Illinois Trusts, Probate and Estates

Page One

           These materials address people with small estates as well as those who expect to give or receive a substantial amount of property through lifetime and post-death estate transfers.
        If you expect to leave more than $2,000,000 of property at your death, Tax Exemption Utilization and Estate Valuation Freezing and Discounting illustrate some of the ways to structure your assets more favorably.
        For those who expect to receive large gifts or bequests, trusts discussed in Property Distribution and Asset Protection should be of interest. They are the Spendthrift Trust, the Asset Protection Trust and the Supplemental Needs Trust. They can enhance a gift or bequest with debtor/lawsuit protection, fund management, transfer tax exposure reduction, collateral public assistance, and post-death remainder disposition features. It is best if your donor makes your gift in trust - trusts set up by you to protect your own assets are substantially less effective. Corporate trustees generally charge one to two percent of asset value of the trust per year in administrative fees. In light of the amount of asset protection provided, the fee is a bargain. A general discussion of wills, living trusts, powers of attorney and guardianships is found in Property Distribution, Asset Protection and Disability Planning.

What it's all about

        Estate planning involves the use of asset holding and distribution vehicles in appropriate combinations to achieve lifetime and post-death property management, property distribution, debtor protection and transfer tax minimization objectives. Transfer taxes consist of estate, gift and generation skipping taxes. Transfer tax minimization tools are primarily a function of federal law whereas property management and debtor protection tools are state law driven.
        Debtor/lawsuit protection is an inherent feature of irrevocable trusts in which the beneficiary lacks complete control over the trust assets - instead the trustee is vested with control and is authorized to make beneficiary distributions based on specified conditions and/or is authorized to make discretionary disbursements. Irrevocable trusts can be tailored to further enhance their natural debtor features.
        Tax minimization consist primarily of tax exemption utilization, charitable giving, estate valuation freezing and estate valuation discounting. The initial focus of tax minimization generally is exemption utilization. As the need to do more becomes apparent valuation freezing can be utilized. Valuation discounting is generally used as a last resort.
        Tax exemption and estate valuation freezing tools are more effective the earlier they are initiated. This is because 1) annual exclusion gift opportunities are not cumulative, and 2) generation skipping and unified credit transfers remove post transfer asset appreciation from the donor's estate. Untimely initiation of exemption and freezing programs often results in the use of less efficient valuation discounting tools such as the Family Limited Partnership.
        Tax minimization programs seek to reduce exposure to taxes imposed as a result of transferring property, by lifetime gift or testamentary bequest, in excess of the amount which is exempt from transfer taxation. The exemption currently is $2,000,000 (as of 2008) per donor. The tax rate is about 45%.
        Certain transfers such as annual exclusion gifts are not included in the above calculation and are not otherwise subject to estate and gift taxes. Extra flexibility in allocating assets between spouses is provided by law to facilitate both spouses making full use of their exemptions.
        An additional tax, the generation skipping transfer tax, applies when a donor transfers more than the exempt amount of $2,000,000 to one or more grandchildren. The purpose of the tax is to capture an amount which would have been collected if the funds had been transferred first to children, and then from the children to grandchildren. The rate of the tax is similar to the estate tax rate.
        In some cases it is advisable to structure assets qualifying for the $2,000,000 exemption in a way that benefits one or more generations below grandchildren. In Illinois and some other states trusts can be set up that potentially provide benefits to descendants in perpetuity – these trusts are known as dynasty trusts.
        The new tax legislation signed into law June 7, 2001, is little help to those who face exposure to estate taxation after 2010. This is because the legislation is not permanent, and the "repeal" which takes effect in 2010 is for that year only. After 2010 things go back to where they were before the legislation was enacted. People who expect to die before then, however, do get some relief - the legislation raises the federal estate tax exemption to $3,500,000 in 2009 (however with an Illinois estate tax applied for amounts exceeding $2,000,000). Click here for a summary of the changes, in Adobe Acrobat format.
        The topical discussions in this forum are merely a top level introduction to the material, to give you the big picture, and to help you sort out some of the issues. For information on obtaining The ABC's of Estate Planning for Illinois Residents see the Contact Form.

          All information provided in this site is of a general nature and is not intended, nor should it be construed, as legal advice. You should not act or rely upon the information herein without professional advice after a thorough examination of the facts of each situation. Although we strive to provide accurate, up to date information, there is no guarantee that it is accurate on the date it is received or that it will continue to be accurate.