Common Estate Planning Goals
Writing an acceptable estate plan for distribution of assets after your death
Planning for disability
Minimizing estate and gift taxes
Minimizing probate costs
Common Estate Planning Concerns & Documents
Health Care POA
Estate Tax Planning
Form 706 Preparation
Estate & Gift Tax Returns
Other Irrevocable Trusts
Income tax planning for IRAs
Estate Planing can be described as making sure that:
WHAT you own;
Goes to WHO you want;
WHEN you want; and
HOW you want.
We can Assist in Developing a Tailor Made Estate Plan for YOU
While nobody wants to think about death or disability, establishing an estate plan is one of the most important steps you can take to protect yourself and your loved ones. Robert J. Kolasa, Ltd. can help you devise a specialized plan that will help spare your family members countless headaches and mitigate the financial costs of managing your affairs upon disability or death.
Providing for Incapacity
If you become incapacitated, you won’t be able to manage your own financial affairs. Many are under the mistaken impression that their spouse or adult children can automatically take over in case they become incapacitated. The truth is that in the absence of qualified estate planning, in order for others to manage your affairs, the local probate court must be petitioned to declare you legally incompetent and a guardianship established. This process can be lengthy, costly and stressful. Even if the court appoints the person you chose as guardian, he or she is required to annually show the judge an accounting how they are spending and investing financial assets. If you want your family to be able to immediately take over for you (without guardianship), you should designate a person that you trust in qualified estate planning documents, so that such person will have the authority to withdraw money from accounts, pay bills, take distributions from IRAs, sell stocks, and refinance or sell real estate. It is important to realize that a Will is not effective until you die and provides no protection against incapacity.
In addition to planning for the financial aspect of your affairs during incapacity, you should establish a plan for your medical care. The law allows you to appoint someone you trust – for example, a family member or close friend to make decisions on your behalf about medical treatment options if you lose the ability to decide for yourself. You can do this by using a Health Care Power of Attorney designating a particular person to make such decisions. In addition to a Health Care Power of Attorney, clients sometimes also have a Living Will informing medical professionals of your preferred treatment should you become terminally ill, although most of the time a Health Care Power of Attorney is sufficient. Note that the Illinois Health Care Power of Attorney form was substantially revised the beginning of 2015. You should consider updating to the new document if you have an old previously executed version of this form.
If you die with a Will based estate plan (or die intestate without a Will), assets held in your own name exceeding $100,000 (excluding assets with beneficiary designations) may be subject to administration under the Illinois probate system. Probate is expensive, time-consuming and fully transparent to the public. The probate court controls the process of administering claims and expenses, adjudicating disputes and supervising beneficiary payouts until the estate is closed. If you are married and have children, you want to make certain that your spouse has immediate access to cash to pay for living expenses while your estate is being settled. It is not unusual for attorneys to wait numerous weeks before getting on a busy judge's docket to open a probate estate. With disputes among family members, the probate court may even freeze assets for weeks or months while trying to determine the proper disposition of the estate. The surviving spouse may be forced to apply to the probate court for needed cash to pay current living expenses. You can imagine how stressful this process can be. With proper planning through Living Trusts and beneficiary designations, in a manner that is quick, inexpensive and private, your assets can pass on to loved ones without probate.
Providing for Minor Children
It is important that your estate plan address issues regarding the upbringing of your children. If your children are young, you may want to consider implementing a plan that will allow the surviving spouse to devote more attention to your children, without the burden of work obligations. You may also want to provide for special counseling and resources for your spouse if you believe he or she lacks the experience or ability to handle financial and legal matters. You should also discuss with your attorney the possibility of both you and your spouse dying simultaneously, or within a short duration of time. A contingency plan should provide for persons you know to manage your assets, as well as become the guardian for the upbringing of minor children. The person, or trustee in charge of the finances need not be the same person as the guardian. Sometimes you may want to purposely designate different persons (or possibly bank trust departments) to maintain a system of checks and balances. Otherwise, the decision as to who will manage your finances and raise your children will be left to a court of law and random chance.
Other issues to consider in this respect is whether you’d like your beneficiaries to receive your assets directly or held in trust and distributed based a number of factors which you designate, such as age, need and even incentives based on behavior and education. All too often, children receive substantial assets before they are mature enough to handle them properly, with devastating results.
You should give careful thought to your choice of guardian, ensuring that he or she shares the values you want instilled in your children. You will also want to give consideration to the age and financial condition of a potential guardian. Some guardians may lack the child-rearing skills you feel are necessary. Make sure that your plan does not create an additional financial burden for the guardian. Above all, ask the guardian if he or she would be interested in this job.
Custom Trust Drafting
Beware so called estate planning attorneys who utilize the same forms for ALL their clients, irrespective of financial and family differences. Robert J. Kolasa, Ltd. is not a “trust mill” or “one size fit all” practice. Our Trusts, Wills and other estate planning documents reflect the individual needs, financial and family circumstances of the particular client involved. Of the many, many trusts I’ve drafted during my career, no two documents are ever exactly the same. Although there may be similarities between documents drafted for similar classes of clients (i.e., young families with minor children; seniors with adult children; families with special needs children; grandparents wanting to set up educational trusts for their grandchildren), the individual family circumstances of the clients dictate the precise terms of the documents.
I painstakingly take my time in the interview process to explain ALL reasonable and practical drafting options to my clients. We then make an informed decision as to what should work for the client’s unique circumstance. Drafts are never “pushed” in front of clients with the directive to “sign here.” We sincerely try to ensure that our clients are cognizant of what they are signing and the reasons why particular legal provisions appear in their documents. In short, there is a high degree of specialization and attention to detail for every estate planning document drafted by my lawfirm. I would have it no other way.
Planning for Estate Taxes – Uncertain Future?
Current law (2017) provides for a gift and estate tax exclusion amount of $5,490,00, indexed for inflation. President Trump may want to repeal the federal estate tax, but we will have to wait and see if this legislative agenda goes through. Under one scenario, a capital gains tax will be levied at death. Under another scenario, assets will receive stepped-up basis up to $10 million, with carryover basis for the excess. In Illinois, there is uncertainty that even if the federal estate tax is repealed, whether the Illinois estate tax will be retained.
Despite this saber rattling, it is hazardous to predict the course of future tax legislation given the current political turmoil and upheaval. Many of my clients wish to simplify and improve their estate plans by:
Adopting DISCLAIMER TRUSTS wherein the surviving spouse receives all assets outright, unless such assets are needed to be retained in trust to reduce estate taxes. Thus, the surviving spouse has the best of both worlds – simplicity and estate tax planning;
Updating documents to take into account changed family circumstances (i.e., such as when a beneficiary receives his or her inheritance) and selecting different executors, trustees or agents under Health Care and Property Powers of Attorneys;
Analyzing IRA/pension beneficiary designations, often leading to the adoption of trust planning techniques such as conduit and accumulation trusts to maximize income tax deferral;
Reviewing, cancelling or modifiying tax strategies adopted under prior laws grounded in much lower estate and gift tax exclusions;
There are many well-established strategies that can be implemented to reduce or eliminate estate taxes, but you must start the planning process early in order to implement many of these plans.
Dealing with the Illinois Estate Tax - Gifts & QTIPs
While most estate planners tend to focus on mitigating federal estate taxes, for clients in states having a separate estate tax (such as Illinois) it is important to also focus on state taxes. The Illinois estate tax is complex and breeds confusion because it is comprised of two separate calculations. During my work, I analyzed the subject and concluded that Illinois estate taxes can be lowered (sometimes dramatically) through lifetime gifts. This conclusion was significant and surprised many of my colleagues, leading me to write articles and speak frequently on the topic to educate my peers. Click "Making Gifts can Reduce Illinois Estate Taxes" (published article) and "Reducing Illinois Estate Taxes through Lifetime Gifts" (seminar outline). I also published one of the first articles on the Illinois QTIP election, which is a tax election for certain trusts to mitigate hardships relating to the differing federal and Illinois exclusion amounts. Click "The Illinois QTIP Election to the Rescue" (published article) and "Planning for the Illinois QTIP Election" (seminar outline).
Planning for IRA Stretch Outs.
Generally, the value of retirement assets and IRAs grow exponentially if they are left in their tax-deferred environment as long as possible. Individual Retirement Accounts (IRAs) have been one of the most popular retirement vehicles for the past generation of investors. They let you enjoy tax-deferred savings over an extended period of time. At age 70 1/2 you are required to take required minimum distributions from retirement plans in increasing intervals until your death. Upon death, gifts via beneficiary designations to a younger family member will extend or “stretch out” the IRA payouts over the life expectancy of the recipient, thus ensuring substantial additional deferral years to compound the earnings growth. Depending on the earnings and payout rates, potential distributions to beneficiaries may approach multi-million-dollar levels.
It is typical practice for most IRA owners to name their spouse as the primary IRA beneficiary and their children as contingent beneficiaries. While there is nothing wrong with this strategy, it might require the spouse to take more taxable income from the IRA than what he/she really needs. If income needs are not an issue for the spouse and children, then naming grandchildren as beneficiaries will allow the stretch out of the IRA for succeeding generations. This is possible because grandchildren are younger and their required minimum distribution (RMD) figure will be much less at a younger age. Designating a charitable beneficiary allows the IRA to escape income taxation, thereby providing more funds to the charity.
Beware of trusts named as IRA beneficiaries. Great care must be taken by the drafting attorney to ensure that such trusts avoid the rocky shoals of IRS regulations under Code Section 401(a)(9). A qualifying trust must constitute a "conduit” or “accumulation” trust in order to stretch-out required minimum distributions matching the life expectancy of trust beneficiaries. Failing these rules may result in the IRA being paid out over a 5-year period, thereby triggering the economic loss of tax deferred dollars. This is an area where proper planning by a qualified estate planning attorney is critical.
Charitable Bequests – Planned Giving
Do you want to benefit a charitable organization or cause? Your estate plan can provide for such organizations in a variety of ways, either during your lifetime or at your death. Depending on how your planned giving plan is set up, it may also let you receive a stream of income for life, earn higher investment yield, or reduce your capital gains or estate taxes.
A well-crafted estate plan should provide for your loved ones in an effective and efficient manner by avoiding guardianship during your lifetime, probate at death, estate taxes and unnecessary delays. Consider consulting with Robert J. Kolasa, Ltd. to review your family and financial situation and explain the various options available to you. Once your estate plan is in place, you will have peace of mind knowing that you have provided for yourself and family members in case the worst happens.