ESTATE PLANNING SEMINAR
July 14, 2008

I.INTRODUCTION

A. Purpose of the Discussion.

1. Explain why Estate Planning is important.
2. Explain how you go about it.
3. Explain what it will do for you.
4. Explain what it will not do for you.
5. Introduce you to some typical estate planning instruments used in the Estate Planning process.

B. Definitions.

1. Estate Planning. The process of planning for the transmission of your accumulated wealth to your intended beneficiaries at the least cost. The Estate Planning process is not limited to death planning but also includes Planning opportunities that you can take advantage of during life.
2. Will. A Will is a written instrument in which you (a) specify how your debts and taxes will be paid, (b) identify who will receive your assets and (c) direct how those assets will be distributed to them. If you have minor children, you also nominate their guardian. The Will must be witnessed in the manner and by the number of witnesses required by your state of residence. Not all Wills require a formal probate proceeding.
3. Executor or Personal Representative. The Executor or Personal Representative is the person designated in your Will to carry out its provisions.
4. Trust.A trust is a written instrument that sets forth your intentions with regard to property contained in the trust. The parties to a trust are the Grantor, the person who sets up the trust; the trustee, the person who is appointed to carry out the provisions of the trust; and the beneficiaries of the trust. The beneficiaries are the persons who you intend to benefit from the trust. There are income beneficiaries and there are remainder beneficiaries. The income and remainder beneficiaries can be the same persons.
   Every trust should contain Sections identifying the parties, setting forth the duties of the Trustee, setting forth the powers of the trustee, identifying the beneficiaries, and providing of the ultimate disposition of the property contained in the trust.
   A Trust can be contained in a stand alone instrument created during your lifetime or in a Will to take effect after your death.
5. Trustee. This is the person that you designate to carry out the provisions of the Trust.
6. Fiduciary. The Trustee is your fiduciary. A fiduciary is a person that owes you a high degree of loyalty. The fiduciary must act in your best interests at all times.
7. Names given to persons that set up trusts. Each of the following names means the same thing:
   • a.Grantor.
   • b.Trustor.
   • c.Settlor.
8. Taxes.
   • a. Income Tax. You are all familiar with this one. This is the one that you pay by April 15 every year.
   
   
   • b. Gift Tax. The gift tax is a separate tax on the privilege of giving your property to others. At the present time, you are entitled to give away $12,000 per year per individual donee. If you spouse joins in the gift, you and your spouse together can give away $20,000 per year per donee.
   
   
   • c. Estate tax. The Federal and state governments have imposed taxes on the privilege of transferring your property upon death. At the present time each married couple is entitled to an unlimited marital deduction. This means that if a person leaves all of his estate to his spouse, then no matter what the size of the estate, there will be no death taxes to pay. This is fine in a small estate. For persons dying in 2001, each individual is allowed to pass only $675,000.00 to others free of death taxes. This amount is commonly referred to as the Estate Tax exemption. In an estate in excess of $675,000.00 there will be taxes due upon the death of the survivor. The point here is that if your estate exceeds $675,000.00, you definitely need to see a lawyer. Congress has legislated that the Estate Tax exemption shall increase as follows:
     
     

     Year of death		Value of property Exempt from taxes
     2008		$2,000,000.00
     2009:		$3,500,000.00

     If you die on or after January 1, 2011, all of the changes enacted by the Congress in 2001, will be repealed and shall not apply. The significance of this “sunset” provision is that beginning in 2009, you had better consult with your tax and legal advisors to determine how you should proceed to reorder your estate plan.

     There is a Federal Estate Tax and an Illinois Estate Tax. Beginning in 2005, the amount of tax paid to Illinois is the equivalent of the amount of the credit for state death taxes taken on the Federal 706 Estate Tax return.

   • d. Generation Skipping Tax. This tax is a Federal Tax on the privilege of giving or leaving property directly to your grandchildren. This is a tax on top of the gift and estate tax. Each individual has an exemption equal to the exemption amount in effect for the year of death. Presently, that amount is $1,000,000.00 and will remain so until 2004 when it increases to equal the amount of the Estate Tax exemption. Illinois has a companion Generation Skipping Tax.
9. Probate. Probate is a general term used to include all matters of which probate courts have jurisdiction. It is the Judicial process by which a deceased person’s affairs are settled. Assets are collected, bills and expenses are paid, and the remainder is distributed in accordance with a person’s will, or in accordance with the Illinois Statutes if the person left no will.

A. Probate

1. Probate is necessary when a person:
   • a. Owns real estate in his separate name alone.
   • b. Owns personal property in his separate name alone in excess of $50,000.00.
2. Probate can be avoided by:
   • a. Having a Small Estate consisting only of personal property having a value of less than $50,000.00.
   • b. Creating Joint Tenancies with spouse, child, sibling, etc.
   • c. Using Payable on Death Accounts.
   • d. Using an Illinois Land Trust for real property.
   • e. Ownership of Non-probate Type Assets.
     1. Insurance policies payable to named beneficiaries.
     2. Employee benefit plans with properly completed beneficiary designations.
     3. IRAs payable to named beneficiaries.
   • f. Ownership of property in one or more Express Trusts created during your life.
   
   

   Each of the foregoing probate avoidance alternatives has pluses and minuses. The lawyer will evaluate whether and to what extent you should avail your self of any of these alternatives as part of the planning process.

II. .TYPES OF EXPRESS TRUSTS.

The following are not the only types of trusts, but they are the most common and what I will talk about today.

• A. Living Trusts. These are merely trusts that are established during a person’s life.
  1. Revocable.
     • a. Self-Declaration of Trust where you are your own Trustee.
     • b. Third Party Trustee.
  2. Irrevocable.
  3. Personal Trust.
  4. Insurance Trust.
• B. Testamentary Trusts. These are trusts that are established by a person’s Will and are funded as part of the Probate process.
• C. Advanced Planning Type Trusts.
  1. Charitable Trusts.
     • a. Charitable Remainder Trusts.
     • b. Charitable Lead Trusts.
  2. Grantor Retained Annuity Trust.
  3. Grantor Retained Unit Trust.

III.PURPOSE OF THE LIVING TRUST.

• A. During Life.
  1. Provides a vehicle for the orderly management of your financial assets.
  2. Avoids the appointment of a Court Appointed guardian in the event of disability.
• B. After Death.
  1. Avoids probate if property is in trust.
  2. Affords privacy since the trust is not a public document.
  3. Sets forth the beneficiaries of your trust estate and provides for the orderly distribution of the remainder of the trust estate to them.
  4. Can continue to provide for others after your death without interruption.

IV. PERSONS WHO ARE ELIGIBLE TO BE THE TRUSTEE.

• A. Yourself, in the case of a Declaration of Trust.
• B. Others:
  1. Relative.
  2. Friend.
  3. Corporate Trustee, ie, a Bank, Trust Company.
  
  

  The Corporate Trustee will charge an annual fee for its services. The fee is usually based on a percentage of the asset value of the trust. The more property in the trust the higher the fee. Also, a relative or friend who serves as a Trustee will also be entitled to a fee for their services as Trustee.

V. QUALIFICATION OF THE TRUSTEE

• A. Trustworthy.
• B. Knowledgeable.
• C. Concerned.

VI.DUTIES OF THE TRUSTEE.

• A. During your life.
  1. Invest the assets of the estate.
  2. Safeguard the assets.
  3. Pay income and principal of the trust as you direct.
  4. Pay your bills if you become ill.
  5. Account to the beneficiaries.
  6. File income tax returns.
• B. After your death.
  1. Receive additional property not in trust from executor of the estate.
  2. File Income and Estate Tax Returns.
  3. Pay certain expenses and taxes.
  4. Make distribution to your heirs or continue the Trust if that is your wish.

VII. WHAT THE LIVING TRUST DOES NOT ACCOMPLISH.

• A. The living trust alone does not save Income Tax, incur Gift Tax, or save Estate Tax. The living trust can incorporate many planning techniques to attempt to minimize taxes.


• A. The living trust does not put the assets in the trust out of the reach of your creditors. The law will not allow you to set up a trust for your own benefit and permit those assets to escape your creditors.


• B. The living trust alone does not eliminate all estate settlement expenses after your death. The Trustee or Successor Trustee will have to do many of the same things that a personal representative in a probate proceeding would have to do. The difference is that they will be doing them without the Probate Court looking over their shoulder.

VIII. DEVELOPING THE ESTATE PLAN.

• A. Don’t try to do your own Estate Planning. You can attempt the exercise and invest a lot of time in teaching yourself estate planning, but the odds are that you will not do it well. There are many variables for you to deal with and traps for the unwary. This is not to say that you should not educate yourself about the topic.


• B. See a lawyer knowledgeable in Estate Planning matters. The lawyer will do the following:
  1. Analyze your personal situation:
     • a. Age
     • b. Health
     • c. Marital Status
  2. Review your assets and present title holdings. You will normally be requested to complete a financial questionnaire prior to your first meeting with the lawyer.
  3. Consult with your financial advisors.
  4. Project your estate and gift tax consequences.
  5. After reviewing all of the facts, the lawyer will make one or more recommendations to you. It may be that all you need is Land Trust and simple Will. It may be that you need a complex Will containing one or more trusts. The lawyer may advise you to create a Living Trust. In any event, the lawyer will draft the documents, supervise their execution and facilitate asset transfers, if necessary.

  IX. OTHER RELATED AND USEFUL DOCUMENTS

  A. Pourover Will. The Pourover Will is a standard will by any other definition. The main difference with a Pourover Will is that the residuary clause names the Trustee of a living trust to be the sole beneficiary of the estate. The personal representative, if there is one, makes distribution of the property in the estate to the Trustee. The trustee then disposes of the property in accordance with the provisions of the living trust.

  B. Durable Power of Attorney. The durable power of attorney is a document that permits you to name an attorney in fact to handle your affairs for you. The power of attorney has the name “durable” because it is not revoked in the event that you become disabled. A Court appointed guardian does not have to be appointed for you. This is a change from earlier law. The power of attorney was revoked immediately, the moment you became disabled. The durable power of attorney is revoked, however, if for some reason you are adjudicated a disabled person in a Court proceeding.

  C. Health Care Power of Attorney. The health care power of attorney is a document similar to the durable power of attorney. It permits the person you designate to make medical decisions for you in the event that you cannot make them yourself.

  D. Mental Health Care Power of Attorney. Similar to the Health Care Power of Attorney, this document permits one who is afflicted with any form of mental illness (the Principal) to designate an agent who has the authority to commit the Principal to a hospital.

  E. Living Will. The living will is a document in which you make an expression as to whether and how much medical effort should be expended on your behalf in the event that you are no longer able to. This document has less importance if you have signed a health care power of attorney.

X. CONCLUSION

A well planned estate will take into account all of the documents that I have mentioned today. Not all of the documents will necessarily be chosen in every instance. The Living Trust is just one way to plan your estate. It is an important tool, but not the only one.

My final recommendation to you is to discuss your estate planning concerns with a lawyer knowledgeable in estate planning, you banker, your accountant, and your other financial advisers. They are your estate planning team. If you have assets to protect and loved ones to provide for, the money that you spend now to put your affairs in order will be inconsequential in the long run.