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What is the best way to distribute assets to your children?

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Are Clients Ever Concerned About Their Spouse Remarrying?

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What is Funding and How Do You Fund an Estate Plan

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What is the Difference Between Wills and Trusts?

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Wills 101

Estate Planning LawyerA will outlines the distribution of your assets following your death, similarly to a trust. If you have a trust, a will is only necessary in the case of any children who are still underage. Guardianship of these minor children must be addressed in a will. In some cases, it can be beneficial to have a basic will to simply state that remaining assets will be placed in a trust after you die. 

What constitutes a valid will? Can one write it on a napkin? The short answer is yes, although depending on the state and personal circumstances, this may vary. A “napkin will” must be totally written, dated, and signed in your handwriting; but even still, the contents may not be distributed in accordance with your intentions. For this reason, it is best to enlist the help of a qualified attorney. In every instance, a valid will must be physically available, so it is commonly typed and then printed for signing. It must be signed by the testator (you), and two adult witnesses. Some states have more specific requirements, including that a witness cannot be a spouse or someone who will inherit from the will. 

Testacy refers to the estate of a deceased person with a valid will. Intestacy, the opposite, is the estate without a last will and testament. Dying testate or intestate can have major impacts on how a person’s assets are distributed. If a person dies intestate, the assets are then distributed according to the laws of his or her residential state. If a person dies testate, his or her assets are distributed according to the last will and testament, as the lawyers at MDS Law can explain. The executor, who is in charge of a will, carries out duties that are both stated and implied in the will. These duties include collecting property, paying any debts, and distributing property based on the will. It is essential to name a trustworthy and capable executor. 

Avoiding probate (the legal process when a person dies to distribute his or her assets) with a will is possible, but prior actions need to be taken. You must arrange for all owned property to be distributed without court intervention. This may involve joint ownership of shared property, or even giving property away during your lifetime. Naming financial accounts with a beneficiary after your death can also reduce complications in the estate administration process. Take into account that a will alone typically does not avoid probate, but these methods can provide solutions in many situations. Seek the counsel of a legal professional for further information and guidance. 

 

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Great Wealth and the Next Generation

Estate Planning Lawyer in Palatine IL

Estate Planning Lawyer in Palatine IL

If you’re thinking of transferring assets to your children, grandchildren and distant descendants, you may want to consider using a grantor retained annuity trust (GRAT) or an intentionally defective grantor trust (IDGT). Both estate planning tools can be used to freeze the value of the assets you transfer.

Let’s look at the basics of each.

A GRAT is an irrevocable trust that allows you to transfer assets to the trust and retain the right to receive a fixed annuity payment for a term of years. Once the trust is established, you can’t contribute any additional property to it. At the end of the term, the remaining trust assets are distributed to your beneficiaries. In this way, you can pass a significant amount of your wealth to the next generation with little or no gift tax.

GRATs are useful if you face significant estate tax liability at death. A GRAT may be used to freeze your estate’s value by shifting part or all of its appreciation onto your heirs. Any appreciation of an asset can be transferred to your children tax-free using a GRAT. This is why GRATs are a popular fund for assets that the owner expects to appreciate quickly, such as shares in a promising startup or IPO. The nature of the fund keeps the money from appreciation from counting against your lifetime exemption from estate and gift taxes. The trust appreciates when the assets included in it grow faster than the minimum annuity interest rate.

GRATs help reduce estate taxes in intergenerational transfers, but Intentionally defective grantor trusts or IDGTs have their own advantages in certain circumstances, sometimes making them even more efficient than GRATs.

A sale to an IDGT is more complicated than one is to a GRAT, but it offers potentially greater transfer planning opportunities. An IDGT also is an irrevocable trust that is defective for income tax purposes but effective for estate tax purposes. You make a gift of either cash or assets to the trust and those assets are held for the benefit of your heirs.

You retain certain powers that cause the trust to be treated as a grantor trust for income tax purposes. These powers don’t cause the trust assets to be includable in your estate. You might retain the power to swap trust assets with other assets of equivalent value. You may be able to borrow from the trust without adequate interest or security. For income tax purposes, you would be treated as the owner of the trust.

You can sell assets to your grantor trust without recognizing a gain on the sale. After you’ve made a gift to the trust, you can sell appreciated assets to the trust in exchange for a promissory note. Since the IDGT is a grantor trust, the interest income on the note is not recognized. If the income and growth of the trust assets exceed the interest rate on the note, the excess is passed on to your heirs, free of any gift tax. For estate tax purposes, the trust assets aren’t part of your estate, but any outstanding balance on the note is part of the estate.

It’s advantageous from a transfer tax perspective to make the note taxable on your trust’s income because your payment of the trust’s taxes essentially allows you to make additional tax-free gifts to the trust with each payment of the trust’s tax liabilities, further depleting your estate.

When you make the initial gift to the IDGT to fund the down payment and capitalize the trust, you may use a portion of your lifetime gift tax exemption or may even have to pay gift tax. There’s no step-up basis for the underlying assets, just as there isn’t in a GRAT.

There are estate tax consequences if you die before the end of a GRAT’s term or before the IDGT note is paid off. All of a GRAT’s assets may be included in your estate if you die during the term of the contract. Conversely, only the outstanding note balance from the IDGT is included if you die before the note is paid.

Due to the structure of a GRAT, the generation-skipping transfer tax exemption cannot be allocated until the end of the GRAT term. That exemption should be allocated so distributions to grandchildren and more remote descendants don’t incur a tax. Since the exemption cannot be allocated until the end, it’s not possible to know how much will be needed, and the value of the trust might exceed the available exemption. It’s possible to allocate the generation-skipping tax exemption to the initial gift to an IDGT. That’s why you may see the IDGT as a better vehicle for transferring assets to your children and grandchildren.

For estate planning, contact an Estate Planning Lawyer in Palatine IL, like the attorneys at Bott & Associates, Ltd for help with your questions.

 

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Planning for the Unexpected

Estate Planning Lawyer in Palatine IL

Estate Planning Lawyer in Palatine IL

“Shirtsleeves to Shirtsleeves” is a phrase I heard at a recent estate planning attorney conference.  It means that often wealth is created by the 1st Generation, perhaps an immigrant who comes to the United States from the Philippines with just the “shirt on their back.”  They work hard to create their wealth, sacrificing free time, family time and vacation time for years on end.  The 2nd Generation  sees the sacrifice and hard work of their parents first hand. They work hard themselves, but not necessarily in the same way as the 1st Generation because they grew up relatively “comfortable.”  The 3rd Generation never did see the work Grandma and Grandpa put in to create the wealth, so they generally enjoy freely spending the assets, and perhaps are not too ambitious in their own respective careers.  Then the 4th Generation takes a look at the Estate and what the 1st Generation was able to accomplish… and wonders…. What happened to all of that wealth?

The reality is:

  • 50% of the failure of family wealth planning is due to Lack of Communication and Trust within the family decision making, education and governance
  • 30% of the failure is due to No Clarity of Family Purpose and individual place and purpose
  • 15% of failure is due to Unprepared Heirs
  • 5% of failure is due to failures of financial planning, taxes and investments

They say that when a person receives an inheritance, on average, the funds are gone within 18 months of receipt! That is insane.  It makes me wonder how many years did the decedent spend at their place of work to earn the funds that this person received?  10 years, 20 years, perhaps 40 years?  And yet, the recipient was happily spending it in just a matter of a year and a half.

Most clients want to keep their Wills and Trusts “simple.”  “When I die, everything goes to my children, equal shares, and outright, with no strings attached.”  Sure, it sounds “simple.”  However, the complexity lies in the many unforeseeable circumstances that can happen in the children’s lives.

  • What if Johnny receives his $500K inheritance, uses it to pay the balance on his mortgage, on a house that is titled with his wife?  Then a year later, his wife wants a divorce?  What then?
  • What if Susie receives her $300K inheritance, and the next day she is involved in a car accident, that results in a loss of life?  Can the plaintiff in a wrongful death lawsuit access her inheritance?
  • What if Billy is in the middle of a bankruptcy case, then all of a sudden Mom dies, and leaves him with $200K?  Will his creditors get to the funds?

Often clients tell me…. that would never happen to my family!  Well, statistics show otherwise. Think that your surviving spouse will never remarry?  According to the National Center for Biotechnical Information, by 25 months after the death of a spouse, 61% of MEN and 19% of WOMEN, have remarried or are involved in a new romance.

So whether you are worried about your family members being “spoiled” with their inheritances, or whether your ex son-in-law is going to get your hard-earned assets, or whether your husband will find a new wife shortly after your death, it is very important to plan.  If you don’t have a solid estate plan in place, the default is almost always a disaster.

For estate planning, contact an Estate Planning Lawyer in Palatine IL, like the attorneys at Bott & Associates, Ltd for help with your questions.

 

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Plan Before You Get On That Plane

Estate Planning Lawyer in Palatine IL

Estate Planning Lawyer in Palatine IL

It’s summertime! Because many people did not go on vacation in 2020, the airports and hotels are booming again with tourists and visitors.  I read an article that the mayor of Maui is asking the airlines to reduce the number of flights coming into Maui because the island cannot support the number of tourists that are currently arriving.  Whether you are going to the beach, to the mountains, overseas or just your local city or town, it’s very important to plan ahead.  We spend an inordinate amount of time planning our vacations, researching the location, finding the right hotel or Airbnb, figuring out the activities that are available, and seeking out the best places to eat.  That is part of the fun of a vacation, planning it all.  But how about taking some extra time to do a different type of planning?  How about doing your estate plan before heading to the airport?

We often have clients who give us a deadline that they are about to go on vacation in two weeks.  Can we get a Will done by then?  My answer is always, it depends.  Yes, we can certainly prepare documents in an expedited manner, but it depends on how complicated your estate plan is, and how busy our office is with other clients.

Why is it so important to plan in all cases?  Well, my heart goes out to the families who are suffering due to the Surfside Condo tragedy.  I was watching the news daily and was just so sad for the families being interviewed.  Some clients tell me that the “catastrophic event” of all family members dying at the same time would never happen.  The Surfside event unfortunately brings this sad possibility to light.  Of course, we pray that our families will be ok.  Of course, we take every precaution to not have this happen to our family.  But none of us have the crystal ball.  We are not in charge.

Not too long ago my friend from high school texted me… “did you hear about so and so?”  I was like no, what happened?  It turns out that a girl we knew from high school, and her family were in the news.  They were on vacation, and an unforeseeable Act of God occurred, and the whole family died.  I knew the girl in grade school and Junior High.  I even looked back at my old photo albums and she was at my house for a slumber party when I turned 12 years old.   As you can imagine, the news struck me to the core.  I may not have been close to her in recent years, but the photos of her beautiful family being shown on TV haunted me for days.  

You may have thought about getting a Will done sometime soon.  You may have thought about it when boarding a plane, or when you prepare your New Year’s resolutions, or when you sit down with your financial planner, or when you talk to your parents about their own plans.  It’s always – I’ll do it next month, or next year, or whenever.  We don’t know if we will be here next month or next year.  Why not do it now, and have the peace of mind that it’s done?

Top Five Reasons to Plan Ahead:

  • Avoid probate, during your lifetime and when you pass away. Do you want the court controlling you or your assets?  Probate proceedings are public, expensive, time-consuming and should be avoided whenever possible. Leave your money to your heirs quickly, privately and efficiently by establishing a proper estate plan.
  • Protect children from a prior marriage if you pass away first. Second marriage planning can be complex and tricky.  Expert legal guidance is needed to ensure your assets are preserved and your children of your first marriage will receive the proper share of their inheritance.
  • Protect assets inherited by your heirs from lawsuits, divorces and other claims. Make sure your assets are inherited by your loved ones, not the people you don’t want to receive them, such as their ex-spouses, in-laws, creditors or the IRS.
  • Ensure that a specific portion of your estate actually gets to grandchildren, charities, etc. Without planning, the state will decide who inherits your assets… NOT YOU!  Planning your estate ensures your intentions and directions are followed.
  • Protect a portion of your estate if you pass away first and your surviving spouse remarries. Special Trusts can be set up to protect your current surviving spouse and insure that your assets don’t end up in the wrong hands. Take action now to protect your family.

For estate planning, contact an Estate Planning Lawyer in Palatine IL, like the attorneys at Bott & Associates, Ltd for help with your questions.

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What to Do With a Windfall

Estate Planning Lawyer in Palatine IL

Estate Planning Lawyer in Palatine IL

We’ve all had dreams about striking it rich with a Powerball lottery, a progressive jackpot win, or an unexpected inheritance and all the things we’d buy with it. But what would you do if your dream suddenly became a reality?

When you unexpectedly come into a large sum of money, the first temptation might be to spend, spend, spend! But, of course, that’s not the wisest thing to do – and it can land you in a lot of trouble.

As unpleasant as it may be, the first thing to think about is taxes. Money won in the lottery, on a royal flush, or just found in your backyard is considered taxable income and has to be reported to the IRS. On the other hand, if a wealthy relative decides to generously share some of his or her fortune with you, then you won’t have to pay income tax on the money, but there will likely be other tax issues to think about. Estate planning attorneys are well-versed in these types of tax issues and can help you figure out what taxes may be owed.

Skip this all-important first step at your own peril. Remember Richard Hatch? A few years back, he won $1 million on the television show Survivor, and failed to pay income tax on his winnings. His penalty? Ten years in jail.

After you figure out what portion of your windfall is owed to the IRS, then it’s time to make your money work for you. An experienced financial planner can take a look at your age, your family situation, and your overall financial picture and help you figure out how best to invest your money to maximize your returns and meet your financial goals.

Once you have a financial plan in place, you’ll want to put together a plan for taking care of your family – and your finances – in case of your death or become incapacitated. A qualified estate planning attorney can help you tailor a plan for your specific needs. Common estate planning tools include a financial power of attorney and a power of attorney for health care to allow you to appoint someone to make financial and medical decisions on your behalf in case of your disability. A Revocable Living Trust can be established to provide for the management of your property in the event you’re incapacitated and to allow your property to pass to your beneficiaries, efficiently and outside of probate, after you pass away.

If you’ve received a sizable windfall, you’ll want to discuss advanced estate planning and asset protection options with your attorney. There are steps you can take not only to protect your assets from judgment creditors while you’re alive, but also to protect your loved ones’ inheritances after you’ve passed on. Your estate plan can also help you minimize taxes, ensure that your children don’t squander the wealth they eventually inherit, and leave a legacy to your favorite charitable institutions.

The first step to making the most of your windfall is to meet with an estate planning attorney. He or she can help make sure you enjoy your good fortune while building a secure future for you and your family.

For estate planning, contact an Estate Planning Lawyer in Palatine IL, like the attorneys at Bott & Associates, Ltd for help with your questions.

 

 

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I’m a Trustee! Now What?

Estate Planning Lawyer in Palatine IL

Estate Planning Lawyer in Palatine IL

It is an honor to be named the successor Trustee of a loved one’s Trust. As the name implies, you’ve been given a position of trust and responsibility, and it means that your loved one thinks highly of your skill and ability, not to mention your integrity.

So, what does a successor Trustee do?

Normally, the person who creates a Trust serves as the initial Trustee. Your job as the successor Trustee doesn’t begin until that person dies (or, in some cases, becomes disabled). At this point, you step into the Trustee’s shoes.

As the successor Trustee, you are in charge of administering the Trust. This means that you are obligated to follow the written terms of the Trust along with any applicable provisions of state or federal law in gathering, managing, and distributing the Trust assets.

The terms of each Trust are different, depending on the purposes for which it was established, the property owned by the Trust, and the situations of the various Trust beneficiaries. This means there is no one-size-fits-all set of instructions for administering a Trust. Instead, you will need to closely follow the written terms of the Trust, employ your good judgment, and likely seek the advice of one or more experts.

Some of the questions you’ll encounter as you administer the Trust include:

  • What distributions need to be made? Do these distributions need to be made to one or more beneficiaries, to one or more sub-Trusts, or to a combination of these?
  • What about taxes? Are estate taxes due? What about income taxes – do they need to be paid on behalf of the Trust grantor or the Trust itself?
  • Should you buy or sell assets on behalf of the Trust? How should you invest Trust assets?

Serving as the successor Trustee means you have a fiduciary duty to the beneficiaries. You must manage the Trust assets in the best interests of the beneficiaries, rather than managing the assets as if they are your own. Managing this way can complicate certain decisions that would normally be simple.

For instance, deciding how to invest Trust assets might seem simple. However, you’ll need to consider the written terms of the Trust, the requirements of state law, and a number of external factors in reaching the best choice. One of your duties is to invest Trust assets in a prudent manner. But what exactly does this mean?

As the successor Trustee, it might seem that the safest decision is to continue the investment choices of the initial Trustee. However, this course of action doesn’t factor in changes in the market. A down market can mean losses for the Trust — losses for which you as the successor Trustee could be held responsible.

Each Trust comes with a unique set of circumstances that can make the job of a successor Trustee tricky. In most cases, it is wise to seek professional guidance as you complete the Trust administration process. An experienced estate planning attorney can review the terms of the Trust, brief you on the requirements of state and federal law, and alert you to pitfalls of which you might be unaware. With expert help, you can minimize costly mistakes and fulfill your role as the successor Trustee with confidence.

Much of your job as the successor Trustee may be time sensitive. You’ll need to be aware of deadlines for taxes and other filings. The clock is ticking, but expert help is just a phone call away.

 

For estate planning, contact an Estate Planning Lawyer in Palatine IL, like the attorneys at Bott & Associates, Ltd for help with your questions.

 

 

 

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The Misunderstood Living Trust

Estate Planning Lawyer in Palatine IL

Estate Planning Lawyer in Palatine IL

3D illustration of “LIVING TRUST” title on legal document

What are the benefits of a living trust? It allows you to retain control over the trust property until death. The trust is turned over to the successor trustee, who is chosen by you, to distribute the trust property according to your wishes.

This enables the assets to avoid probate, resulting in faster, easier distribution to your beneficiaries without additional costs. It maintains your privacy because its provisions stay confidential.

This is in sharp contrast to a last will and testament, which becomes a matter of public record. Finally, you can change a revocable trust at any time during your lifetime. Revocable living trusts are used to protect property until your beneficiary is mature enough to make wise decisions about his or her inheritance.

Myth No. 1: Living trusts are only for the wealthy. While many wealthy people set up trusts, it doesn’t mean that this option is only for the rich. Many people with average incomes find living trusts to be beneficial.

Myth No. 2: Living trusts benefit only beneficiaries, not the people making the trusts and not you, the grantor. In fact, a trust can allow for easier handling of your affairs should you become incapacitated, and make things much less stressful for loved ones left to care for your affairs when you’re unable to do so.

Myth No. 3: You can’t access funds once they’re in a living trust. This ignores the living part of the living trust. Funds and assets can be made as accessible as you wish, to you or to whomever you desire. If you want the trust primarily for your own benefit, you can set it up so that everything is accessible to you until your death. In addition, you can make sure the funds do not end up with those you don’t want to get them.

Myth No. 4: Creating a living trust is complicated and expensive. Not true. Setting up a trust may cost a bit more up front than simply writing a last will and testament, but the cost savings later on can make up for these expenses in the long run.

Myth No. 5: Even if you have young children, a will can do anything a trust can. A living trust can do some things a will cannot easily accomplish, and can become a vital part of your estate plan. It allows you to give your hard-earned money and property to those you care about while protecting it for them. If you have beneficiaries who are not quite able to handle large sums of money on their own, for example, then a revocable living trust is a necessary component of your estate planning. Your beneficiary may not be mature enough to handle large sums of money.

Some people are spendthrifts, others are in not-so-good marriages and still others are going through bankruptcy. Then there are those who are just too frail and incapacitated to manage property on their own. You’d rather not be giving money or property to someone under these conditions. That’s when a living trust can be relied on.

Is a trust right for you? We can help you decide.  For estate planning, contact an Estate Planning Lawyer in Palatine IL, like the attorneys at Bott & Associates, Ltd for help with your questions.

 

 

 

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Should You Establish Payable-on-Death Accounts?

Estate Planning Lawyer in Palatine IL

Estate Planning Lawyer in Palatine IL

Payable-on-death accounts are a type of bank account that, at the owner’s death, allows the money remaining to pass directly to the beneficiaries named by the account owner. They offer an easy way to keep money out of probate. How do you establish them? Just properly notify your bank how you want to leave the money in the account — checking, savings, money market or certificate of deposit account. Even U.S. savings bonds can become a POD account. The bank and the beneficiary you name will do the rest. This bypasses probate.

As long as you’re living, your beneficiary has no rights to your money. If you need money or change your mind about the beneficiary, you can spend, spend, spend; you can also name a different beneficiary or simply close the account. At your death, the POD account will pass to the beneficiaries named even if you have a last will and testament or a revocable living trust — regardless of what the will or trust says.

So what’s the downside? You can’t name an alternate beneficiary. But the positive aspects?

  • They’re easy to create.
  • There’s no limit on how much money you can leave.
  • Designating a beneficiary costs nothing.
  • It’s easy for the beneficiary to claim the money after you’re gone.

You should know that a payable-on-death account goes by different names. Some call it a Totten trust. Some call it a tentative trust or revocable bank account trust. It may also be referred to as an ITF account, which stands for “in trust for.”

Avoiding probate doesn’t mean you can slip by creditors or your family — you can’t use the account to avoid your legal obligations. If you don’t leave enough assets to pay your debts and taxes or to support your spouse or minor children temporarily, the account or any asset that passes outside probate may be subject to the claims of creditors or your family.

After all, your spouse has rights, especially if you live in a community property state — your spouse or registered domestic partner could already be the legal owner of half your account.

So, assuming the money in your payable-on-death account is community property, and you’re looking to name someone other than your spouse as the beneficiary for the whole account, you should get your spouse’s consent. Otherwise, your spouse can assert a claim on your death to half the money.

In noncommunity property states, a surviving spouse who isn’t happy with what she or he is inheriting may be able to claim part of the money you left to someone else. It’s rare, though, that spouses go to court to claim these assets.

After you’re history, the beneficiary claims the money by showing the bank a certified copy of the death certificate and proof of his or her identity. The bank’s records will make it clear that the beneficiary is entitled to the money in the account. There is no need for anything from a probate court. State law will dictate how long to wait before the funds are released.

Is a POD right for you? Or would a trust be a better way to manage your estate plan? Let us help you figure out the right tools for your situation.

For estate planning, contact an Estate Planning Lawyer in Palatine IL, like the attorneys at Bott & Associates, Ltd for help with your questions.

 

 

 

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