Category Archives: Estate Planning

Large trusts may owe IL inheritance tax in 09

Estate Planning, Living Trusts

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(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.

IRAs: No required distribution for 2009

Estate Planning

Update: 12/27/08  

The House and Senate have passed a bill (and it is expected that the president will soon sign it) (and the president signed it)that allows IRA owners to skip their required IRA distribution for 2009.

This applies to those over 70.5 AND to those who have inherited IRAs. Both categories will not have to take 2009 distributions.

It was hoped that there would be relief from taking 2008 required distributions, since those are based on 12/31/07 values, but it appears that will not happen.

Living Trust Dinner Seminars

Estate Planning, Living Trusts

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.

Can I get a copy of my uncle's will?

Estate Planning

I get quite a few calls from people who suspect they were mentioned (or not) in a relative’s will, and to confirm their suspicion, they want a copy of the will.

In Cook County, the clerk of court’s website has a handy search tool that tells if a will was filed in a probate estate. Click here to search for a will. 

You should be able to count your accounts on one hand

Estate Planning

This NY Times article says that it’s important to consolidate accounts. Ideally, you should have no more than 5 accounts. Too many clients bring in long lists of assets and many don’t know what assets they have (often include CDs in banks all the way from Chicago to Crystal Lake).

Consolidation of accounts into the following pattern is ideal:  One IRA, One 401k, One non-IRA brokerage account and a checking account. This makes management of the accounts easier. With fewer accounts, titling all of the assets into a living trust is easy. And  your successor trustee will thank you when he or she  has to take over.

What the candidates think about inheritance tax

Estate Planning

The presidential candidates have the following views on the estate tax (inheritance tax):

Democrats

Hillary Clinton- $3.5 million exclusion amount per person, but keep the tax

Barack Obama – wants to keep the tax and to put the exclusion high enough so no family business has to be sold to pay the tax. No specific amount mentioned.

Republicans

Mitt Romney – Eliminate the tax

John McCain – $10 million exclusion, but keep the tax

Greatest veteran's program that no one knows about…

Elder Law, Estate Planning

Twice in the last few months, I’ve run across an amazing program that makes monthly payments to veterans who are disabled or having trouble living on their own. The name of the program is the VA Aid and Attendance Program.

Here’s what it does:

  • Pays $1744 per month to a veteran or $945 to a surviving spouse of a veteran to assist in bathing, meals, medication monitoring and other activities of daily living.
  • Applies to individuals who live in assisted living, at home, skilled nursing facilities or in-home care

What it takes to qualify

  • Must qualify medically and financially
  • Assets can’t exceed $80,000 (home, vehicle, annuities, pre-paid funeral and other things are not included in this number)
  • Takes 3-6 months to get approval.
  • Pays retroactively to date of application.
  • Applies to any veteran with 90 days of service

Here is how to apply.

 

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

Estate Planning, Living Trusts

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.