”

Some things you can see coming and some things you can’t. After all, life has its ups and downs. That’s why the best approach to estate planning is not to have a “one and done” mindset.

Instead, we emphasize revisiting the Estate Plan every so often ,including for each phase of life and each major life event. We don’t want to think about your life’s work being a single conversation or document that you sign and gradually forget about. We want it to be something that grows with you, changes with you, and reflects where you are now as well as where you’re trying to go.

2) Build a plan to address many “what if” scenarios

When you build your estate plan to take certain “what ifs” into account, you can better recalibrate where necessary, such as appointing different agents or reconfiguring the beneficiaries of certain things.

There are also major life events that should be taken in account. Weddings. Births. Job changes. Perhaps divorce. Eventually death. How will these kinds of events impact what you have or want in the estate plan? It’s possible that such an event leads you to change certain allocations, or to add or subtract provisions to take care of certain family members. In addition, there may be insurance or retirement accounts may need to be updated.

So rather than view the structure of your plan as permanent, look at it as a foundation you are continually building upon, re-shaping the structure where necessary.

3) Assume there will be law and technology changes

Over time, the law changes. For example, changes to the estate tax from time to time have changed certain estate planning priorities, and have led to different planning opportunities. Also, the enactment of HIPAA increased the healthcare-related documentation often included in plans.

We’ve also seen technology changes, such as the increase in online transactions through email, financial accounts, and even online photography through Instagram, Facebook, etc. It’s now important for an agent or executor to be able to access these kinds of digital accounts. That wasn’t an issue years ago. However, as technologies evolve, things change — and as they do, certain provisions in your estate plan may need to be updated.

Life isn’t a simple plan – make sure your estate plan can keep up.

If you don’t review an estate plan periodically, you’re taking a chance that you outgrow it. This creates a potential situation where you have documentation that doesn’t reflect your present set of circumstances.

Instead, with an estate plan that’s regularly updated, you can rest easier knowing that for all of life’s changes, you’ve done everything you can to account for where you are today, and what your wishes are for tomorrow. Let Windy City Legal show you how Estate Planning For Life offers a long-term approach you can be comfortable with. To learn more, call Windy City Legal at 312-278-1187 or schedule a strategy session with us right from our Estate Planning page.