Category Archives: Living Trusts

How often should living trust be reviewed?

Setting up a living trust is a good first step in getting your estate organized. But, it is important to review the trust  to be sure that the trust is firing on all cylinders and all assets are correctly titled.

I don’t charge current clients for trust reviews. If forced to answer the question “how often should a trust be reviewed?” I would say it ‘s best to review  a trust every 5 to 7 years. This is completely made-up and non-scientific. I have some really nice clients who came in every year for a trust review and we kind of ran out of things to talk about, but it made them feel good, so what the heck.

For a trust review, we need:

  1. The trust binder with the documents. Requiring this makes the  clients find their trust. Believe me, quite a few can’t find the trust. If the trust binder is lost, then the client has to sign a restatement and new documents.
  2. A list of current assets including all beneficiary designations.

If your kids were under 18, but are now older than 25 or so, we will often sign a trust restatement (I don’t do amendments)to make one of the kids successor trustee. I am not a fan of co-trusteeships, so it is usually best to pick just one successor trustee at a time. That is probably the most common change that clients make to their trust.

Often, in the trust review,  IRA/401k beneficiary designations need to be redone. We rarely make the trust a beneficiary of an IRA/401k unless there is a minor or disabled person involved. So we will usually need to re-do the beneficiary designations to make the kids direct beneficiaries of the IRA/401k which allows them to stretch out IRA withdrawals over their lifetime.

Trust review appointments can be scheduled online and usually take about 30 minutes.

E-recording in Cook County: Needs work

I love techno advances that save time and make life easier. I am not a fan of technology that complicates things. The Cook County Recorder’s office new e-recording system for deeds and mortgages is in the second category.

In the past, recording a deed meant driving to the recorder’s office standing in line and recording the document in person.

Many states now allow e-recording, which means you can record a document online from your computer. There is a great software program called Simplifile that helps to do this. It’s a wonder , super-easy to use and makes it really easy to record deeds online.

Cook County uses Simplifile, but Cook stacks a bunch of requirements on e-recording that make it really hard, almost impossible, to record a deed electronically. My office records a lot of deeds, mostly deeds to living trusts. These are called “exempt” deeds, meaning  that no transfer tax is paid because there is no sales price paid.

To record an exempt deed, first Cook requires you to fill out a complete MyDec form for an exempt deed. This is not required if you show up at the recorder’s office to record an exempt deed. It takes about 15-20 minutes to fill out a MyDec form online. Why would I do that when I can record the exempt deed in person without filling it out?

Second, Cook County requires that you be reqistered as a title company with MyDec, which requires filling out a bunch of forms that have to be approved by the county.

So, while I can e-record deeds very easily in most counties in the country I can’t record a deed in the county where I live.

New Living Trust certification form in IL

Would you want to hand out a copy of your living trust to complete strangers? No one wants to do that, but it the past, it was common to have to furnish a complete copy of your living trust if you were:

1. Opening a bank account.
2. Opening a brokerage account.
3. Selling or refinancing your home.
Now, furnishing a copy of your living trust to third parities is no longer necessary in Illinois.
A new law enacted in August 2015 allows those with living trusts to sign a trust certification instead of furnishing the entire trust to third parties like banks, brokerage houses and title companies. The trust certification form is here: Statutory_Certification_of_Trust

What assets do NOT go into a living trust?

I spend a lot of time helping client “fund” their living trusts. My policy to to have a separate funding meeting at which we complete all of the funding forms. That means filling out many, many change of beneficiary forms. Filling these out is numbing and not real fun, but it’s necessary for the trust to work right (avoid probate).
I often brag that if I drafted a trust for a client, there has never been a probate afterward. What a claim to fame. Truth be told, there are always some assets in a person’s own name at death, but in Illinois we are lucky to be able to transfer $100,000 or less of assets to a trust after a death without opening a probate. This is done by small estate affidavit. It’s a quick, easy way to mop up assets left in a deceased’s own name and only costs about $100 to prepare. Thank Ja for the small estate affidavit .
There are some items that do not go in to a living trust:
1. IRAs. Retirement accounts are not retitled to a trust. The trust is sometimes (rarely) the beneficiary of the IRA, but the IRA is never retitled to the trust.
2. Cars. Cars do not cause a probate and can be transferred using a small estate affidavit easily. Not necessary to put a car in the trust. In fact, it’s a waste of money to do so. Same goes for mobile home titles and motorcycles.
3. Stock Options. Some lucky clients have these, but most companies will not let you retitle the account to a trust. Some have a beneficiary form, but very few.
4. Internet bank accounts. I have found that several internet banks will not let clients put their accounts in a living trust. This is crazy, but the only cure it to close to account and open it at a brick and mortar bank.
5. Cemetery Plots. These little devils are not deeded like regular real estate. The titles are just the contract with the company owning the cemetery. No need to try to put it in the trust.
6. International real estate. Many clients own real estate in the UK or India. Real estate in another country cannot go in the living trust.

Help! I lost my living trust

lostI have a client who keeps his living trust  in his freezer. Oh, don’t worry, he says, “It’s in a plastic bag.” He knows where it is, but I don’t think his kids will ever find it because he’s super secretive.

Another client kept his trust in a large safe at home. Someone broke in and stole the entire safe-and his trust went bye-bye. I don’t think the thief was after his trust.

In the last few years, I’ve had  dozens of client lose their living trusts and other estate planning documents. It happens a lot. The trust is kept in a big binder that says “Estate Planning Portfolio” so it’s not super easy to lose. If a client loses a trust, we set up a time to have the client come in to sign a restatement of the trust, a new will and new power of attorneys. The restatement “becomes” the trust so having the original trust is not necessary once the restatement is signed.

You can get by with copies of a trust, a trust restatement, power of attorneys and living wills, but you ALWAYS need to keep track of your original pour-over will (or any will for that matter). Only original wills can be filed after a death, not copies. Any property left outside your trust can end going to different heirs than those named under your trust if you have no original will.

For about the last 8 years, I’ve kept a scanned copies of the trust, will, power of attorneys and living will and that helps a lot when a client loses their originals.

The best place to store a trust is to keep the originals at home and tell your successor trustee where it is kept. Also keep a copy online somewhere. Yahoo, google and dropbox are all good for this.

I don’t recommend keeping a trust in a safe deposit box. The boxes are too hard to get into after a death and are a complete hassle most of the time. It’s okay to put a trust or will in a safe deposit box if you have a child or your successor trustee  as signers on the box and they can get entry to it. Otherwise, it’s a waste.

Real estate and the Illinois Civil Union Act

It  used to be that only married couples could hold title to their primary residence as tenants by the entirety. The advantage of this form of ownership is that the property is protected from creditors if one spouse is sued or files bankruptcy (it’s not protected if both spouses get sued or file for bankruptcy).

Now,  under the new Illinois Civil Union Act, couples can hold title to their residence as tenants by the entirety, just like married couples. So what is the best way to hold title to real estate for couples united  under the new civil union act?

There are at least two options:

1. Tenants by the Entirety. This means that if one dies it snaps to the other avoiding probate. On the second death, however, a probate will be necessary to transfer title unless the property is transferred to a trust in between. The property is protected from creditors. I like this form of ownership if the couple has an existing mortgage or plans to refinance down the line.

2. A living trust as tenants by entirety. The law now allows a couple to hold title to their primary residence in a trust (or trusts)  as tenants by the entirety. So the couple gets the probate avoidance of the trust and the asset protection of tenancy by the entirety. The trust/tenancy by entirety law is new as of January 1, 2011.  I like this form of ownership for properties that  have no mortgage and where there are asset protection concerns or a high liability job.


Do I still need a trust with the new estate tax law?

There were big changes in the inheritance tax laws recently. For the most part, the changes affect only the super-rich (estates of over $5 million).
But, a number of clients have come in for living trust review appointments lately wanting to know if they should get rid of their trust because of the changes in the estate tax laws. My policy always has been to meet with existing clients annually for  a free review of their trust. This encourages clients to come in (since they know they won’t get a $300 bill) and it helps keep trusts up to date and properly funded.

Several clients have asked if they should just ditch their trust due to the fact that the estate tax doesn’t start until $5 million in assets. The short answer: Keep the trust.

Here’s why:

1. Avoiding Probate. Revocable living trusts avoid probate. The filing fees and other costs for a Cook County probate are now around $700.00 and attorney’s fees will be about $2000.00. Clients don’t like this and can sidestep these costs by using a trust.

2. Estate tax limits change every five minutes and will soon go back to $1 million. For 2011 and 2012, the estate tax exemption amount is $5 million. But, this will change again in 2013 back to $1 million. Living trusts for married couples often use a formula that sets up  A/B  or family/marital trusts upon the first spouse’s death. The purpose of this is to avoid estate tax on the amount in the family trust of the first spouse to die. I think it’s best to keep your A/B trust intact if you are a married couple since you will need it when the amount clicks back to $1 million in 2013. The A/B trust protects the surviving spouse’s assets from creditors and insulates the assets in the event of remarriage.

3. Portability won’t last. Under the new law, married couples won’t even need A/B trusts because of the new concept called “portability.” This means if one spouse dies without a trust, the surviving spouse can file an inheritance tax return for the deceased spouse and claim the funds in the deceased spouse’s name as exempt from inheritance tax, even if the deceased spouse did not have an A/B trust. Wow, confusing, huh? The problem with this: It forces the survivor to pay to file an inheritance tax return (not cheap) on the first death and both spouses must die by the end of 2012 for it to “work.” And the clients still has to find a way to avoid probate on all of their assets. So it’s crazy for a married couple to get rid of their trusts because of portability.

For a nice summary of the many changes brought by the estate tax law, please read a series of  posts by a Chicago lawyer that cover in detail and with clarity the many changes to the estate tax laws.

Here are a few that you should be aware of :

1. Illinois tax kicks in at $2 million. The Illinois inheritance tax used to run parallel with the federal tax. Not any more. If you have a large estate, the best solution to this problem is to buy a  foreclosed condo in Florida and become a Florida resident since it has no state inheritance tax or state income tax.

2. Gifting can go up to $5 million lifetime. It used to be that the lifetime limit for gifting was $1 million. Now it’s $5 million, which is sweet, especially if you are the progeny of a rich dude.

So don’t ditch your living trust, just be sure that it says what you want it to say and that it’s properly funded with life insurance, real estate and the other fruits of your labor.

The best way to protect inheritances

If you leave money outright to your children or heirs, the inheritance can be lost by your heirs in several ways: Divorce, creditors or bankruptcy are the main culprits.

There’s a simple way to avoid this and to protect the heir from him or herself.

In the trusts that I prepare, most clients choose to leave the inheritance in a “flexible protective trust.” This is  fancy name for a “spendthrift trust.” Usually, a flexible protective trust leaves it up to the child/heir to decide whether to withdraw the funds ( if the coast is clear) or leave the funds in the trust where the inheritance is protected.

Inherited money that the child leaves in a flexible protective trust cannot be taken in the child’s divorce, cannot be attached by child’s creditor and it is exempt is bankruptcy, meaning the child will not lose the inherited money if he files bankruptcy.

A recent bankruptcy court case, In re Lunkes,  illustrates that there is really no reason to leave an inheritance directly to a child or heir. It is always better to play it safe and at least set up a flexible protective trust and let the heir decide if it should be protected within the trust or not.

In the Lunkes case, a parent died and left money to the children, but the funds were left outright, not in a flexible protective trust. One of the kids filed a chapter 7 bankruptcy and claimed that the inheritance was exempt, and that he should be able to keep the inheritance. The kid’s argument was that, hey… the funds are still being administered in the trust (there was a lot of real estate that now takes an eternity to liquidate) so since I don’t have the inheritance yet, it can’t be taken away in the bankruptcy. The court said, sorry, the funds were left outright to the child, not in a flexible protective trust, so the inheritance goes to the bankruptcy trustee. This could have easily been avoided by using a flexible protective trust. Inherited money left in a flexible protective trust is exempt in bankruptcy (meaning the child/heir gets to keep the inheritance).

There are only three rules to for setting up a flexible protective trust:

1. The funds have to be held in trust, not left outright.
2. The child/heir cannot be the trustee.
3. The trust has to contain a spendthrift clause. Most trusts contain these.  An Illinois spendthrift clause reads like this:  “No interest under this instrument shall be assignable by any beneficiary, or be subject to the claims of his or her creditors, including claims for alimony or separate maintenance. The preceding sentence shall not be construed as restricting in any way the exercise of any right of withdrawal or power of appointment or the ability of any beneficiary to release his or her interest.”

The truth is that very few heirs are going to actually leave the inherited money in the trust. But it’s best to give them the option, right?  I don’t charge any extra fees for drafting a flexible protective trust provision. It’s very easy to do. It’s my default, go-to way to distribute to the heirs in 99% of trusts that I draft.

So, do your heirs a favor and at least give them the option of protecting their inheritance in a flexible protective trust.

New law: Home title can be protected from creditors in living trust

Most married couples hold title to their home in “tenancy by the entirety.” Married couples quit holding title as joint tenants when tenancy by the entirety was allowed in the mid 90’s in Illinois.

This means that if one dies, the house snaps to the other avoiding probate. Also, the house is protected from creditors. So if there is a court case against one spouse, the winner of the court case cannot enforce the judgment against the house. If the court case is against both spouses, the creditor can try to take the house.

Until recently, if the married couple had a living trust, and chose to deed the house to their trust, the couple lost the protection of tenancy by the entirety. A new law just passed that allows a married couple to hold title to their home (it only applies to a primary residence) in a living trust and keep the protection of tenancy by the entirety. (To be honest, I’ve never understood why the legislature allows married couples to protect their assets from creditors, but not single, divorced or widowed folks?)

The deed will convey title to the living trust, but will also state that title is being held as tenants by the entirety. Both spouses have to be trustees of the trust and the trust has to be for their benefit.

This is all brand new and was just passed last month.

Many living trusts that I review have only one trustee. From what I see, the trust will have to be amended to add both spouses as co-trustees. I almost always put both spouses on as co-trustees so changing title to the new tenants by entirety/living trust hybrid will be pretty easy for me.

I like the new tenancy by entirety/living trust form of ownership and suggest that clients take advantage of this (almost) free form of asset protection.

Living trust funding: Whose job is it?

At home, I received a newsletter from a northwest suburban lawyer who prepares a lot of living trusts. This attorney does a lot of seminars and I must be in his direct mail target market now that I am old enough to be in the AARP army. I scanned the newsletter expecting the usual boilerplate, but one story left me amazed.

It was about how the attorney was experiencing a rash of probate estates that had to be opened for clients with living trusts. (Spoiler alert: You’re not supposed to have a probate with a living trust.)

The story pointed out that the clients simply were not “funding” their trusts correctly, which is the process of changing beneficiaries and the titles of accounts to the living trust. A trust has to be properly funded to avoid probate. If any asset valued at more than $100,000.00 is left in the client’s own name (not jointly or in the trust) a probate will be necessary. Avoiding probate is one of the reasons to use a living trust over a will, so the newsletter story pointed out that this was huge failure. Rather than blaming himself for this, the attorney laid responsibility for this problem squarely where it belonged —on all of his misguided, wayward clients.

After all, he gave the client a letter telling them exactly how to fund their living trust. Why couldn’t the client simply follow his instructions? This attorney is part of the “go in peace my son and fund the trust yourself” school of attorneys.  Oddly, when attorneys refuse to participate in funding of trusts, the cost of the trust is usually pretty high. But many attorneys consider trust funding to be beneath them.

I believe that attorneys who draft living trusts have an obligation to help the client fund the trust. I have drafted thousands of living trusts for clients and my clients are intelligent people. They are also very busy and have a million demands and obligations. They do not have the time or the interest to learn how to fund their living trust. Nor should they have to.

I have tried every imaginable combination of methods for funding trusts and after 20 plus years, I’m convinced that, for me, there is only one way to handle trust funding that works. Both the attorney and client have to be involved:

1. It is too much to sign the trust and other documents AND fund the trust in one meeting, unless the trust funding is really simple. I usually sign the trust in one meeting and fund the trust in a second meeting.

2. At the trust signing I set up an appointment for two weeks down the line with the client for a trust funding meeting. If I don’t schedule an appointment at the trust signing, there is about a 60% chance the client will never get back to me and the trust will be left unfunded.

3. At the trust signing, I make a list of the forms that the client must obtain. The client calls for the forms and the forms are mailed or faxed to the client. Many institutions will not send the forms to me, so the client has to undertake this step. I have many of the common forms on file for Fidelity, Vanguard,  Schwab and some of the more common companies.

4. From trial and error I have developed one unwavering rule: All beneficiaries must be changed on life insurance and IRA accounts. Many clients say “Oh don’t worry I know my spouse is primary and kids are secondary.” I always change the beneficiary designation for all IRAs and life insurance, even if the trust is not the beneficiary and no matter what the client says. I would estimate that about 75% of the current beneficiary designations are screwed up, missing or wrong.

5. Once all of the forms are obtained by the client, we have the trust funding meeting with the client in my office. I tell the client it will be the most boring 30 minutes of his or her life. I sort through the forms and fill them out for the client. The client signs them. I scan the forms into pdfs and we mail in the originals.

6. The trust funding meeting is essential. Sometimes the client will say “I’ll just drop off the forms and you can fill them in when you have time.” This does not work. First, the client will usually forget to drop off the forms. Second, I will never have the time to complete them. The trust funding meeting forces the client and me to finish the job.