Having an estate plan in place is an essential part of protecting your family and ensuring that you have control over your own future. Working with an experienced estate planning professional is the best way to get peace of mind and spare your loved ones from the expense and hassle of going through the probate process.
Become empowered to make important decisions about the distribution of your assets and proceed with confidence. Let’s explore the A to Z of estate planning and build a comprehensive overview of the key considerations.
Estate planning begins with a clear understanding of your assets. This includes everything you own, such as your home, investments, bank accounts, real estate, and personal belongings such as jewelry, art, and other valuables. Take stock of your assets to get a complete picture of your estate.
An AB trust, also known as a bypass or credit shelter trust, is a legal tool used to help married couples maximize their estate tax exemptions. This strategy involves creating two separate trusts after one spouse passes; the deceased spouse’s portion of the couple’s property, at least up to the applicable exclusion amount, is put into trust B. The surviving spouse’s portion of the property and sometimes the leftover assets of the deceased spouse above the exclusion amount will be put into trust A. Both trusts will then pass to the couple’s named beneficiaries.
Annual exclusion/ applicable exclusion amount:
The amount an individual may give annually to each of an unlimited number of recipients free of federal gift or other transfer taxes and without any IRS reporting requirements. This rate is indexed for inflation and is currently $17,000 per year.
Your beneficiaries are the individuals or organizations that will receive your assets upon your passing. It’s essential to clearly identify and designate your beneficiaries to ensure your wishes are carried out as intended.
Many individuals choose to include charitable giving in their estate plans. This allows you to support causes and organizations that are close to your heart even after you’re gone.
Charitable lead trust:
A trust created during your lifetime or at death that distributes an annuity amount to a named charity for life or a term of years, with any remaining trust assets passing to designated non-charitable beneficiaries upon termination of the trust.
A legal document that changes certain provisions of your last will and testament but leaves the majority intact. It’s acceptable for minor changes, such as updating names or adding a specific bequest, but if any major adjustments need to be made, it’s best to create a completely new will and nullify the old one.
Durable power of attorney:
This is a legal document that grants someone the authority to make financial, medical, or legal decisions on your behalf if you become incapacitated due to illness or injury. Choosing a trusted individual for this role is crucial.
An executor is the person responsible for managing your estate after your passing. They will ensure your assets are distributed according to your wishes, that your debts and taxes are paid, and all necessary paperwork is filed. You’ll want to designate an executor who is capable and trustworthy, who has integrity and excellent judgment.
This is a flexible and accommodating tool designed to transfer assets to your designated family members. This type of revocable or irrevocable trust provides asset protection, minimizes estate taxes, and ensures a smooth transfer of wealth.
This is an umbrella term that refers to a spectrum of legal arrangements that are modified to meet the needs of an individual and their family. If you have minor children, it’s vital to name a guardian who will take care of them if you and the other parent are no longer able to do so.
A healthcare directive, or living will, allows you to express your wishes regarding medical treatment in the event you are unable to communicate. It outlines your preferences for life-sustaining measures, medical interventions, and end-of-life decisions.
Your heirs are individuals who are legally entitled to inherit some or all of your estate if you pass away without a will in place. They will receive this property according to Illinois law and are typically children, close relatives, or descendants of the deceased person — not spouses.
Inheritance taxes can significantly impact the value of your estate. That’s why it’s best to partner with an accomplished estate planning attorney to explore strategies for minimizing inheritance taxes and protecting the assets passed on to your loved ones.
When someone passes away without leaving behind a will, they have died intestate. The state of Illinois has a specific set of intestate succession rules and probate laws.
This is a type of trust that, once established, cannot be changed or canceled by the creator of the trust (the grantor) without a court order or permission from the beneficiary.
Joint tenants with the right of survivorship is a legal term for a couple that shares ownership of an account or piece of real estate, and when one owner passes away, the surviving partner automatically receives full ownership.
Created and funded in your lifetime, a revocable living trust gives you the opportunity to provide for beneficiaries and avoid or reduce estate taxes in a private and controllable manner.
Also known as an advance directive, a living will outlines your wishes regarding medical care should you be incapacitated, gravely injured, or diagnosed with a terminal condition.
This valuable estate planning device allows married couples to transfer an unlimited amount of assets to their spouse without the burden of estate taxes. This transaction can either occur during the lifetime of both partners or after one’s death.
Also known as an “in terrorem” clause, this protects the intentions of the decedent by completely disinheriting any beneficiary who challenges the terms of a will or trust.
These are assets that are not subject to the probate process, such as property owned jointly with a right of survivorship, property held in trust, and assets and accounts with “payable-on-death” or “transfer-on-death” designations.
Owned by the deceased individually, personal property can be tangible (vehicles, furniture, jewelry) or intangible (stocks, bonds, bank accounts).
A resident of Illinois who is 18 years of age or older that manages the decedent’s estate. If there is a will in place, the person is referred to as the executor, if there is no will, they are called the administrator.
A legal document that states all property that passes through your will at the time of your death is transferred to your trust.
Power of attorney:
Legal authorization via a written document that one person grants another the power to oversee healthcare or financial affairs on their behalf.
This is the legal process for administering someone’s estate after they have passed away. It involves gathering vital information, filing the will with the clerk of the circuit court, selecting a personal representative, and performing an accurate inventory and accounting of the estate.
Qualified terminable interest property:
Referred to as a QTIP, this estate planning tool is utilized to maximize a couple’s applicable exclusion amounts while still qualifying for the marital deduction.
Also known as a “living trust,” the maker of the trust or the grantor has the power to fully control it and make modifications to the terms and provisions.
Small estate administration:
When an estate is valued at less than $100,000, probate court can be bypassed through the use of a Small Estate Affidavit, whether a last will and testament is in existence or not, as long as the estate does not contain any real estate property.
Spendthrift provision or trust:
This limits a beneficiary’s access to inherited assets and is usually created to protect them from creditors, poor spending habits, or other incapacity.
The Illinois estate tax only applies to estates valued at $4 million or more, and your estate includes bank accounts, retirement plans, real estate, and personal property such as cars, jewelry, or antiques.
Funded upon the death of the testator (maker of the trust), these are usually created to care for minor children or distribute assets to a chosen charity or other beneficiaries.
A document that confers ownership of real estate or other property automatically to a designated beneficiary when the original owner passes away.
An arrangement used in estate planning by which the grantor transfers property to a trustee who manages the assets for a beneficiary.
Uniform transfers to minors:
The Illinois Uniform Transfers to Minors Act allows a person to make a gift to a minor child free of tax burdens, but any money or property is under the control of a custodian until the child reaches 21.
Meant to facilitate the transition of assets, a person’s last will and testament is a document prepared by an attorney that attests to and coordinates an individual’s final wishes.