Some general information on estate planning

Introduction
First, please note that this is intended to be general in nature. It is also geared towards the State of Illinois. Your needs may be different.

Estate planning is unique because many factors come into play including age, marital status, family status, intended beneficiaries, moral beliefs, and of course, taxes. Estate planning also has its own unique language. Terms like probate, intestate, per stirpes and living trust can be very confusing.

Definitions
There are many legal terms used in estate planning but here are some of the more common terms and their meanings.

-Intestate: This refers to a person dying without a Will.

-Per Stirpes: This term refers to the distribution when a beneficiary of a Will dies before the estate is actually divided.

-Probate: This refers to the court process of first proving a Will is valid and then administering the estate accordingly.

-Living Trust: This is also referred to as an inter-vivos trust. It is a trust created by a person during his or her lifetime, unlike a testamentary trust, which is created by a will and only comes into force upon the death of the person who wrote the will. It is commonly set up in a way in which the trustor(s) or settlor(s) receive benefit(s) from the profits of the trust during their lifetimes, and then is distributed upon the death of the last trustor (settlor).

-Will: A written document by a person stating how they want their estate to be distributed. This can involve percentages, specific gifts or other portions. It also can state how they would like to be put to rest (funeral or cremation for example).

The intent of this post
In this post, I will discuss possible estate plans for different sizes of estates. Please remember though that this is only general information. Each client’s needs are unique. My law firm will be happy to discuss your personal situation if you wish.

Estates under $100,000
If the estate is less than $100,000, at the time of death, we can use a small estate affidavit according to 5/25-1 of the Probate Act to transfer assets. This procedure does allow us to avoid probate. However, it is strongly advised to also have a “simple” Will prepared in case the assets are in excess of $100,000 at the time of death.

Estates under the estate tax exemption amount
Currently, for 2009, the federal estate tax exemption amount is $3,500,000. See 26 U.S.C. §2010(c). The State of Illinois also has its own exemption amount of $2,000,000. If the client (together with their spouse if applicable) has an estate worth less than the exemption amounts and have NO minor children, a Will along with powers of attorney, may be an economical option for estate planning. If one spouse dies, assets can be transferred to the other spouse through joint tenancy or payable upon death designations. Note: this is a very simple approach to estate planning. If you have minor children, this is not recommended.

If there are minor children, there will need to be provisions in the Will that will provide for the care of the children along with the estate assets. A guardian will have to be appointed and a trust established for holding and managing estate funds.

Estates over the estate tax exemption amount
If you have assets over the estate amount, a proper estate plan can get complicated. At this level a big concern is taxes. It is important to protect the tax exemption of each spouse – to avoid paying higher taxes. One way of doing this is through a credit shelter trust. It is a type of trust where the trustee will receive the estate tax exemption amount and hold it during the life of the surviving spouse. The income of the credit shelter trust will then be distributed to the surviving spouse in order to meet his or her needs. Upon death, it can then be distributed to any children. Other assets can be distributed to the surviving spouse either outright or through a marital trust. There would be no estate tax at the death of the first spouse because there is an unlimited marital deduction applied to amounts distributed to the surviving spouse. When the second spouse dies, there will only be an estate tax on the amount over the exemption amount.

Bradford Miller Law, P.C. focuses its practice on real estate law, landlord tenant law and estate planning. For a free consultation, call the office at 312-238-9298. You may also visit the main website at http://www.bradfordmillerlaw.com/.
Please note this is intended to give general information to the public. Although the information is generally accurate, it cannot be guaranteed and this information should not be construed as legal advice upon which a reader can rely. In all cases, please consult a lawyer before acting. This is intended to be advertising, and not solicitation, or legal advice.