Contents

Q:

What is estate planning?

A:

Estate planning is the process of arranging for the management and distribution of your assets and responsibilities after your death or if you become incapacitated. An estate plan should accomplish your personal and family goals; ease the handling of your financial and/or legal affairs; and minimize taxes if your estate is large enough to be of concern. The goals of your estate plan can be accomplished through several methods, including:

  • Revocable Living Trusts
  • Last Will and Testament / Probate
  • Lifetime Gifting
  • Joint Ownership
  • Beneficiary Designations
  • Life Estates

Effective planning minimizes or eliminates problems that often arise when people fail to properly coordinate these methods of passing their estate to the desired beneficiaries. For example, a father’s will may state that all assets should be equally divided between his children. However, if the father created a joint account with only one child for convenience, a fight could ensue over whether the account should be put back into the estate and divided among the children or remain with the one child who’s name is on the account.

Q:

What happens to my estate if I die without a will or trust?

A:

If you die without a will or trust in place, the state you live or the state in which your assets are located decides how and to whom your assets are divided. Until the court decides on the representative, assets will be frozen. In most cases, the state designates the surviving spouse as the personal representative who will manage your assets. A personal representative can be called an Executor or an Administrator depending on whether a Will existed or not.  Sometimes ex-spouses, children, parents or other family members get involved and things get complicated. If no one is willing to handle your estate, the courts may choose someone for the estate.

Q:

How is my property transferred if I die intestate?

A:

When a person dies without a will, he or she is said to have died “intestate.” If you die intestate, the transfer of your property is executed through a court-supervised proceeding called probate. These proceedings are often expensive and time-consuming. In Illinois, probate takes a minimum of a year, often longer. Probate is easily avoidable through proper estate planning.

Q:

What is probate?

A:

Probate is the court-supervised public proceeding used to transfer the title to assets away from the decedent and into the name of the living beneficiaries. Probate allows creditors to attempt to collect their debts for which the decedent is liable, and is where interested parties (usually family) can file a complaint against, or contest, the Will. Even without a contest, probate can be costly, time consuming and complex.

Q:

Can probate be avoided?

A:

Yes, proper planning will keep your assets out of probate. There are several methods for doing so, which can be used individually or in combination. (See FAQ 1).

Q:

What is the federal estate exemption for 2021?

A:

The federal government allows every individual a credit against estate taxes, though many states and Washington D.C. impose their own taxes separate from the federal estate tax levy. In the year 2021, gift and estate taxes are NOT owed at the time of an individual’s death unless the net value of the estate exceeds $11.7 million per person, given the “portability” option was exercised upon the death of the first spouse to die.  Illinois supports the portability option.

Q:

What is the unlimited marital deduction?

A:

Under the marital deduction provision, the Internal Revenue Service allows a person to leave an unrestricted amount of assets to their spouse, free from tax. However, when the surviving spouse dies, all assets over the Applicable Exclusion Amount ($11.7 million per person, given the “portability” option was exercised upon the death of the first spouse to die – see FAQ 6) will be included in the survivor’s taxable estate.

Q:

How can I leave my estate to my spouse tax-free?

A:

Thanks to the marital deduction, an outright gift means all property left to a surviving spouse is tax exempt, so long as the individuals were married.

Q:

Is joint tenancy a substitute for estate planning?

A:

Joint tenancy provides rights of survivorship to two or more living people. At the death of one of the owners, his or her property in whole is immediately transferred to the surviving owner. While joint tenancy is one type of estate planning, it is not an adequate replacement for additional planning, for several reasons. For married couples, joint ownership does not help to transfer the estate to the surviving spouse upon the death of the other spouse. Listing your child as a joint tenant may avoid probate, but will enable the child’s creditors to reach the joint tenancy property while you are still living. Adding someone for joint ownership may create an unexpected taxable gift and may not correspond with your distribution preferences. Additionally, creating joint tenancy with children may create problems if he or she dies or becomes disabled prior to your death.

Q:

What is tenancy by the entirety with right of survivorship?

A:

Illinois allows married couples a special type of tenancy called “tenants by the entirety.” This form of ownership means the property is protected from the claims of separate creditors, and that upon the death of one of the owners, the decadent’s interest in the property is immediately transferred to the surviving owner.

Q:

Can a husband and wife use joint tenancy and then set up a trust for the survivor if one spouse dies?

A:

This is an option, but one that carries many problems. First, there is no guarantee that the surviving spouse will have the time, desire or energy to set up a trust after the first spouse dies. This method also forfeits the Applicable Exclusion Amount tax advantage, because at the time of death, joint tenancy transfers all the assets into one spouse’s estate.

Q:

Is joint ownership of property with my child a good strategy?

A:

Generally speaking, joint ownership can create several problems. One is that designating your child as a joint tenant may help to avoid probate, but it will not avoid probate if your child predeceases you or becomes disabled or incapacitated prior to your death. A second issue is that if you need to apply for Medicaid benefits within five years of adding a joint owner to certain assets, that act may constitute a gift and result in a Medicaid penalty period. Other potential challenges are that your child’s creditors will be able to reach the property; it may create an unexpected taxable gift; and it may not correspond with your distribution preferences.

Q:

What is a power of attorney?

A:

A power of attorney is a legal document an individual (the agent) the authority to act on your (the principle) behalf to make decisions about your property, finances and/or medical care. With regard to estate planning, the purpose of giving someone power of this magnitude is to ensure that there is someone you trust to carry out your desires when you cannot act for yourself due to some cognitive impairment.

Q:

Who can create a power of attorney?

A:

Though it varies state to state, generally speaking, anyone over the age of 18 can create a power of attorney, as long as they are a resident of the state in which the power is created and are legally competent. 

Q:

Who can be named as an agent under a power of attorney?

A:

Generally, the agent (the individual(s) to whom you’ve given power of attorney) is a family member such as a spouse or a child, though this designation may be granted to anyone who is legally competent and over the age of 18. One or more individuals may be named as power of attorney, but a better course is to name one as an agent and another as an alternate. Difficulties may arise if two or more individuals are name and power of attorney must be promptly exercised.

Q:

What is a general vs a limited power of attorney?

A:

A general power of attorney authorizes your agent to act on your behalf on any situation/transaction you could do for yourself. An agent with limited or special power of attorney is authorized to only perform specific acts listed in the document.

Q:

How does an agent use a power of attorney?

A:

Your agent presents the power to the other party involved in the transaction and acts on your behalf to sign any documents needed to complete the transaction. Your agent signs “Your Name, by His or Her Name, Agent under POA.”

Q:

What are the formalities of signing a power of attorney?

A:

Requirements vary from state to state, but in Illinois, the presence of a notary is necessary when signing the power to your agent and we recommend that the power of attorney be witnessed by two independent witnesses.

Q:

When does a power of attorney go into effect?

A:

A power of attorney goes into effect depending on what the power says. For example, it can be made effective at the time of signing or when you are unable to handle your own affairs.

Q:

What is a “durable” power of attorney?

A:

All powers of attorney done in connection with estate planning are “durable,” which means it remains effective even if you cannot make decisions for yourself.  For general purposes, powers of attorney are non-durable and will terminate upon your incapacity, unless specified otherwise in the document. Non-durable powers of attorney are useless in connection with estate planning or disability planning.

Q:

Should I have a general power of attorney?

A:

Yes. Everyone planning the affairs of their estate should execute a durable general power of attorney for financial, property, and legal matters. This document is commonly used in conjunction with a revocable living trust to enable your agent to transfer your assets into your trust, should you become mentally or physically disabled. A general power of attorney may take effect immediately upon being signed or can become effective at the time of your incapacity; this is called a “springing” power of attorney

Q:

What is it important to have a general power of attorney?

A:

Appointing a power of attorney means that that if you become mentally or physically incapacitated, your agent has the authority to act on your behalf and sign your name to financial and/or legal documents. This helps you avoid the time-consuming, costly, and publicly embarrassing process in which an individual has to go to court to have you declared mentally or physically incompetent and then seek an appointment to serve as your legal guardian and/or conservator subject to ongoing court supervision.

Q:

Should I have a power of attorney for health care?

A:

Yes, it important to have a health care power of attorney who can make decisions regarding your medical care if you are mentally or physically unable to do so. This document allows you to indicate your wishes concerning the use of artificial or extraordinary measures to prolong your life in the event of a terminal illness or injury.  Additionally, upon request we can specify your wishes regarding organ donation, disposition of bodily remains and funeral arrangements.

Q:

How is a power of attorney canceled?

A:

Death of the principle revokes a power of attorney, and the principle has the right to terminate the power of attorney while living. To change or cancel your current power of attorney, you should inform your agent of the change and complete a signed, written revocation. The best way to revoke a power of attorney is to make sure you destroy all copies, which can be difficult to do if it has been shared with third parties. If the power is a non-durable power of attorney, it will terminate upon your incapacity; a durable power of attorney survives your incapacity.

Q:

What is the annual gift tax exclusion?

A:

The annual gift tax exclusion for 2021 is $15,000 per recipient. This means you can give away $15,000 to as many recipients as you would like, tax free.  Gifts over $15,000 per year remain tax exempt unless you have already given away more than your lifetime exclusion of $11.7 million for an individual, $23.4 million for a married couple. However, if you are elderly or disabled, all gifts made within the five years prior to applying for Medicaid will result in a period of ineligibility for Medicaid.

Q:

Can my agent (power of attorney) make a gift on my behalf?

A:

Unless your power of attorney states otherwise, your agent does not have authority to make gift on your behalf. In order to do so, the power must specifically authorize your agent to gift your assets to persons whom you would likely make gifts.

Q:

Do third parties have to honor a power of attorney?

A:

There is no way to force a third party to accept a power of attorney, short of going to court. This includes banks. You should check with your banking institution to see if they require their own forms authorizing your agent to write checks on your account. You must submit a power of attorney if you want to authorize an individual to represent you before the IRS and to receive your tax information or the matter and the tax year at issue.

Q:

Are there disadvantages of having a power of attorney?

A:

There are three primary disadvantages of having a power of attorney. First, as discussed in FAQ 27, third parties may not recognize your power of attorney. Second, it can be difficult to revoke a power of attorney, especially if third parties are already honoring the power. Third, power of attorney means the agent can reach your assets without court approval or supervision. For this reason, it is of utmost importance you choose an agent in whom you place great trust.

Q:

Are there alternatives for managing property when a person becomes incapacitated?

A:

Yes, there are several. One is a court-supervised proceeding referred to as a guardianship or conservatorship, neither of which are an appealing option to most people. The best alternative is the use of a living trust in which assets are funded into the living trust. Having a power of attorney is still essential, even when using a living trust.

Q:

What is a guardianship or conservatorship?

A:

This is a court-supervised proceeding which names an individual or entity to manage the affairs of a person who can no longer make sound decisions or manage the affairs of his or her assets.