Illinois changed the law recently to allow $100,000.00 to pass to heirs without a probate estate being opened. The limit was $50,000.00 for years.
The $100,000.00 applies only to personal property (not real estate). An attorney can draft a small estate affidavit and the deceased’s will is followed without the expense of a probate estate. This is very good news for heirs of small estates. The law has the small estate affidavit form in it.
I recently had a rather unpleasant experience with a bank in trying to get an original will out of the bank’s safe deposit box. The client’s mother had just passed away and he knew that her will was locked in the safe deposit box. My client was not a signer on the safe deposit box. The box was in his deceased Mom’s own name.
Rule #1: Always put one or two trusted heirs/relatives on your safe deposit box so they can get access to it.
We met and I told my client that we could get access to the safe deposit box because he was an “interested person” as defined in the act (mainly he was “interested” in not being hassled to death by the bank). (The Safety Deposit Box Opening Act is an Illinois law that allows this.)
The law says that if an affidavit is produced saying that an original will may be in the safe deposit box, the bank will send the will directly to the clerk of court for filing. The bank will not allow access to any other things in the box. I put together an affidavit and my client drove to the bank. After 5 or 6 phone calls the bank refused to accept the form. They wanted the affidavit on their form.
Rule #2: Banks are hyper and follow routines set up by someone 50 years ago. Ask them first if they require their own form to be used (even if it reads the same as your form).
We got the will from the safe deposit box and can now open the probate estate.
Rule #3: Never lock an original will in a safe deposit box. Keep it at home and give copies to relatives/heirs with the location of the original marked on the copy.
Better yet sign a living trust, instead of a will. This will bypass the need to hunt down the original will like it was the treasure of the Sierra Madres.
Several Chicago-area people were indicted on tax fraud charges (right before 4/15 tax day) for selling expensive domestic and off-shore trusts to avoid income tax. Aegis Co. sold trusts at $10,000 to $75,000 per package. Clients funneled money through a series of trusts with the promise that the funds would be tax-free on returning to the client. They also deducted personal expenses as business expenses. Homes were written off as “world headquarters” of the business (thereby deducting as an expense everything related to the house including utilities, vacations and kids’ tuition).
For a good summary of why you should ALWAYS avoid any trust that claims to free you from income tax try the quatloos site that does a great job at summarizing tax scams.
Savings Bonds many times are missed in the living trust “funding” process. Clients forget about them or they think it’s too much of a hassle to transfer the bonds to their trust. If title to the bonds is not properly transferred to the client’s new living trust, and the bonds exceed $50,000 in value at death, a probate will be necessary.
It’s really pretty easy to transfer savings bonds to a living trust. Here’s what you do:
1. Round up all your original bonds;
2. Fill out form 1851 from the Dept. of Treasury;
3. Send the bonds and form by federal express to the Dept. of Treasury.
In about three weeks they will return your bonds registered in the name of your living trust.
Note: Many times the bonds are so old they are not paying interest. You can check the value of the bonds using the online savings bond calculator.
I continue to be amazed at how messed up estates can get by using the combination of a land trust and a will.
I was in probate court at the Daley Center (Chicago) and witnessed this family debacle: The deceased had 6 adult children. In his will, he appointed his daughter as executor. The deceased put his house in a land trust and made 5 of his 6 kids beneficiaries of the land trust (The land trust avoids probate and is NOT part of the probate estate–but the personal property inside the house is part of the probate estate.)
The executor (who clearly has some control issues) put a padlock on the house (event though she was just one of 5 owners of the house, not THE owner.) Her brother, who was allegedly humming “You’re Not the Boss of Me” from Malcolm in the Middle, went to the house used a bolt cutter to lop off the padlock and let himself into the house. The executor-sister, horrified by her brother’s behavior, called the police who arrested her brother for trespassing. The probate judge signed an order telling the police the house was not part of the probate estate, so the brother could give it to his criminal attorney to get the case dismissed.
What a mess! This sort of thing reconfirms my belief that a revocable living trust (run by a back-up trustee who is fair and doesn’t lord it over the beneficiaries) is the best way to plan your estate. Land trusts, wills and heirs do not mix.
A single-member LLC (Limited Liability Co.) is often used by real estate investors, consultants or others in business for themselves. You must be careful, though, because it will not offer the asset protection that a multi-member LLC (two or more members; husband and wife are okay) does.
If an LLC is sued and loses, the judgment creditor must obtain a “charging order” to get assets inside the LLC. The judgment creditor is then entitled to distributions from the LLC like the other members. If no distributions are made, the judgment creditor gets nothing. This is a powerful shield often used to protect assets.
A Colorado court recently ruled that the assets inside a single member LLC could be taken by the judgment creditor. Most legal commentators agree that you should not use a single member LLC if asset protection is a goal. Easy answer to this problem: Include another member and do “layers” of asset protection rather than relying on one entity.
Many clients buy annuities. I think it is fair to say that most clients do not understand the annuities and, in many cases, the annuity purchase was an inappropriate choice. In my opininion annuities are appropriate when:
1. The client wants to save more for retirement and already puts the maximum in his or her IRA/401k;
2. The client is in a high tax bracket and wants to reduce taxes;
3. The client won’t need the principal for quite a long time and the annuity makes up a small portion of the client’s total investments.
I have one client who paid no income tax, was 85 years old, had been retired for 20 years and purchased 4 annuities with all of her liquid assets; her only other assets, after the mass annuity purchases, were her condo and a checking account. The annuities were “unsuitable” for her, but were perfect for the annuity salesperson who netted at least $20,000 in commissions.
See the annuity truth web site for some interesting reading on annuities and whether one is right for you