Absolutely, yes. No matter your age, marital status, or size of your estate, you need to plan for the inevitable. If you die without an estate plan in place, your assets will pass to the “heirs” provided by Illinois law, regardless of your wishes. In many cases, the state’s distribution scheme (known as “Intestacy”) will not be appropriate for your particular circumstances. For example, if you are married with children and die without an estate plan, Illinois law provides that your assets will be divided into two equal shares – ½ will go to your surviving spouse, and ½ will be split among your children. If your children are minors, or if your spouse is planning to rely on those assets for his/her support, intestacy clearly provides for the wrong result.
In addition to taking care of your family after your death, an Estate Plan is also intended to provide for you during your life. Specifically, a comprehensive Estate Plan includes documents dealing with your care and the management of your assets if you become incapacitated. Without valid Powers of Attorney for Health Care and Property in place, the court would have to name a Guardian to manage your financial affairs and health care decisions in the event of your incapacity.
A Living (or “Revocable”) Trust is a legal entity that is created to hold your assets during your life and provide for their distribution after your death. During your lifetime, the trust is managed for your benefit and you control your assets just as if they were held by you individually. After your death, a successor trustee steps in and seamlessly manages your assets for the benefit of the remaining beneficiaries (typically, your surviving family members). In addition, a fully funded Living Trust has an added benefit of ensuring for the care and management of your assets if you become incapacitated due to illness, injury, or disability.
In estate planning, what you don’t know can hurt you. If you fail to comply with all requirements of Illinois law, the Will you prepare will be invalid. Simple drafting errors can subject the Will you draft to any number of challenges, potentially leaving your surviving family members in worse shape than if you had no Will at all.
At a minimum, every Estate Plan should include a Will and Powers of Attorney for Health Care and Property. In some cases, the Plan should also include a Revocable Trust. The Will and/or Revocable Trust set out what will happen to your assets and property after your death. The Powers of Attorney for Health Care and Property (and, if applicable, the Revocable Trust) name agents to manage your financial affairs and make health care decisions for you if you are incapacitated due to illness, injury, or other disability.
The regulations governing eligibility for Medicaid or other need-based government assistance are complex. For example, the State of Illinois recently made sweeping changes to its rules concerning Medicaid eligibility for individuals (especially senior citizens) needing Long-Term Care. These rules became effective on January 1, 2012, and imposed stringent restrictions concerning asset limits and transfers. With that said, careful planning – especially when making gifts or estate plan distributions to disabled individuals – is a must.
Currently, in 2017, a person can gift $14,000 to any donee without incurring gift tax liability. This figure is indexed for inflation but only increases in increments of $1,000. Additionally, a person can make expenditures to satisfy tuition and medical expenses of another person, so long as the payments are made directly to the institution or service provider.
It depends. There is an unlimited marital deduction for federal and Illinois estate tax purposes. That is, spouses can transfer unlimited wealth between themselves without incurring gift and estate tax consequences (note there is an exception to this rule where one spouse is a non-citizen). Additionally, the current 2017 exemption for federal estate and gift tax purposes is $5.49 million and the Illinois estate tax exemption is $4.0 million. Careful planning should be considered to take advantage of both and to defer any tax liability until the death of the second spouse to die.
Generally, yes. If the policy is owned by the insured and or the insured retains any "incidents of ownership", the proceeds will be included in his/her estate and potentially increase or create an estate tax burden. Certain trusts may be considered in order to avoid this result. With planning, it is possible to pass on life insurance proceeds tax free.
Yes. The unlimited marital deduction does not apply to married couples where one of the spouses is a non-citizen. In order for a citizen spouse to transfer wealth to a non-citizen spouse, a special trust vehicle should be created in order to qualify the transfer for the marital deduction and allow the tax burden to be deferred. This trust, called a Qualified Domestic Trust (QDOT) has very specific rules regarding who may act as a trustee and how distributions may be made.
There are several strategies small business owners can avail themselves of using life insurance as a means of providing funds upon death to satisfy a tax burden without selling the family business. Careful attention should be paid to determine who or what should own the policy and who or what should satisfy the policy premiums in order to ensure efficient income tax treatment.