Estate Planning Tools
A well-designed and thought out will requires discussing and investigating the living plans for the testator. Does the testator plan on moving out of state? If so, shall the witnesses’ statements which satisfy Illinois law satisfy the new state’s statutory requirements for proof? While most states do not require that the testator’s or the witnesses’ signatures be notarized, my documents include an affidavit of the testator and witnesses so that a proof may be avoided during the probate. If the testator has minor children, the will should contain provisions for the testator’s desire as to the guardianship of the minor children. That provision should be tied to provisions in the trust document discussed below.
A trust is a three-party document: the grantor, the trustee and the beneficiary (ies). When there are children of “tender age”, the trust must provide for sub-trusts for the children, naming advisory trustees and successor trustees. The trust provides how funds will be used for the support of the children and when the children may have limited access to income of the trust and limited access to the corpus of the trust. The trust also provides when the full amount of the trust for a particular child will be available to that child. There are certain benefits to a parent creating a trust for the children. One such benefit is to have the trustee continue holding the trust corpus for the children and distributing income and corpus to the child solely on the basis of the trustee’s unfettered discretion. This technique avoids a greedy spouse in a divorce from claiming trust assets. It also provides creditor protection for the child in a bankruptcy situation.
Powers of Attorney for Health Care
Powers of Attorney for Health Care are vital in the world we live in today. The power should be a part of your doctor’s records which are tied to the hospital that you will likely use. A copy of that power should be readily available in your home or when you travel. No hospital will speak to a spouse or other close relative without a power, properly executed, immediately available.
Powers for Property
My personal preference is that unless you have a really good reason for having a power for property, I would avoid it. You don’t need a power for property inside a trust and I generally recommend that all property be placed inside of your trust (except for retirement accounts). Some firms use the property power to cover the period of time that the documents are signed to the time that the trust is fully funded, but that is an excuse for not completing the estate planning process immediately.
When other assets are sufficient to maintain fairness, there is no problem. Shortfalls can be made up in the form of life insurance or business loans or buy-sell agreements entered into as a part of the estate planning process.
Deeds are an important part of the estate planning function, especially if the client has property in multiple states. When a resident of state A owns property in states B, C and D, ancillary proceedings are required in each of states B, C and D to change the title from the decedent to the trust of the decedent or the state A probate. Out of state properties should be placed in trust during the owner’s life to avoid complications in the probate process at death.
If you die with all property titled in your trust, there may be no need for a probate. But the will should be filed with the clerk in any case because that is the law. In a well formatted estate plan, the will states that all property in the name of the decedent should be distributed to the trust. But opening a probate may be necessary to establish your choice of guardians for minor children or perhaps to begin running the statute of limitations.
Probate Litigation is to be avoided like the plague. It is long, drawn out and expensive.
Like Kind Exchanges
Like kind exchanges are an interesting part of estate planning. When used properly, income tax on gains on the sale of real property can be permanently avoided by the decedent. At his death, his heirs get the property with a stepped-up basis. A careful calculation of the benefits of a like kind exchange is necessary when the sale of real property is contemplated. I have found that the back of the envelope approach does not always take everything into consideration.
Business Transition Planning
How does one equalize inheritance for all of the children when one child gets the business and the other children get other assets? When other assets are sufficient to maintain fairness, there is no problem. Shortfalls can be made up in the form of life insurance or business loans or buy-sell agreements entered into as a part of the estate planning process.
When multiple persons share in the ownership of a business, a well thought out ownership agreement is necessary. A buy sell agreement or other technique should be considered well before retirement or estate planning.