Frequently Asked Questions about Estate Planning
Answers from an Experienced DuPage County Estate Planning Attorney
Estate planning can be a complex area of law. At AvoidProbate, many of our clients know they want to protect their family’s assets, but they aren’t sure how. We offer free consultations with our DuPage County estate planning attorney to help you find answers to your questions and solutions that will protect your family’s wealth following your passing. However, there are some questions our clients regularly ask, so we have provided those answers below.
Q: What is an “Estate”
Think of an “estate” as a bucket. A bucket is designed to clean up a mess. Over the course of your life, you will inevitably do some estate planning. You will have assets in joint name with someone else, you will name beneficiaries for your IRA, and you will complete POD/TOD forms for your financial accounts. However, something may slip through the cracks. Perhaps you never got around to naming a beneficiary for your account, perhaps a beneficiary form failed since it had your deceased parents on it, unthinkable but maybe your death is caused by an accident that results in a lawsuit. Regardless, these assets will fall into your “estate” bucket when you die. The size of the “estate” will determine if it has to be probated or not.
Q: What is a “Trust”
Think of a “Trust” as a box. Instead of letting assets inadvertently drop into a bucket known as the “estate” when you die, put them into a nice and neat box while you are alive and well that will avoid probate and ensure your wishes. A trust is a legal entity similar to a corporation. Just like a corporation has a CEO, a Trust has a trustee. The trustee will decide what goes in and out of the trust. Initial you (and your spouse) will serve as the initial Trustee/CEO of the Trust/Corporation. While you (or your spouse) is alive, you will make all decisions on behalf of the trust. If anything happens to you (and your spouse), there is a successor trustee/CEO named in the trust that will take over and dissolve the trust according to your wishes.
Q: What are the benefits of a trust?
The two big benefits of a trust are probate avoidance and planning for periods of incapacitation. Assets titled to a trust pass to the intended beneficiaries outside of probate. In the event of incapacitation, your designated successor trustee can manage assets on your behalf without court intervention. Beyond that, a trust can ensure that your wishes are carried out without unneeded publicity. In addition, a trust can help maximize the inheritance going to young or special needs beneficiaries. For some, a trust can also help reduce or even eliminate the estate tax and may offer some creditor protection for clients in higher risk professions (i.e. doctors and lawyers).
Q: What is Probate?
Probate is a court proceeding. There are a lot of different courts in this Country. There are traffic courts, criminal courts, and civil courts to name a few. While we all understand why we have a court system, we all agree that we would like to avoid it if we can. If someone dies and their estate exceeds a certain level ($100,000 in Illinois and no real estate), then we need the probate court to distribute the estate. If the person died with a will, the probate judge will carry out the terms of the will. If the person died without a will, the probate judge will distribute the estate according to State law. Probate, like all court proceedings, costs money and takes time. The family typically hires a lawyer plus there are just a lot of miscellaneous expenses. In addition, probate is a public affair since some court records are made available to everyone.
Q: How do I Avoid Probate?
The way to avoid probate is to make sure that each and every one of your assets has a named beneficiary assigned to it. For some assets, this is easy. Assets such as 401k’s, IRA’s, Life Insurance and Annuities all have named beneficiaries. Upon death, these assets are not paid to the estate and therefore subject to probate. No, they are distributed directly to the named beneficiary(ies). For financial assets such as bank accounts and investment accounts, you can name a beneficiary by completing a transfer of death (TOD) or payable on death (POD) form. Even real estate can usually be passed outside of probate by recording a transfer of death instrument (TODI) with your local recorder’s office. Another way to avoid probate is by establishing a trust and transfer the title to some or all of your assets to that trust.
Q: How do I “Fund” my Trust?
Once a trust is established, it needs to be funded. How that is done depends on the asset. For real estate, that is easy. Our office will prepare a deed that you will sign and then we will record it with the local recorder’s office. For financial accounts, you will need to contact the financial institution that holds the account and let them know that you have a trust. For retirement plans and life insurance, you can’t directly title the asset to the trust but you could name the trust as a beneficiary. That is something we need to talk about first since there are some tax issues involved. When it comes to automobiles, they could be titled to the trust but it usually doesn’t make sense unless you are going out to buy a new car. Business assets are unique situation and really require consultation with one of our experienced attorneys.
Q: What is a Will?
A will is nothing more than a back-up plan, something that we have in case we need it but really hope we never need it. The reason being is that the only time we are ever using a will is in a probate court. If we do everything right, all assets will pass directly to our named beneficiaries upon death. This will eliminate the need for probate and therefore negate the need for a will. A complete estate still includes a will for a number of reasons. One of which is because the clients have young kids and need to name a guardian in case something happens to them. Another example is someone looking to disinherit a child or someone who never had children to begin with. In both cases, you don’t want simple State law applying to any assets that inadvertently pass to the estate since they will go to family. Finally, a will is needed for no other reason than to avoid some of the frivolous expenses of probate such as the posting of a bond. Even a basic will can prevent thousands of dollars in additional costs if probate is ever needed.
Q: What is the difference between a will and a trust?
The answer is not much! On the top of one document we write the word “Will” and on the other we write the word “Trust”. Beyond that, not much is different. In a will, you have an executor. In a trust, you have a trustee. In both documents, you have a beneficiary. The difference between the two documents is what we do with them once they are signed. With a will, we do nothing with it. We simply throw it in a draw and let it sit there for a very long time. Once we die, the family is then forced to “probate” the will which can cost thousands. With a trust, we do something with it. We title our house to the trust, we title our bank accounts to the trust and maybe even name it as the beneficiary to our retirement accounts. Why? Because doing so will avoid probate since we don’t need a judge to validate the will and oversee the executor. We trust our trustee enough that we didn’t require a judge to oversee everything.
Q: What is Estate Planning?
In a nutshell, estate planning is dying with a zero-probate estate. If we do that, then there is no need for probate. How do we die with a zero-estate, well that is easier said than done. True, a lot of assets pass outside of probate such as retirement plans and life insurance. However, it is likely that most Americans have assets that are subject to probate upon death. The goal of estate planning is making sure that all assets pass outside of probate and therefore you die with a zero-estate (or at least substantially close so that small estate rules apply). At AvoidProbate, we approach estate planning by trying to figure out the easiest and most cost-effective way to die with a zero-estate. For some, that may be as simple as just updating beneficiary forms. For others, they may need one, or possibly two, revocable living trusts or maybe even an irrevocable trust.
Q: Why would I still need a will if I also have a trust?
The fact is not everyone needs a will. The will is nothing more than written instructions to the probate court. Its your way of superseding the will the State gave you through the laws of intestacy. If you plan your estate right, you will die with a $0 probate estate and there will be no need for probate and therefore no need for a will. The only time a person with adult kids would ever do a will is to waive the bond requirement if a probate proceeding was ever necessary (i.e. death caused by an accident, so probate is inevitable). However, there are a select few who do need a will. Examples would be anyone with young (i.e. minor) children, anyone looking to disinherit a child, or anyone who didn’t have any children to begin with. They all need a will since probate would be particularly troublesome for them and you want to make sure that State law is not applied in probate.
Q: What happens if I don’t put my house in a trust?
The answer is you just made someone some extra money. If someone dies owning a piece of real estate, the family is going to encounter some “red tape” in trying to sell. In some cases that is simple. The family simply shows a death certificate and they can sell with no trouble. They are lucky since that would have required the owner to put the house in a trust. For others who are not so lucky, they have two options. One is to go through the probate process. This could cost a few thousand dollars or tens of thousands of dollars if there are problems. Another option is to purchase a “bond in lieu of probate” from the title company handling the closing. However, these can only be used in limited situations. For example, if the proceeds of the sale are going to the decedent’s natural heirs (i.e. spouse, children, grandchildren, siblings). If the decedent wanted to the proceeds to go to a girlfriend/boyfriend or a charity, then the title company will not issue the bond. The only choice then is to probate the will and hope there is not a will contest.
Q: Do I need to come into the office to create an estate plan?
NO!! You can protect your family and your wealth from the burdens of probate without ever leaving your home. We can work over the phone and then overnight documents to you to sign and return to us. The Illinois Governor recently exacted emergency measures which allow for remote notarization and everyone in our office is an Illinois notary. We also have curbside service available 7 days a week!
Q: How are my documents stored?
Our firm policy is to send you your original documents. Before we do, we will scan and photocopy them and then put the originals into protective legal covers. We will then send the originals and a set of copies to you via UPS. We also email a copy to you and upload a copy to a complimentary Everplan that we have established for you. Everplans is a cloud-based system that allows you to easily organize and share your important information and documents.
Q: I heard that wills and trusts are just standard templates. Is that true?
The answer is yes and no. On the one hand, that is the most untrue statement ever. We are a diverse population. Some of us are married, some of us are not. Some of us have kids, some of us do not. Some of us have minor children, some of us do not. Some of us are billionaires, some of us are not. You get the point. Therefore, there is no “standard” template. Instead, there are maybe 100 templates that an attorney with close to 15 years of experience like Marc Gugliuzza has in his toolbox. Once Marc speaks with a new client, he is able to tell which of his many “templates” is best for that client. However, it doesn’t end there. He typically needs to spend an hour or more customizing that particular template for the client’s unique situation. A will and trust is a reflection of you when you die. You don’t grammatical errors in the documents and Marc understands that. He and his staff proofread the documents several times before you sign them.
Q: What is an Estate Tax?
The estate tax is basically your gift to the government when you die. The good news is that very few people are subject to the estate tax. The reason is that the estate tax doesn’t even kick in unless you die with a lot of money. How much money? Well that depends on which estate tax we are talking about, the federal or the state. The Federal estate tax exemption is currently around $11,500,000 which is a ton of money! Better yet, a husband and wife have double that amount for around $23,000,000. That is more money than most can ever dream of. Plus, the federal government has a thing called “portability” so a married couple automatically get to combine their estate tax benefits even if they don’t go see a high-priced attorney. The State estate tax is completely different and really depend on which State you “reside” when you die.
Q: Do I Need to Come into the Office to Avoid Probate?
Absolutely Not! Simply give us a call at 844-79TRUST and will get all of the information we need over the phone. We will then send you drafts of your documents within 48 hours for you to review. If any changes are needed, just let us know and we will send revised drafts. Once everything looks good, we will print the documents and overnight them to you to sign. We will even include a pre-paid return envelope for your convenience!
For more information, call (844) 798-7878 now.