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Generally, to qualify for the marital deduction and avoid estate tax (imposed on estates with assets over $5.43 million in 2015) when you die, your property must pass to your spouse directly or in a trust where he has complete control over the principal. A Qualified Terminable Interest Property Trust (QTIP Trust) is an exception to this rule.

A QTIP Trust allows you to separate your property into two parts. One part is the interest or income the principal generates. The other part is the principal itself. An example is stocks and bonds (the principal) and dividends and interest (income).

By separating your property this way, you can direct that each piece benefits a different person. So long as the QTIP Trust directs that your spouse receives all of the income from the trust during his lifetime, the QTIP Trust will qualify for the marital deduction and no estate tax will be due.

QTIP Trusts are commonly used in the situation where there is a second marriage. The spouse who has children from a first marriage wants to ensure that his children receive the principal and also wants to ensure that his surviving second spouse will benefit from the interest generated. The QTIP Trust allows for both.
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A Special Needs Trust (a/k/a Supplemental Needs Trust) is set up to ensure that a disabled individual receives benefits, such as Supplemental Security Income and Medicaid, while also enjoying extras that provide for a good quality of life.

A Third Party Special Needs Trust is funded by a friend or family member’s assets. A Self-Settled Special Needs Trust is funded by the disabled person’s assets.

The disabled person is always the beneficiary and is never the trustee of the Special Needs Trust (SNT). In practice, the way a SNT works is the beneficiary asks the Trustee to make a distribution. If the Trustee feels the distribution is allowed under the terms of the SNT and it is in the best interest of the beneficiary, the trustee pays for the goods or services directly from the trust account. The Trustee can also determine on his own that the beneficiary is in need of or would enjoy an allowed good or service. The money never passes through the beneficiary’s hands. This is important because any money the beneficiary controls may reduce his Supplemental Security Income or may cause a loss of Medicaid benefits.
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Long Term Care Insurance is insurance that will cover the cost of long-term care from a disability due to illness, injury or age. This assistance includes care at home or at a nursing home.

The insurance coverage includes payment of room, board and skilled care by nurses and doctors. Long-term care insurance premiums and coverage vary regarding length of waiting period before coverage begins, coverage period and maximum monthly benefit.

Disability insurance coverage is intended to be income replacement insurance. It is typically acquired prior to age 65 and provides benefits of up to 60% of current income if you become disabled due to injury or illness.

As with Long Term Care Insurance policies, premiums and coverage vary including length of waiting period before coverage begins, coverage period and maximum monthly benefit.
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An agent, in the context of a Power of Attorney document, is a person authorized by another to act for him. The principal (the person giving the power) and the agent must be adults who are both mentally competent when the Power of Attorney document is signed.

It used to be that if the principal became disabled, the Power of Attorney document became invalid. Today, Illinois has adopted The Uniform Statutory Power of Attorney Act which allows a Power of Attorney document to contain the words “this power of attorney shall not be affected by the subsequent disability of the principal”. This language allows the Power of Attorney document to continue to be valid and used despite the disability of the principal. It is commonly referred to as a Durable Power of Attorney.

By using this durable provision, an individual has the ability to select in advance who serves as his agent after he becomes disabled. When a Power of Attorney for Property and a Power of Attorney for Health Care have been put in place, there is no need for a guardianship through the Court. The Agents under the Powers of Attorney have the legal ability to handle all affairs of the disabled individual.
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It is often best to avoid probate, the court supervised process which makes sure that a deceased person’s assets are properly distributed. The probate process is costly and time consuming (usually 12 -14 months depending on the county). It also is a matter of public record, so your financial affairs become public information.

A Living Revocable Trust is a basic estate planning tool used to avoid probate. A living trust is drafted and assets such as real estate, accounts at financial institutions and other investments are titled in the trust. A trustee (relative, close friend, lawyer or financial institution) is given authority to distribute your assets when you die.

Because the trust is revocable, you can change its terms or get rid of it completely if you like.

For income tax purposes, the living trust has no effect. The income from the assets in the trust is reported on your Form 1040 as are any deductions related to those assets.
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Investing money in an Individual Retirement Account is a secure financial planning decision. A great deal of protection has been afforded to the money set aside specifically for retirement. Included with these protections is the ability to shield your retirement assets from creditors.

In the past creditor protection afforded by placing your assets in designated retirement accounts extended to the beneficiaries of those accounts. Any retirement assets passed to children or other beneficiaries would enjoy the same level of creditor protection they did when they were first set aside.

In June of last year, the Supreme Court stripped inherited IRAs of their creditor protection making these assets available to the creditors of your heirs and legatees. This major change in the exempt status of inherited IRA accounts has motivated estate planning professionals to look for new ways to protect retirement assets from creditors.

The need to restore creditor protection while maintaining the favorable tax treatment of IRAs makes adding a Stand Alone Retirement Trust to your estate plan worth considering. When drafted properly, the Stand Alone Retirement Trust has the power to protect inherited IRAs from creditors, including a beneficiary’s divorcing spouse.

Also, the Stand Alone Retirement Trust will allow your beneficiaries to stretch out the distribution of retirement funds and enjoy the favorable tax treatment afforded these assets by the IRS. Traditional revocable trusts can not accomplish this.
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Your funeral expenses, debts you owe at your death and expenses required to administer your estate are expenses which will need to be paid from your assets when you die. These expenses are deductible on your estate tax return which can result in estate tax savings for your family. If you do not owe estate taxes at your death, many of these expenses can be taken as income tax deductions.

Four types of expenses which qualify as estate tax deductions:

Funeral Expenses. These expenses include funeral and cemetery charges and payments to officiating clergy.

Administrative Expenses. These expenses include fees paid to prepare your final income tax return, income tax returns for your estate or trust and your estate tax return. They also include attorney fees, executor fees, trustees fees, probate costs, appraisal fees and expenditures to maintain property prior to distribution to beneficiaries.

Claims. These expenses include final utility bills, credit card bills and income taxes due for income you earned in the year you died.

Mortgages. These include any indebtedness secured by a mortgage on real estate you own at your death.

In addition, casualty losses resulting from theft, fire or flood occurring during the administration of your estate not compensated by insurance are deductible.
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In its pamphlet about Being a Guardian, the Illinois State Bar Association outlines key issues regarding the duties of Guardians.

There are several types of Guardians: Guardian of the Person, Guardian of the Estate, Limited Guardian, Plenary Guardian, Temporary Guardian and Successor Guardian. A Personal Guardian takes care of the Ward, and an Estate Guardian manages the Ward’s estate (real estate, bank accounts, personal property). A Limited Guardian has only those powers granted by the Court, but a Plenary Guardian has all of the powers available to Guardians under the law. A Temporary Guardian’s powers are not effective for more than 60 days. A Successor Guardian takes over by Order of the Court for a previously appointed Guardian.

As Estate Guardian, an Inventory must be filed with the Court within 60 days of appointment listing all of the Ward’s assets including land, bank accounts, cash cars, boats, stocks, bonds, insurance policies and valuable artwork and jewelry.

The Estate Guardian is responsible for filing the Ward’s federal and state income tax returns if the Ward has enough income to require those filings. The Estate Guardian also has the duty to appear for the Ward in all legal proceedings. An attorney may be hired to handle any legal matters involving the Ward, and with the Court’s permission, the Ward’s funds may be used to pay for the attorney fees.

The Estate Guardian must submit an account to the Court each year listing all receipts and disbursements made for the Ward and all property in the Ward’s estate.

The Guardian’s responsibilities continue until the Court relieves him of the obligation. This happens upon the termination of the Guardianship, death of the Ward or the Guardian’s resignation or removal.
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When real estate is held by two individuals as joint tenants with rights of survivorship, the surviving joint tenant will not receive the full step-up in cost basis he would have received if he had inherited the real estate.

For example, Sue and her son, Sam, purchased a house as joint tenants twenty years ago for $50,000 and today it is worth $550,000. After Sue dies, only half of the real estate receives a step up in cost basis for tax purposes. If Sam sells the property for $550,000, Sam has a $250,000 gain on the sale which is subject to capital gains tax.

If Sue had kept title to the real estate in her name alone and left the real estate to Sam in her Will or in her revocable living trust, upon Sue’s death the real estate would receive the full step up in cost basis. Sam would have no gain on the sale subject to capital gains tax.
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Joint tenancy with rights of survivorship is a type of ownership by two or more individuals, called joint tenants, who share equal ownership of the property and have the equal right to keep or get rid of the property. When one individual dies, the surviving individuals receive ownership of the property by operation of law. Probate does not need to be opened to transfer title to the surviving joint owners.

When only one owner remains, probate will need to be opened with the Court upon his death unless the surviving owner creates a new joint tenancy with another individual or titles the property in a trust.

If a joint tenant becomes incapacitated, the property cannot be sold unless the joint tenant has a Power of Attorney for Property in place or a guardianship is opened with the Court giving the guardian capacity to transfer title to the property.
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