Paul P. Didzerekis Law Office

Estate Planning Essentials

Beginning

The principal objectives of estate planning are:

To enable you to transfer your assets in accordance with your family needs and wishes, and

To make these transfers with the lowest possible cost and taxes.

In order to develop an appropriate plan for you our firm must have a complete understanding of your family situation, your assets and liabilities and your estate planning goals.

Our Role as Your Attorneys

It is our goal to truly understand what you wish to accomplish and guide you toward your goals. Once your objectives are understood, it is our task to develop and recommend a plan that achieves your goals, at the lowest possible cost to you initially and overall in the cost of administration of your estate and in terms of taxes. While saving taxes may be an important goal, it should not interfere with the attainment of your goals of providing for your future and that of your family. We understand that your personal objectives are more important that mere tax savings.

Our Approach

We believe that estate planning is a joint effort of the client, us as your attorneys and your other financial advisors, such as your accountant, insurance consultant, investment advisor, business partners and family.

Using this approach we follow these steps in helping you plan your estate:

  1. Make an inventory of Your Assets. We will supply you with a basic Estate Planning Information Statement for you to fill out creating an inventory of the assets that you and your immediate family own and help determine the value of these assets.
  2. Determine Your Goals. Consider what your objectives are. Are they to provide for your care in the event of disability, to provide a comfortable income for your spouse after your death, to provide for the education of your children or to make sure that your elderly parents or disabled child is taken care of or do you wish to assure that your children maintain control of your family business. Briefly note what your goals are so that we will know them and keep them in mind when we develop the structure of our recommendation.
  3. Think about the Impact of Taxes. Will your estate have enough liquid assets to assure payment of the taxes and expenses without having to sell a family farm or business? After we have determined the value of your assets, we will make an estimate of the taxes and expenses that may be payable out of your estate and that of your spouse.
  4. Developing the Plan. After we have your assets and goals determined, we will recommend an estate plan that will accomplish your goals and, if necessary, minimize the probate expenses and taxes. At a minimum we will develop wills for you and your spouse, if you a married. We may also recommend the creation of revocable living trusts and alternative ways of transferring assets with such things as a program of annual gifts or the creation of a special needs trust, irrevocable trusts, insurance or annuity programs.
  5. Acting Upon the Plan. Once you and we are agreed upon the best plan for you and your family we will properly draft the documents for you to sign that will carry out the plan.
  6. Maintenance. An estate plan is a living thing. It requires that you maintain and care for it. We recommend that you review your estate plan with us regularly and in particular whenever your have a change in your family or financial situation.

How Property is Owned and Transferred

Only the property that is in your name alone is included in your probate estate. This property will pass to your heirs, as determined by state law, upon your death through your probate estate. Not only does state law determine who will receive your estate, but in what proportions they will receive it. State law also says that if you fail to designate a guardian for your minor children, that a court will do that.

Everyone should have will to accomplish several important things at death – distribute your personal property (i.e. your automobile, furniture, jewelry, books, collections, etc.), manage your estate (pay the bills and taxes) and distribute the residue to the persons you select and provide for the care of your children, if they are minors. A will allows you to determine who received your property, who manages your estate (your executor) and who takes care of your minor children (your guardian).

However, a Will cannot transfer property that is held in various ways that allow for the automatic transfer of ownership upon death, either by operation of law or by the terms of a contract. The provisions of a Will have no effect upon the ownership of such property. Because of this we may make recommendations that the form of ownership be changed in order to achieve the desired estate planning objectives.

It is particulary useful to know the following terms and concepts associated with estate planning.

Beneficiaries. Who do you want to be the recipient or recipients of your property following your death? Should you name a contingent beneficiary or beneficiaries?

Executor. Who do you trust to manage your estate after you are gone. This person will be required to assemble your assets, pay your bills and distribute your property according to you wishes as you spell them out in your will. This person should have strong organizing and financial skills. Depending upon the character of your heirs and beneficiaries, this person may also need independence and people management skills. You can also name more than one person to act as executor or your attorney or a financial institution to do so. You will also need to name a successor executor, in case your first choice cannot act for some reason. The executor's duties terminate when your estate is closed with the court, which frequently is between six months and one year.

Guardian. You may name a guardian for yourself in case you become disabled by an instrument such as a power of attorney for health care or for your minor or disabled children in your will.

A. There can be a guardian of the estate – one who manages financial aspects of a guardianship and in the case of a minor, manages the minor's assets until the minor becomes an adult at age 18, when the assets are turned over to the child.

B. There can be a guardian of the person – one who actually takes care of the physical, emotional and personal needs of someone else. In the case of children, a guardian is a substitute parent.

C. You can name the same person to act as guardian of the estate and the person. If there is no surviving parent, the probate court judge will appoint a guardian should you not name one in your will. Although the court will normally appoint the person you name, the court is not obligated to do so.

Sole Ownership. This refers to property held by an individual in his or her name alone and is the most common form of ownership.

Probate. The court proceeding required to transfer property by will or in estates containing real estate or personal property valued in excess of $100,000.00. Probate also provides limitations upon claims that may be made against the assets of a deceased person.

Joint Tenancy. The form of ownership where two or more persons own property together with the rights of survivorship, which means that total ownership transfers automatically, without probate, to the survivor or survivors after the death of another joint tenant. Frequently, spouses own property, usually their marital home, in joint tenancy. While a convenience in many respects, under certain circumstances joint tenancy may not be the preferred form of ownership. Tax planning may require a different form of ownership, as my estate planning objectives.

Tenancy by the Entireties. A form of ownership that only a husband and wife may have only as to their marital residence. It works the same as joint tenancy. The main advantage of a Tenancy by the Entireties is that the sale of the marital home cannot be forced should only one of the spouses incur a judgment that would otherwise result in the sale of the marital residence to satisfy the debt.

Common Tenancy. A form of ownership where two or more persons own property together, but there is no right of survivorship. Each common tenant owns their proportionate share of the property and their share transfers upon their death to their heirs or as provided in their will or trust. This form of ownership interest cannot be terminated without agreement or a partition lawsuit.

Pour Over Will. If one chooses to use a Revocable Living or Personal Trust, a Pour Over Will is also executed. This kind of will transfers any property that one might own at death that had not previously been placed in the trust to the trust, so that all the property one owns passes according to the terms of the trust. Thus, this kind of will pours miscellaneous property into the trust, so that the plan of the trust is effective as to all the property of the decedent, even if the decedent had forgotten to put some particular property into the trust and probate is truly avoided.

A Revocable Living Trust or Self Declaration of Trust or Personal Trust. All three of these terms mean the same thing. This is a trust that one sets up during his or her lifetime to benefit him or her self during life and that ordinarily continues to exist after death for the benefit of others. You name yourself as the trust of this kind of trust and transfer your assets into your name as trustee. While the trust does avoid probate and keeps the details of one's estate private, it does not avoid income or estate taxes. This trust is frequently referred to as an intervivos trust. Where the grantor is the trustee, it sometimes is also called a self declaration of trust.

There are several reasons that one might set up this type of trust. These are:

  1. Probate avoidance. When someone dies with real estate or personal assets valued at more that $100,000 their estate is subject to having to be administered through and under the supervision of the Probate Court or what is sometimes called being probated. Placing all your assets in a trust avoids the necessity of your estate being probated. Having only a will does not avoid probate. A will is merely the set of directions that are to be followed by the Probate Court and your executor. Estates of less that $100,000 in personal property can avoid probate with a Small Estate Affidavit, but those with more than $100,000 in personal property or with real estate will ordinarily have to be probated unless a device such as a trust is used to avoid probate. Probate can be an expense process, involving court filing fees, appraisal fees, accountant, executor and attorney fees, which can run as much as 10% of the value of the estate.
  2. Quick distribution. Probate can take a minimum of 6 months and sometimes years to be completed and the assets distributed. With a trust the distribution of assets can be almost immediately upon the death of the grantor or owner of the trust.
  3. Confidentiality. Probate records are public. What your assets are, how you distributed them and who your beneficiaries and creditors are will be open to the general public. Your will is filed as a public record with the Circuit Court Clerk and the Probate Court file of your estate is a public record that can be viewed by anyone at any time. However, a trust is a confidential document. Only the trustee and the beneficiaries have access to the information contained in the trust.
  4. Transportability. If you have a trust and move to another state or country, your trust will probably be just as valid as it is in Illinois. However, if you do have a trust and do move, you should still have a local attorney review the document to make sure that under local laws your intention will prevail.
  5. Disability. If a husband and wife have property in joint tenancy and one of them becomes disabled, then it may become difficult to transfer or sell assets that are in both names. A guardianship may become necessary. While the other spouse will probably become the guardian, it is still cumbersome and expensive to have a guardianship. These costs could run several thousands of dollars per year. A revocable living trust can avoid this by providing for this contingency and naming a successor trustee to take over the administration of your trust during any disability.
  6. Ease of Amendment. Trusts don't require all the formality to create and change that wills do, but you should still have an attorney prepare the documents for you.

There are disadvantages to setting up such a trust. First, one has to spend the time and money to create the documents and transfer one's assets into the trust. It can also become a continuing process as assets are acquired or your life situation changes materially. This can become cumbersome and may cost thousand dollars. Secondly, one may have to transfer control of property to one's spouse or someone else. The implications of gift law and family law, as well as tax law, should be considered and taken into account as part of the decision making process.

The above Personal or Living Trusts become effective immediately upon creation – that is, while the creator or grantor is living and upon signing and funding (i.e. Placing property into the name of the trustee). Trusts can also be created as part of a will, which one may want to do to provide for minor children in the event of the death of both parents. These trusts are called Testamentary Trusts because they come into existence upon death as part of a Last Will and Testament.

Personal or Living Trusts are ordinarily revocable, which means that they can be ended or changed by their creator or grantor at any time while one is competent.

While a married couple can set up a Joint Revocable Living Trust, it is not recommended. Upon the death of one of the spouses, the joint trust would ordinarily become irrevocable and in most estate planning arrangements separate living trusts are preferable for estate tax planning purposes.

A Trust. Like a corporation, a trust is a separate legal entity from their creator. A trust is created by a written instrument which transfers ownership of property from one person (the settlor, grantor or creator) to another person or institution (the trustee) to hold and manage for the benefit of another person or persons (the beneficiary or beneficiaries). The grantor can be also and frequently is the trustee. Primarily, a trust allows you to determine how your assets are managed after you give up control of them by gift or death, but it may also provide certain income and estate tax savings. Frequently used forms of trust include:

An Irrevocable Trust is ordinarily used in more complex estate planning or gifting arrangements for tax saving purposes and once signed cannot be changed or terminated except as spelled out in the trust itself. An Irrevocable lifetime trust is one established during the grantor's lifetime, but it cannot be amended or changed. Usually it is for the benefit of children or other family members. This type of trust usually can provide for income and estate tax savings. Various kinds of irrevocable trusts are education trusts, life insurance trusts, and income only or Clifford Trusts. Charitable Remainder Trusts benefit charitable organizations after an annuity benefiting the grantor or others. Charitable Lead Trusts provide an annuity for f term of years for a charity and gift the remainder to someone else at the expiration of the term of the annuity.

Testamentary trusts are those created by a will and become effective at death.

Trustee. If you decide to create a trust, then the person or institution to whom you transfer the assets of the trust is called the trustee. You can create a trust in your will to become effective upon your death or you can create a trust during your life by a separate document. A trust is nothing more than a plan on how the assets and income of the trust are to be used, such as when you may want to delay distribution of assets to children until they become adults or reach a certain age. If you decide that a trust is for you, you need to choose someone to act as trustee. This person should have the same qualifications as a person that you would choose as executor or a guardian of the estate. The duties of the trustee continue until the trust terminates and consist of following the terms laid out by you in the trust. You should also choose a successor trustee in case your first choice cannot act for some reason.

A Power of Appointment are the right given to a person authorizing them to designate who will be the beneficiary of property held in a trust or distributable under a will. A power of appointment gives added flexibility to an estate plan, allowing others to decide how property is to be distributed in the future.

Life Insurance is a contract between the policy owner and the insurance company whereby the owner designates who will be the beneficiary of the insurance proceeds upon the death of the insured. The proceeds may be made payable to one of more individuals, your estate or your trust. Designation of your estate as the beneficiary may result in adverse tax consequences. It is important to your estate plan that an analysis of all your insurance policies (whether term, whole life, universal life, group or split dollar) be made, so that we can advise you on how the policy or policies should be owned, who should be the beneficiary and whether an irrevocable life insurance trust would benefit your estate.

Employee benefit and profit sharing plans created by you or your employer in order to defer income taxes may provide for payment of benefits upon retirement or death or at a given mandated age. The method of payment (i.e. lump sum, periodic payment and IRA roll-over) and the designation of beneficiary are important considerations that may have important income and estate tax consequences. Under certain circumstances, portions of a plan may be excludable from your estate for federal estate tax purposes. The rules that determine these tax consequences can be extremely complicated and will require expert analysis. Specific information and plan booklets will be needed for us to analyze these plans and the steps that may need to be taken to fulfill your plan and save taxes.

Business interests, such a sole proprietorships, partnerships and corporations are property interests that require special treatment, including expert valuations, succession, liquidity and transfer problems. Recapitalization of the business to freeze estate tax values and buy-sells agreements are useful tools that must be considered where business ownership interests are involved in an estate plan.

Lifetime Gifts. Gifts (by direct giving, giving in trust or under a uniform gifts to minors act) during one's lifetime (in either cash or specific assets) may reduce estate taxes and benefit family members while one can enjoy the rewards of generosity. One may give up to $11,000 per person per year in tax free gifts that will reduce one's ultimate estate tax liability, not only for the value of the gift, but possibly for the increased future value of the gift. A spouse can join in making gifts and increase the amount of per person, per year gifting amount to $22,000. Gifts to a spouse are free of any gift tax.

Power of Attorney. A Power of Attorney is a document whereby you name someone as your agent to act for you. There are two kinds of Powers of Attorney.

A. Power of Attorney for Property allows someone to deal with your property to the full extent that you can. In the hands of an unscrupulous person it is a license to steal. You may wish to give someone a Power of Attorney for Property in case you become disabled by illness or stroke and unable to pay your bills and manage your financial matters. Giving some responsible person a Power of Attorney for Property would eliminate to have a Court appoint a guardian of your estate if you became disabled. Also, when you recovered your ability to manage your affairs it would be a simple matter to take back control from your agent without having to go to court to have a guardianship terminated. A Power of Attorney for Property can be for a limited purpose and/or for a limited period of time. If you decided you would like to use a Power of Attorney for Property, you could also leave it deposited with your attorney subject to being delivered to your agent only upon your attending physician's written direction to your attorney that you are unable to manage your financial affairs.

B. Power of Attorney for Health Care designates someone to make health care or medical decisions when you cannot. This would include admittance or dismissal from a hospital, authorizing medical procedures, terminating food and water or life support. The person to whom you give this Power of Attorney may differ from the one to whom you would give a Power of Attorney for Property. This Power of Attorney can be given to your agent at any time and is ordinarily signed when you are admitted to a medical or health care facility. You may wish to give a copy of this Power of Attorney to your regular doctor to be kept with your medical records.

Per Stirpes. This is a term in a will or trust which provides for distribution of shares in an estate to be made to descendants by the blood lines, rather than per capita, that is,by counting heads. Division by per stirpes is made one share to each living child and one share to all of the children of a deceased child. Per capita would require that all children and children of a deceased child receive equal shares.

Transferring Property to or Funding your trust. When you create a personal trust it will not become effective until you put property into your trust, which is called funding. The main idea of the trust is that it is a vehicle to transfer property upon your death and therefore all your property should be put into the trust that you wish to be transferred pursuant to the plan laid out in the trust document.

 

Tax Planning or Avoidance. Although what you leave to your spouse transfers free of tax because of an unlimited marital deduction, after you or your spouse's estate reach certain levels the Federal and State governments impose taxes on the property that you or your spouse may be passing on to your other beneficiaries. The tax free amounts for Federal Estate Tax purposes in the following years are:

2004 - 2005       $1,500,000.00

2006 - 2008       $2,000,000.00

2009                  $3,500,000.00

2010                  No Tax - The Federal Estate Tax is Repealed for this one year, unless Congress Acts to change this.

2011                  $1,000.000.00

If the net worth of you and your spouse, including insurance on your lives, exceeds these amounts in the year that you die, then you should consider taking steps to plan your estate so as to avoid the taxes that will be imposed. The value of your estate over the above exemption amounts will be taxed at about 50% unless you act to avoid these taxes. These exemptions apply to each individual. Therefore, a husband and wife can take advantage, with proper planning, of both their exemptions and transfer significant amounts of money that would otherwise go to the government. A simple will will not avoid these taxes.

If either you or your spouse is not a citizen of the United States, different rules apply and different devices can be employed to reduce the taxation. If this is your situation, ask about a Qualified Domestic Trust and the annual gift tax exclusion of $100,000 for gifts to a spouse.

Tax Effect of putting your property into your trust. So long as you are the trustee of your revocable living trust there is not separate income tax return required to be filed by the trust or you as trustee. The income of the trust assets is still includable on your individual income tax return. The reason for this is that the trust is revocable by you and you have not completed a transfer of the property and its income to someone else. Therefore, there also are no possible estate taxes or gift taxes incurred until your death.

BASIC FEES

 

The following are examples of typical fees for various matters, which will apply should there be no extraordinary circumstances in preparing your plan.

A Simple Will which leaves everything to a surviving spouse or outright to surviving children, if there is not spouse.

One Simple Will - $500.00

Two Simple Wills - $650.00

Simple Will with Contingent Trust for Minor Children which provides for leaving everything to a surviving spouse and if the spouse predeceases, then in trust for the minor children until a given age.

One Will - $650.00

Two Wills - $750.00

Power of Attorney – Health Care Power of Attorney or Power of Attorney for Property

Each Power of Attorney - $125.00

Single Living Trust which includes one Living Trust, a Pour Over Will, Power of Attorney for Health Care, Power of Attorney for Property and instructions on transferring property into the trust.

$1,500.00

Husband and Wife Living Trusts which includes one Living Trust, a Pour Over Will, Power of Attorney for Health Care, Power of Attorney for Property for each spouse and instructions on transferring property into the trusts.

$2,500.00

Estate Tax Planning, making full utilization of the exemptions allowed by Federal Estate Tax Law, which includes Living Trusts for each spouse, Pour Over Wills, Power of Attorney for Heath Care, Power of Attorney for Property for each spouse and instruction on transferring property into the trusts. This includes estate tax counseling and assistance in transferring property into the trusts.

$3,500.00

Additional Costs. The above BASIC Fees cover all the costs of preparing the described estate planning documents, the execution of them and a reasonable amount of asset transfers. Additional Costs for such things as recording in-state deeds or other documents, UPS or overnight mail fee, toll calls, out of state recording and attorney fees or for excessive asset transfers may also be charged. Any extraordinary expenses would, of course, be discussed with you before it is incurred.

Additional Fees

Occasionally a client may require special provisions which may result in additional fees. These fees are based upon the prevailing rate for the personnel in our office that will do the work. Examples of these and the customary fees for the same are:

Each Disabled Beneficiary, Special Education or Parent Support Trust Provision would cost an additional $200.00.

Special Needs Trust for a Disabled Child - $1,500.00 to $2,000.00

Irrevocable Life Insurance Trust - $1,500.00 to $2,000.00

Charitable Remainder Trust     - $1,500.00 to $2,000.00

While my customary office hourly rate is $230.00 we attempt to have work done at the lowest hourly rate consistent with the highest quality of work for our clients and therefore other personnel may work on your file. I, however, will be responsible for and will review all work done.

Our base fees are established from prior experience in such matters and prevailing rates for attorneys with the same degree of experience in such matters. Unless your personal or financial situation is extremely complicated, the above base fees will apply. If you change your mind, have a hard time deciding what you would like to do or there are unexpected drafting or legal problems that arise additional time may be required and the fee may be higher. This is extremely rare and I will advise you of any unusual matter as soon as it arises.

Our initial client conference, not exceeding a half hour is free, allowing you to decide if you wish to proceed with the estate planning process. If you begin the estate planning process and, for whatever reason, decide to discontinue it, then you will be billed at my customary hourly rates for the time spent. Our office ordinarily bills on a monthly basis, but in estate planning matters we frequently do not send a bill until the plan is completed. Prompt payment is expected. However, if there is some unexpected hardship we will be pleased to discuss the matter with you and make some mutually satisfactory arrangement for payment.

We ordinarily mail DRAFT copies of documents to clients for review and correction of any misspellings or possible misunderstandings. Also, if after reviewing a draft you have any questions or concerns do not hesitate calling me to answer them. You can then arrange an appointment with my office to have the documents signed in the statutorily appropriate way so that they will be fully effective and accomplish your intentions.

We look forward to working with you to make your life easier and accomplish your goals.

Cost Benefit of Estate Planning

Our firm charges for estate planning services on an hourly basis if your plan requires more customization or we are required to spend an extraordinary amount of time on the process. You only pay for the time actually spent on your plan. Because each person or family has unique needs, each plan has different characteristics and may require time consuming and expensive planning. Where possible we use the technology of computers to tailor make a plan from templates that we and others have created, thereby saving substantial drafting time. But nothing is more important than attention to detail and getting it right.

In most circumstances, saving in future taxes and probate expenses will substantially exceed the cost of thorough estate planning.

Dollar savings is only part of the reason to use our services to plan your estate. Our long and extensive experience concerning diverse and complex estates and the sundry issues involved in them will assist you in making the right decisions respecting the individuals you choose to assist you in the planning process, helping you choose executors, guardians and trustees, and deciding what instruments will document your estate plan.

While we cannot in advance determine the exact amount of our fees or the savings involved, we do give reasonably accurate estimates after we have had an opportunity to determine what the plan may eventually entail. You can then decide whether the benefits of estate planning are worth the price involved. Additionally, the Internal Revenue Service recognized a deduction from federal income taxes for legal fees paid for the tax planning aspects of your estate plan.

Paul P. Didzerekis




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