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Estate Planning and Marriage

Estate planning is important for determining the distribution of assets after death. However, property distribution after death can become a contentious issue that creates deep schisms in the family and can lead lengthy litigation. Fortunately, proper planning can avoid these issues.

RigsTake the case the hypothetical of Jim and Ann. Jim and Ann spent most of their lives married to one another. They had three children who are now adults.

Eventually, Jim and Ann got a divorce and lived separately. As Jim became older, he required around-the-clock care by an experienced nurse. As time passed, Jim and the nurse grew closer, with Jim eventually asking the nurse to marry him. Only a few months after the marriage, Jim passed away from a long illness. To his family’s surprise, Jim’s attorney revealed that Jim had revoked his old will and had intended to execute a new one; however, he passed away before doing so. Jim’s estate planning attorney also revealed that Jim left an estate worth $4 million.

Under these circumstances, Illinois inheritance laws dictate that half of the property would go to Jim’s spouse (despite them only having been married for a few months) and the other $2 million to his three children. It is easy to see why such a distribution scheme would invite legal challenges.

Jim’s children would likely challenge the distribution through a collateral attack on the marriage. They would argue that the judge should declare the marriage as invalid because Jim lacked the capacity to consent to the marriage due to his old age and deteriorating health. They could also argue that the nurse used her position as Jim’s caretaker to gain his confidence and manipulate him into marrying her.

Independently of the outcome in Jim’s case, estate planning can avoid many of these issues. An experienced Illinois estate-planning attorney would have surely recommended that Jim execute a prenuptial agreement prior to his second marriage and a new will contemporaneously with revoking his old one.

 

My Will is Better than Yours

A good estate plan includes a will. Wills are an efficient way to distribute property according to the person’s intent and avoid family fighting at the time of distribution. Wills have been around for a long time, and are part of the tool set of every experienced estate-planning attorney. A common, but serious mistake that people make is to use generic wills that they find online. Wills found online are problematic because they may not comply with the Illinois Wills statute and may leave gaps in the property distribution.

RigsAn experienced Illinois estate-planning attorney on the other hand, will have a personal relationship with her clients and ensure that wills reflect the nuances of each individual case. After drafting the will, the attorney will guide the client through the process of reviewing, revising, and executing the will.

An experienced Illinois estate-planning attorney will make sure that will execution process meets the requirements of the Illinois statute governing wills. First, the person executing the will must be at least 18 years old and must be of sound mind. The issue of sound mind is problematic when elderly people execute or amend wills, because unless done properly, these wills are open to challenges based on allegations of unsound mind.

Second, the will must be in writing and the person must sign it in front of two or more witnesses. There has been extensive litigation surrounding the finalization of wills. An experienced estate-planning attorney will make sure that there are no doubts about the validity of the will signing ceremony.

Revoking or amending a will also must follow a set of rules with which a local attorney is well acquainted.

For a will to be valid, it must follow a set of rules. An experienced Illinois estate-planning attorney will make sure the wills are appropriately and validly drafted for your individual situation; contact one today.

Caring for a Pet After Death

Planning for pet care after one dies is an area of estate planning that people often overlook. Sometimes, a family member will step up to take care of the pet. However, when family members are not willing or able to take on the responsibility of caring for a pet, the pet could end up in a shelter.

Discuss pet care with your estate planning lawyer.

Discuss pet care with your estate planning lawyer.

Fortunately, an estate-planning attorney will make sure that a strong estate plan contains adequate resources to provide for the pet. In Illinois, one can go about providing for a pet in two ways. However, both methods are not equal.

The first option is for the pet owner to make a bequest in a will to a family member providing resources to take care of the pet. While this method is easy because the bequest is usually part of the main will, it may not be in the best interest of the pet. Illinois wills usually have to go through probate, which can mean long delays before the funds are available for the pet care. Moreover, wills are open to challenges during probate, which may mean even longer delays.

Another way to provide for a pet is through a trust for domestic or pet animals. Illinois specifically allows these types of trusts, and allows courts to construe the governing instrument liberally to implement the transferor’s intent. Moreover, courts are able to consider extrinsic evidence in order to carry out the transferor’s intent in providing for their pet.

More importantly, these types of trusts do not go through probate, meaning that the funds are available immediately for the care of the pet. Moreover, the Illinois statute contains two additional important provisions. First, if there is no pet at the time of the death, any funds allocated to pet care in the trust would either follow the terms of the trust or estate plan, or if there are none, they’d go to the heirs of the grantor of the trust. Second, a court is able to reduce the funds in the trust if it determines that it substantially exceeds the amount needed for the pet care.

Planning for the care of a loved pet is very important to many people. If you have questions, please consult an Illinois estate planning attorney.

Debt and Estate Planning

Theresa

Most people want to make sure their families are taken care of once they pass away. However, in the event of prolonged illness or long term care, that goal may not be possible to achieve.  Medical expenses and long term care can reduce the value of an estate very quickly. Heirs and family members may wonder who is responsible for the payment of debts after death.  The answer may depend upon the status of the estate once the decedent has passed.

Solvent Estate

solvent estate is one that has enough assets to pay off all of the debt of the decedent. The estate representative will pay off all of the debts using the assets of the estate. For example, if the estate is worth $500,000.00 and the debts add up to $200,000.00, after the debts are satisfied, the estate would then be worth $300,000.00. If the decedent has left a Last Will and Testament, the remaining monies would then be given to the people that were named therein.

Insolvent Estate

An insolvent estate results when the decedent left more debts than assets.   For example, if the final debt amounts to $100,000.00 and there is only $50,000.00 in the estate, the estate is considered insolvent. In this case, the representative would then have to prioritize the payment of the bills based on state law. There may be creditors that will be paid in full while others may receive a partial payment or none at all.

The Bottom Line

In the case of an insolvent estate, there will be no monies that will be paid out to those named as beneficiaries in the Last Will and Testament.  The beneficiaries or heirs to the estate will not be responsible for payment of these debts unless one of them was contractually obligated.  For example, if the heir was a co-signer or guaranteed payment of the debt, they may be liable for the debt.  If you have questions regarding the planning of your estate or the impact that debt may have upon your estate plan, an experienced Illinois estate planning attorney can assist you.

Alzheimer’s Researchers Want Increased Funding

Rigs

More than 5 million Americans suffer from Alzheimer’s, a progressive brain disorder that leads to the eventual loss of memory, reasoning and intellect.  According to Centers for Disease Control and Prevention (CDC) statistics, it is the sixth leading cause of death in the United States. While numbers rise for newly diagnosed cases, funding for research to combat the disease is not materializing fast enough.

The National Institutes of Health (NIH) reports an estimated $562 million in funding for Alzheimer’s research in fiscal year 2014. The Alzheimer’s Association estimates that the cost of care will exceed $200 billion this year and reach $1.2 trillion by 2050. A survey of 170 leading biomedical scientists released this year by BrightFocus Foundation, a Maryland-based nonprofit, revealed that:

  • 91 percent of respondents believed funding shortages are related to scientist retention in research
  • 96 percent of those surveyed saw limited funding as a deterrent for attracting new scientists to the field
  • 94 percent of the survey participants felt that the lack of funding is an obstacle to advances in research

Last year, the Illinois Health Department awarded more than $100,000 in Alzheimer’s research grants. Illinois taxpayers have freely contributed more than $4 million to Alzheimer’s research efforts since 1986. Those funds supported 166 research projects. With laws such as the National Alzheimer’s Project Act (NAPA) and legislation introduced in Congress (S. 709/H.R. 1507) bringing attention to Alzheimer’s issues, one can only hope that increased funding is not far behind.

If your family has been impacted by Alzheimer’s, contact an experienced Wheaton, Illinois attorney handling elder law and estate planning issues. Capture and protect your intentions for future care and the well being of your loved ones.

Why do I Need a Will?

Pam (estate plan will)

If you do not have a lot of money or assets, you may be wondering why it is important for you to have a will. However, a will is not only for the rich. You do not have to be rich to feel that you have something of value.  Perhaps it is a precious belonging that you want a certain person to have. If you do not have a will in place, you will not have a say in how things are managed once you are gone.

A will can be changed as your life changes. According to CNNMoney it is a good idea to review your will periodically, particularly if your marital status changes or if your family expands. It is also recommended that you review your named beneficiary on any retirement such as any IRA and 401 (k) accounts, as these will automatically be transferred upon your death.  If your beneficiaries are deceased or no longer in your life, you want to ensure your assets transfer to those you care about most.

Even if you do not have material assets, a will is important if you have minor children. In your will, you can assure that your wishes for the guardianship of your children is clearly reflected.

Even if you have a trust, a will goes hand in hand with the trust.  A trust will stipulate how assets are distributed and to whom; a will is still necessary in the event you have assets that were not placed in trust in order to determine how those assets are distributed upon your death.

Some people feel that they have plenty of time to address these matters. The thought of planning for one’s death does evoke happy thoughts. However, being prepared helps make the transition easier and smoother for those left behind. If you have questions about types of wills or if you are in need of a will, contact an Illinois Estate Planning attorney.

How IRAs Affect Retirement Planning

People often wonder what type of IRA best suits their needs. The answer depends on a person’s short and long term goals, and on their individual and family circumstances. IRA stands for Individual Retirement Account, and as the name suggests, it is an investment vehicle designed to ensure income during retirement. They were first introduced in 1974, with the passage of the Employee Retirement Income Security Act (“ERISA”). 26 U.S.C. § 7701(a)(37). Since the introduction of IRAs, Congress has acted to increase the contribution allowed.

RigersAlthough there are several types of IRAs, the two most popular are Traditional IRAs and Roth IRAs. Both types of IRAs have their benefits and limitations, but they can be invaluable tools if used properly. Contributions to Traditional IRAs are tax deductible, subject to annual contribution limits. Contributions to Traditional IRAs can result in significant tax benefits, especially for people in higher income tax brackets. Additionally, transactions within the IRA are also protected from taxation. Withdrawals are generally subject to income tax, but there is presumption that the contributor will be at lower tax bracket during retirement.

Conversely, contributions to Roth IRAs do not provide the ability to deduct contributions from income. However, withdrawals are exempt from income tax, which means that any appreciation in value between the time of contribution and time of withdrawal will be tax exempt.

Both of these instruments have limitations on the amount one can contribute and when distributions are possible. Although one may contribute as much money as one wants to either type of IRA, there are specific rules that govern how much one can contribute tax free. Distributions can happen at any time, but unless certain conditions are met, distributions before the age of 59 ½ could result in significant tax and early withdrawal penalties.  Because the rules governing the taxation of contributions and  distributions from IRAs are very complex, it is important to obtain assistance from a tax advisor or estate planning attorney.

While IRAs are important retirement planning tools, the rules governing them are complex and an experienced estate planning attorney should assist with reviewing these strategies in conjunction with the overall estate plan. At the Law Office of Cynthia Hayes Hutchins, P.C., we have over 25 years of experience estate planning, and we are ready to answer any questions that you may have.

Image Courtesy of stuart miles / freedigitalphotos.net

Bequeath Your Frequent Flier Miles and Points | Illinois Estate Planning Lawyer

Many people do not know that many travel and credit-card programs allow customers to pass on their frequent flier miles and points to heirs. However, it is not an easy process, according to an article in the Chicago Tribune.

Illinois estate planning lawyer(Leevi) The average American household has signed up for almost 20 programs. U.S. households earned slightly over $600 a year of points and miles, studies show. Customers who wish to bequeath their points to beneficiaries should first decide whether to include them in a will. Furthermore, it is best to ensure that your executor knows how to access your account number and email address associated with the loyalty program. You should always obtain the help of an experienced lawyer in order to create an effective and enforceable will.

All the rules and regulations can make point transfers complicated. In one case, the airlines needed a copy of the deceased’s death certificate and a letter from the executor. Other loyalty programs can have even more restrictions. For example, the Marriott Rewards program allows point transfers only to spouses or domestic partners. Hilton Honors points expire after a year of inactivity.

There is no IRS guidance on airline, hotel or credit card points. However, according to the IRS, your “gross estate includes the value of all property you own partially or outright at the time of death.” Additionally, it can be very difficult to evaluate some kinds of loyalty points because their value changes depending on their use.

It is in your best interest to sort out the details of your will with the help of a capable lawyer. If you or someone close to you is considering drawing up a will, please contact a highly skilled estate planning attorney in DuPage County today.

New IRS Surtax Pays for Healthcare Reform

With tax season upon us, it’s may be a good time to look at the 159 pages of new rules the IRS has come up with for  investment income taxes on capital gains and dividends earned by high-income individuals that passed Congress as part of the 2010 healthcare reform law. All of the new rules went into effect January 1, 2013.

It is important to understand these new laws when planning your finances. A qualified Illinois estate planning attorney can help you ensure that your finances will be handled according to your wishes even when you are gone. The following is a short summary of some of these new rules, however your attorney can help you to understand how the new regulations will affect you.

This is the first surtax to be applied to capital gains and dividends. The 3.8 percent tax is earmarked to pay for healthcare. Individuals who have a modified adjusted gross income (MAGI) of more than $200,000 and married couples who file jointly and have a MAGI of more than $250,000 are those who will be affected.

A taxpayer’s MAGI is found by taking the adjusted gross income and adding back certain items such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.

Many investment securities ranging from stocks and bonds to commodity securities and specialized derivatives are included in the tax. Also included in the new tax laws is a 0.9 percent healthcare tax on wages for high-income individuals.

A report about the new regulations appeared in Reuters. The publication offered an example of how the new tax works, citing an individual filer, with $180,000 in wage income plus $90,000 from investment income. The person’s MAGI is $270,000. According to the IRS calculations, the 3.8 percent tax applies to the $70,000, and the individual would pay $2,660 in surtaxes.

According to a Joint Committee on Taxation analysis, the new tax revenue to be raised is estimated at $317.7 billion over 10 years.

The new changes to capital gains and dividends can be confusing and costly if not handled correctly. Consult with a qualified Illinois estate planning attorney to make sure that your finances are protected, even after you’re not here to take care of them in person.

Tax Laws and Estate Planning

Estate planning continues to evolve as federal and state laws change over time. A recent Financial Planning article highlighted the significant impact of the fiscal cliff tax deal on the world of estate planning.

  One of the hallmarks of the tax deal was making the estate tax $5.12 million exemption permanent. Furthermore, the exemption is now adjusted with inflation, and is now portable between spouses. The practical effect of these changes is that the vast majority of individuals, except those with extreme amounts of wealth, will never fear the federal estate tax again.

For most Americans, tax cuts enacted in 2001 have now become permanent, which means that their tax rates will continue unchanged. For wealthier individuals, however, income taxes may be significantly higher. For instance, Congress has developed a new 20% tax rate on dividends and capital gains. A 3.8% Medicare tax will apply to investment income. Additionally, itemized deductions and personal exemptions will now phase out at incomes of $250,000 for single individuals and $300,000 for married couples who file a joint income tax return. It is estimated that in some cases, individuals could face a combined tax rate of more than 50%.

Fortunately, careful estate planning may be able to alleviate some of these higher taxes for wealthier Americans.  While this goal often may be achieved, it can be a complicated process that may require estate planning attorneys, clients, and investment advisors or trustees to coordinate their actions so as to avoid any costly moves.

Charitable giving is another way that individuals may be able to avoid some increased taxes. Although the itemized deduction for charitable giving does phase out at higher incomes, the deduction could still be used to offset at least some gains. Some of these benefits also may be realized through the use of charitable remainder trusts, to which the new Medicare tax does not apply.

These are only a few examples of ways in which some of the new taxation can be eliminated or at least minimized. Of course, individuals also need to mindful of state estate tax requirements, which may also significantly impact their estate planning techniques. Due to the complexity of these new laws, it is essential that you consult with an experienced Illinois estate planning attorney. Contact your Wheaton estate planning lawyer today for a comprehensive evaluation of your estate planning needs and goals, and the assistance that you need in making those goals a reality.