Category Archives: Living Trusts

Check your Cook Co. 09 tax exemptions online

If you bought a home in 2009, refinanced your mortgage in 2009 or recorded a deed into your living trust in 2009 please be sure to check to make sure that the county didn’t take away your homeowner’s exemption.  This video,  Tax Exemptions , explains that the county was yanking the homeowner’s exemptions of homeowners who refinanced. If that is the case, you must apply for a certificate of error to replace the exemption for 2009.

The Cook County Assessor’s website will now tell you if your 2009 exemptions (senior, senior freeze, homeowner’s and long-term occupant) are in place. Just click this link and enter the PIN for your property.

Generally,  homeowner’s do not need to re-apply for the homeowner’s exemption every year, unless the property was sold the prior year (or one of the other activities above happened). The senior freeze must be applied for every year.

On the subject of real estate taxes, there is a seminar at 7:30 pm on March 31 at the Village of Palatine Council Chambers on “How to Appeal your Real Estate Taxes Before the Board of Review” that may be worthwhile if you feel (like everyone) that you are over taxed.

Large trusts may owe IL inheritance tax in 09


(4/9/09  Update: There is a bill pending in the Legislature that would eliminate this problem.)

For 2009, the amount that is free of estate tax under federal law is $3.5 million.

For 2009, the amount that is free of estate tax under Illinois law is $2.0 million. Illinois has “decoupled” from the federal estate tax system for 2009 (this only applies to 2009; after that we don’t have to worry about this problem).

This creates a potential inheritance tax time bomb for married couples with large estates. (This problem does not affect single, divorced or widowed people. They would, however, be wise to considering gifting to reduce their estate under $2.0 million to avoid the Illinois inheritance tax).

Who should worry about this? Married couples, who have A/B living trust and who have large estates.

How large of an estate? You should check into this if your estate is over $2 million. If your assets are under $2.0 million you don’t have to worry about it. For the most part it will affect couples with estates of about $3.0 million or so

What is the problem? The problem will occur on the first to die of a married couple, where the living trust of the deceased person contains more than $2.0 million.

Estate taxes may have to be paid on the first death. This is bad. No one wants to pay estate taxes, especially on the first death. The problem is the “funding formula” used in so called A-B living trusts that sets up the family and marital trusts. It says to put up to the federal exemption amount of $3.5 million in the family trust when the first spouse dies. Illinois will tax any amount over $2.0 million that goes into the family trust.

Unless the funding formula is amended to minimize inheritance taxes, it will trigger estate tax on the death of the first spouse.

How much would the tax be? If the trust of the deceased person has $3.5 million, then $2.0 million going to the family trust is not taxed by Illinois, but $1.5 million is taxed by Illinois. If the full $3.5 million goes into the family trust, the surviving spouse pays $229,200.00 in taxes to the state of Illinois. That’s no drop in the bucket.

What can I do to avoid paying this? The living trust has to be amended to add a third trust, so the client will have an A-B-C trust. The C trust is a “state marital trust” that prevents Illinois estate tax from be due on the first death in a married couple. It lets the backup trustee decide how much to put in the family trust and how much to put in the state marital trust and thereby avoids any tax on the first death.

Living Trust Dinner Seminars

A client called to say he got a direct mail invite to a living trust dinner seminar.

At the seminar, act 2 would be some awesome chicken vesuvio. But, in act 1, the presenter promised to reveal several important provisions that should be in every trust, so the trust didn’t “fail.”

My client wanted to know if the trust I did for him a few weeks ago had “the 11esssential things” that the mailer said were needed in all living trusts.  I reassured my client that it had these provisions. My client said he could go to a living trust dinner once every week, if he had the fortitude to suffer through the presentation.

The worst living trust seminars are put on by annuity sales guys.  They will try to get you to invest every spare cent you have, including all IRA money, in annuities.  You never meet with an attorney. These are called “trust mills” and you want to avoid them.  Some trust mills get sued.

Attorneys put on living trust seminars too.  Most seminars like to use the words “nursing home,” “medicaid” and “probate” a lot.  Most attorney seminars are average at best. The seminar attorneys tend to charge quite a bit for their trusts. That’s because they have to factor the cost of feeding dinner to 40 people into it.

Real estate disclosure by trustee or executor

For the last year, any executor or trustee trying to sell real estate faced a big problem: There were no buyers.

Now, the real estate market has improved a little so there are some sale contracts finally.

A common question is “Do I (the executor or trustee) have to fill out the property disclosure?”

The answer is NO. An executor in a probate estate, or the trustee of a living trust, does not need to complete the real property disclosure. Here it is in writing if you don’t believe me:

(765 ILCS 77/15)
Sec. 15. The provisions of this Act do not apply to the following:

(1) Transfers pursuant to court order, including, but not limited to, transfers ordered by a probate court in administration of an estate

(3) Transfers by a fiduciary in the course of the administration of a decedent's estate, guardianship, conservatorship, or trust.

Cautionary tale: Cook Co; Deeds to Living Trusts & Real Estate Tax

When a client sets up a living trust, we often record a new deed to their home transferring it to their living trust. In the past this caused no problem with the homeowner’s exemption on the real estate tax bill. Now it does cause a problem.

Background: The homeowner’s exemption is available only on your primary residence and reduces the tax bill by about $400.00. Many will remember, years ago, the infamous "postcard" that had to be completed each year and mailed back to the assessor in order to keep the exemption. A few years ago, the assessor wisely ditched the postcard. So once you had your  homeowner’s exemption you were all set and didn’t have to do anything annually or otherwise to maintain the exemption. (FYI- No other county requires any actions to maintain a homeowner’s exemption–you just get it.)

Recently, the Cook Co. Assessor’s office, in an apparent sleazy, revenue grab decided to require that homeowner’s who deeded their properties to living trusts (really it applies to any title transfer, not just deeds to living trusts, including a quitclaim deed in a divorce, a deed to a land trust or just changing titleholders) need to reapply for the homeowner’s exemption, or they will lose the exemption.

This is a very strange move. They do mail a notice to the homeowner (who transferred title to the trust) to reapply. Realistically, how many will read this? I think they know that many will ignore the notice.

This is a joke and the assessor’s policy needs to be changed immediately. I have heard that some attorneys have filed suit to reverse this unwise policy.

This seems to apply to transfers made during 2006 only. If you put your house in a living trust before 2006, you have nothing to worry about. If you transferred your house to a trust in 2006 or 2007 watch for the  notice from the assessor’s office. You can reapply for the exemption online. Here is the site to reapply for the homeowner’s exemption.

Wall St. Journal and Living Trusts

I read Wall St. Journal regularly even though I am hardly a titan of industry. There were two articles in WSJ recently about living trusts that drove me crazy.

On 12/31/06 there was an article titled "Living Trusts: Sometimes Needed Often Not." This was a typical "anti-trust" story that said watch out for finacial planners that pitch trusts along with annuities and other high fee products. The story goes on to say "In Texas, it’s possible to avoid probate entirely by having certain language in your will." This is 100% incorrect, of course. I went back and looked at the story online and there is a correction at the bottom of the story saying you can’t avoid probate with a will in Texas (or anywhere else!)

Today, 1/14/07, there was another WSJ story called "Smart Retirment Shopping: High Pressure TacticsTarget Seniors Savings: Avoiding the Hard Sell." In this article, which is a little better  that the article mentioned above, the  writer quotes an attorney who says "a competently written will can help you avoid probate too." This is 100% wrong.

Several clients asked about me whether they really needed a living trust after reading the first story. The general public has a hard time sorting out the difference between wills and trusts as it is, without slapdash articles like these.

The Facts: Wills guarantee probate. Probate is expensive. Attorneys and executors often overcharge for simple actions in probate. If the cost of a living trust is reasonable (say less than $1000.00) it makes sense to use a living trust rather than a will.

What can't go in a living trust? Treasury Direct

Treasury Direct allows owners of treasury bills, bonds and savings bonds to hold everything in an on-line account without the hassle of the paper bonds or bills. The only problem is that accounts titled in the name of a living trust are not allowed, only individual accounts.

I often have clients with lots (thousands and thousands of dollars) of savings bonds. The only way to get the bonds into their living trust is to use for pdf 1851 to transfer the bonds to the living trust. All the bonds must be sent to the treasury main office and then the paper bonds are re-registered in the name of the trust. This is kind of an unnecessary hassle in this electronic age.

I would not suggest leaving more than $100,000.00 in a Treasury Direct account because it will cause a probate upon the account owner’s death. It really would be nice if they allowed living trusts to own these accounts.

Difference Between Wills and Living Trusts

I recently had an e-mail crisis both at home and in the office. I use SBC  for dsl service and I could not send an outgoing email to anyone. It just stopped cold. Incoming email was fine. It drove me nuts.

First, I (wrongly) blamed hostway an otherwise excellent host for my web site. They said "call SBC" and I did. I know enough about technology to get by, but I was really confused by the terms they used like "ISP" and "SMTP server." I finally connected with a great technical service rep (in India) and she helped me get it all straightened out. She kept it very simple. I trusted that she knew what she was doing (and she did).

The email adventure made me relate to many of my clients who come in to talk about wills and trusts. They are usually confused, afraid of being overcharged and don’t understand the jargon. Estate planning is really confusing and I have found that I have to remind myself to stay really basic about things — what is joint tenancy, what does a will affect, what are the benefits/downsides of a trust. 

In an effort to keep it simple, I put together a powerpoint presentation on the difference between wills and trusts. I use this when I meet with clients and it’s a good reminder to me that to keep things simple.

How to Review a Living Trust

I’ve found that it’s crucial to review a living trust every 3 to 5 years. Things change. If the cousin that you named as trustee has filed bankruptcy and just got out of rehab, he’s probably not going to be a top-notch trustee. Or your "young" child may now be 27 years old and capable of acting as his or her own trustee.

I do not charge existing clients to review their trusts. That’s because I want them to come in and go over things. I do charge for preparing amendments and restatements and helping the client to “fund” the trust.

The client brings the following to a review appointment :

  1. Copy of living trust.
  2. Original will (we need the original, not a copy—mainly to prove that it exists).
  3. Originals of power of attorney for property health care and living will—again, simply to prove that they exist.
  4. A list of current assets including account statements and beneficiary designations. I need to determine if all assets are correctly titled in the name of the trust. To do that, we need written proof that the asset is in the trust or that the trust is beneficiary.

The first thing that I do is look at the trust to see if it leaves property to the correct people. Many clients have no idea what their trust says! Then I check to be sure that the back-up trustees are the right people. The most common change to a living trust is changing the name of the backup trustee. If minor changes are needed, I do an amendment. If several changes are needed, I prepare a restatement of the trust. I much prefer restatements because they are easier to follow than amendments.

The next thing we do is look at the titling of all of the assets. The following assets are not put in the living trust: Car, checking account, IRA accounts. The house is put in the living trust if the client is single, divorced or widowed. If the clients are a young couple (meaning under the age of 60 or so) then we often leave the house as "tenants by the entirety," but the clients sign a deed to one spouse’s trust that we do not record. That original deed must be in the trust binder (and it’s recorded later). This will assure that the house avoids probate and protects the house from creditors.

Reviewing a trust takes only 30 minutes or so, but it’s essential to have an estate plan that works.