As you start to think about the future and make plans to protect yourself and your loved ones, one concept that you might see come up again and again is the trust.
Trusts are an increasingly popular estate planning tool here in Illinois. When set up properly, a trust can help you control the distribution of your assets, allowing some of your most important property to pass to your loved ones without oversight from the probate court. This can help streamline the often slow, costly, and intrusive probate process — helping to make a difficult transition easier for your loved ones. At the same time, trusts can be used to help protect your family’s privacy, and provide long-term support for minors or loved ones with special needs. Trusts are versatile, and can be used to help you achieve your goals in any number of different circumstances.
As with so many legal tools and mechanisms, though, it can be hard to know just where to get started. Let’s explore some of the most important things to know about trusts — including what they are and how they function; the differences between several common types of trusts; how a trust may fit in as part of your overall estate plan; and who you can turn to for help and guidance.
A Brief Note on the Illinois Trust Code
In the summer of 2019, Governor J.B Pritzker signed HB 1471 into law, significantly amending and updating the Illinois Trust Code. The new law went into effect on January 1, 2020, and has caused “many significant changes with regard to the administration of trusts,” as the National Law Review points out — including establishing when and how a representative can act on behalf of a trust beneficiary; setting down new provisions for judicial modification and termination of trusts; updating notice and accounting requirements for trustees; and more.
To understand these recent changes and get a sense of how they may impact your specific situation, do not hesitate to get in touch with a local attorney specializing in estate planning, trusts, and probate. A legal professional can help you navigate any and all changes to the law as they come up, and ensure that you get the answers you’ve been searching for.
What Are Trusts, and How Do They Work?
In its most basic form, a trust is a legal arrangement that allows someone to designate another person or group to manage and administer selected property or assets on their behalf, in line with all instructions set down by the establishing trust documents.
The person who creates the trust is typically known as the settlor or grantor, while the person or group who administers the trust is known as the trustee. Anyone who receives a distribution or income from the trust is known as a beneficiary.
There are different types of trusts that can be employed, depending on the circumstances and goals of the grantor. In Illinois, one of the most common types of trusts used in estate planning is known as a revocable living trust, or inter vivos trust. This type of trust is established while you are still alive, and is particularly useful for helping assets bypass probate.
What Assets Can Be Placed Into a Trust?
One of the most important things to keep in mind is that a trust must be funded. As the Illinois State Bar Association (ISBA) notes in a writing, a trust “controls only the assets which are registered in its name.” This means that you must be proactive about transferring assets into the trust over time. This might include registering certain assets in the name of the trust, or retitling assets into the trust as appropriate. Generally speaking, you can place many different types of assets into a trust, including real estate, financial accounts, and personal property.
Who Has Control Of the Trust Assets?
As the ISBA puts it, “the trustee named under the trust controls the assets of the trust.” However, it’s important to note that this can take many different forms. For instance, the settlor of a living trust will often name themselves as trustee, allowing them to retain broad powers and control over the assets placed into the trust during their lifetime. When they become incapacitated or pass away, control then shifts to their named successor trustee.
In other circumstances, as the ISBA notes, a living trust may be set up to make the settlor a beneficiary, while giving them the power to “amend or revoke the trust during [their] lifetime.” In some types of trusts, the settlor may wish to give all power to the trustee, particularly if they want to make sure their assets are “professionally managed,” or if they want them “in the hands of an independent party,” as the ISBA explains.
How Do You Create a Trust?
Broadly speaking, you can set up a trust by creating a trust document, and then transferring assets into the ownership of the trust. However, there are many important considerations along the way — such as deciding what type of trust will suit your needs; who to name as your trustee(s) or successor trustee(s); and what property you wish to place into the trust.
At the same time, it’s crucial to take steps to make sure that your trust is created properly, and that it will suit your unique needs — from helping your loved ones avoid probate, to ensuring that your minor loved ones will have financial support for years or even decades to come.
Because of the many variables involved in setting up a trust, it is important to work with an experienced attorney. A legal professional can help you take stock of your entire situation and craft the solution that will work for you. An attorney will listen and work with you to execute a trust that will allow you to achieve your goals and support your overall estate plan, while making sure that you’ve crossed all the “t’s” and dotted all the “i’s” at every step of the way.
Can You Explain the Different Types of Trusts?
There are a variety of different ways to set up a trust, in order to suit your needs and goals.
Revocable vs. Irrevocable Trusts
One of the most important and key distinctions to understand is the difference between revocable and irrevocable trusts. Broadly speaking, a revocable trust is one that can be amended, modified, or revoked at any time while the settlor is still alive and competent. An irrevocable trust, in contrast, cannot be changed or revoked after it has been established.
Revocable trusts are often used in estate planning because they can allow the maker of the trust to keep a significant degree of control while they are still alive, while setting up specific instructions for how the trust should be managed or administered after their death.
Revocable trusts are flexible and adaptable, and there are lots of options for setting them up and keeping them current. Irrevocable trusts offer less freedom and flexibility, but they can offer certain advantages based on your circumstances, and are perhaps most often used when the grantor wishes to give up control over trust property in order to protect assets from creditors, or minimize their tax obligations.
Other Types of Trusts
In addition to the broad differences between revocable and irrevocable trusts, it’s important to be aware of some of the other types of trusts that may be put into use in Illinois, including but certainly not limited to:
- Testamentary trusts. A testamentary trust is created through the settlor’s will at their time of death. This type of trust is often used to hold the right to the inheritance until a designated specific time, such as when a child reaches a certain age or gets married.
- Spendthrift trusts. A spendthrift trust makes provisions that allow a trustee to manage and control funds on behalf of a beneficiary. Generally, these arrangements are used to make sure a beneficiary does not squander their inheritance.
- Special needs trusts. With a special needs trust, a settlor can assure that a third party trustee can control and distribute trust assets for the benefit of a disabled adult, making sure they get the care and quality of life they need without interfering with any of their government benefits. There are usually strict limits on how trust assets may be used in such circumstances.
- Charitable trusts. A charitable trust may be used for the benefit of the settlor’s preferred charitable organization.
This is just a small sample of the ways in which trusts can be used here in Illinois. Many families also employ specialized trusts in order to protect assets from creditors or lessen the impact of state and federal taxes.
Talking with an experienced estate and trusts attorney is one of the easiest and most effective ways to understand the different types of trusts and provisions that may come into play, based on your one-of-a-kind circumstances.
What Are Some of the Benefits of Including a Trust In Your Estate Plan?
When executed properly, a trust can offer numerous practical advantages — and serve as an important piece of your comprehensive estate plan. Working with an attorney to set up a revocable living trust can:
- Help avoid or simplify probate. Probate refers to the legal process for administering someone’s estate after they have died. The goal of probate is to manage the distribution of the deceased person’s estate to their designated heirs and their chosen beneficiaries, while also resolving any debts owed to creditors. Assets placed into a revocable living trust can be distributed without the need to involve the probate courts, helping to ensure that your loved ones are able to access their inheritance when they need it most. This simple act can help minimize the likelihood of family strife and arguments, and make a difficult time less stressful — while also saving your loved ones on the costs, fees, and sunk time associated with extended court proceedings.
- Protect your family’s privacy. The contents of a will become a matter of public record as they go through probate. Because it does not need to go through the same court proceedings, a trust is private and can help to shield your family’s personal information from public scrutiny.
- Help you maintain control. Revocable living trusts can be modified and amended fairly easily over time as your circumstances change. What’s more, a trust can help provide guidance and set down provisions that go beyond what can typically be accomplished in a will — such as providing for a loved one with a disability or withholding a loved one’s inheritance until certain conditions are met.
- Get started with disability planning. While it is not pleasant to think about, the reality is that no one is safe from the threat of a serious accident or illness. Along with other estate planning mechanisms, such as powers of attorney, a trust can be a useful disability planning tool. Trusts may be set up so that a successor trustee can step in and manage or use the trust assets for the settlor’s benefit — without having to submit to the long and complex process of having a guardian appointed by the probate court.
Have Any More Questions About Trusts and Estate Planning?
Interested in learning more about the role a living trust can play in your estate plan? Ready to start discussing all of your options with an experienced, knowledgeable, and compassionate legal professional? We are here for you.
Our dedicated team can help you understand what goes into the estate planning process, evaluate your assets, and prepare all necessary documents, including basic wills, trusts, powers of attorney, and advanced directives.
Founded in 2009 and offering more than 20 years of combined experience, the attorneys and staff at the Law Offices of J. Jeltes work together to provide skilled, efficient, and affordable legal representation to individuals and families going through major life transitions.
We know that every situation is unique, and our attorneys can provide you with a comprehensive one-on-one consultation to discuss your legal concerns and goals. Don’t hesitate to contact us to begin the conversation.