Christopher S. Nudo
Testamentary Law and Contract Law. What Is the Difference, and Why Should You Care?
Below is the transcript of the video and is only being provided as a matter of convenience, but we highly encourage people to watch the video
Hello and welcome to another fun video broadcast with christopher nudo I am an attorney uh in the chicagoland area I have offices in arlington heights and elgin illinois and our practice focuses on estate planning that would be wills and trustwork real estate and other basic commercial transaction the uniqueness of our practice is that we are christian based uh with a christ-centered focus and today I am really excited because I had the opportunity to pick a topic that I think is going to help people really understand the nuance between a will and a trust absolutely the most often misunderstood concept is what is a will what is a trust how are they different and which one do I need and so today um by the way there are many ways to answer those questions but today we're going to take a a very different approach and an approach actually that um is not often taken by estate planners but definitely is applicable for today's topic also I do want to take a moment and say uh the the topics i'm going to be talking about today are illinois law based and so if you live in a different state there's a chance that what i'm telling you is very applicable but there's also a chance that it's there's some nuances and differences that doesn't make everything i'm saying a hundred percent correct so please um when when listening to this video understand that we are applying illinois law so how about we get started I want to start by explaining that there are different bodies of law uh that govern different things the one that I enjoy the most is if you've ever been on a cruise uh the ship as it's leaving port and is in the water is governed by a body of law called maritime law now what does that have to do with wills and trust absolutely nothing but it's kind of cool that ships have their own kind of law right it's a whole body of law governed for when they are out at sea well it does actually have some applicability to today's topic and that is that wills have a whole body of law governed by it it's the illinois probate act and I like to refer to it as the body of law that's the testamentary law these are laws specifically used to govern your estate if you die with a will and without a will and it's just a body of law that governs what do we do with your assets your estate when you die with a will or without a will now there's another body of law that's called contract law now contract law seriously governs you from the moment you wake up it actually governs you while you're sleeping it governs you through your whole day matter of fact contract law is so invasive in your life all day every day that most people don't even appreciate that they're surrounded by it let's use some example well at home you have uh your electric in your gas company your cable company your internet provider your email provider all of these people govern the relationship between you and them with contract law testamentary law only governs your estate when you die note the differences here contract law is invasive in your life during your lifetime testamentary law or the illness probate act only affects your life after you die two important distinctions here so what are some nuances of the testamentary law and why do we want to make this distinction between the illinois probate act slash testamentary law and contract law well in the testamentary law when you die there's a certain set of steps that need to be analyzed to determine whether or not your estate has to go to probate and in illinois probate is not a simple administrative function it is extremely complex has a lot of nuances is very expensive there is no abbreviated um method of probate in illinois like there are in other states and this this very complicated extremely nuanced very uh inefficient process costs a lot of money and so when we look at an estate that is governed by the testamentary law we need to first do an analysis to determine whether or not your estate needs to go to probate now what are some of those factors that we look at when we're determining whether or not an estate has to go to probate well the first factor is what is the size of the estate in illinois if the gross value of the estate is over 100 000 then the probate act would say that the estate should be probated now for sure there are some small little ways that we can avoid probate even if the estate's over a hundred thousand dollars but those loopholes are extremely small and narrow and we're not going to get into them today we're just gonna go with the general rule which is if the estate's over a hundred thousand dollars then the estate has to go to probate if it's under a hundred thousand dollars then we can use a document called the small estate affidavit typically to avoid probate and still administer the estate in an efficient manner now if you own a home and have um a few bank accounts having an estate over a hundred thousand dollars is uh very easy right that's a really low threshold and uh but what are some of the other factors that take us into the probate court well one is you have a very uh extensive family so uh if you have many children or even a mixed marriage or um you have not just children but you have grandchildren and you might have deceased children you may not have any children at all and so uh now we need to look to see if you're married and if you're single and you have no children and no spouse now we have to look to see are your parents alive so these factors and the complexity in which your estate uh is in um now remember when we talk about the complexity of your state we're talking about your life how complicated is your life and one does not go into their life with the idea that i'm gonna make it simple or complicated life evolves and you end up at a certain state in life and it may be simple it may be complicated but for sure these are not the things and analysis that one typically perform you wake up one morning and you either have nothing or you have stuff and if you have stuff the amount of your stuff and the impact your stuff has on your family defines the complexity of your estate so we have the amount of your estate we have the complexity of the estate and then we have the type of assets what are the assets that your estate needs to administer if you are lots of people like to invest in real estate nothing wrong with that being a landlord can be kind of cool and when you invest in real estate a lot of people don't consider what happens to these rental properties when we die let me tell you if you are one of these people who don't consider your your rental property and or real estate holdings from the standpoint of what happens to them when I die then you will have a complex estate that needs to go to probate now uh there's one other factor and i've kind of skirted around it a bit and um but when you die with assets only in your name then that is a perfect example of what we call a probate asset so you have a bank account with a hundred thousand dollars in it that's just in your name that asset will become a probate asset so we've been focusing on testamentary law right now and I told you that we were going to compare and contrast that to contract law so let's first define what contract law is contract law is a relationship between you and another party and the terms that govern that relationship and the benefits that are bestowed between the two parties I always think of my cable bill so I pay comcast they provide me tv internet and phone great contractual relationship i'm happy with the service they provide they're happy with the money I pay them how does this pertain to your estate well whether you know it or not many people have their estates governed by contract law chris give me some examples oh i'm so glad you asked example number one life insurance if you own any life insurance then that is a contractual relationship do you have a 401k oh me too that is a contractual relationship how about an ira an annuity these things are contract relationships as a matter of fact most retirement accounts are contract relationships your brokerage account contract relationship what is the unique nuance about these kind of account in that make them uh uh function well in the contract realm one thing they all have the ability to name a beneficiary so these accounts when you name a beneficiary and you die because of the contractual nature of the contract that your asset now goes directly to the people you've named as a beneficiary you're saying but chris if I name people in my will doesn't it automatically go to the people in the will probably but because it's governed by the testamentary law there's a good chance it needs to go to probate before it goes to the people you named in your will your will is not a contract relationship it's a one-sided document giving direction now let's tie this all together shall we one of the tools that is most often used in estate planning is a trust this could be a revocable trust it could be a living trust it could be a revocable living trust you're like chris what's the difference and i'm gonna tell you for the purposes of this nothing um if you're on the west coast they call them settler trust if you're on the east coast it could be called a settler trust or a grand tour trust um i've heard him call the loving trust I think that's like a trademark name for a group that uses certain trust what are why are all these names uh for all these different trusts and all these are these trusts really different and the answer is yes and no they're different because um trusts are as unique as the lawyers that are drafting them but the overall purpose of all of the different types of trusts that I just mentioned is the same and the purpose is to take your estate that is governed by the testamentary body of law and transfer it to the contract law why can a trust what is the nature of a trust that allows it to be governed by contract law versus a will that gets governed by the testamentary law well a trust has three parties to it the first party is the owner and that's often called the grantor or the set lore in these documents the second party is the trustee and the trustee is the person that's in charge of the trust this is the person who has to understand what their job is to administer the trust for the benefit of the third party and that's the beneficiary and so a a a the beneficiary is obviously the person who benefits from the terms of the trust and the assets that the trust hold so if you have one of these trust you typically are the owner the trustee and the beneficiary during your lifetime as long as you are competent but when you die you still remain the owner but the trustee the person in charge of the trust transfers to somebody else because governing your trust while you're dead is quite impossible so another person must take over your trucks but that new person called a successor trustee is working for the benefit of who the beneficiary now the successor trustee and beneficiary can be the same people different people it depends on your trust it depends on your estate obviously if you have young children your successor trustee will not be the young children it will be a confident adult that you've chosen to administer the estate for your children however many people who have adult children 30 35 40 older not younger um and these children have demonstrated that they can appropriately manage finances and be mature adults well many parents will make those children the successor trustees and the beneficiary so that's an instant where they're the same now remember I explained to you under contract law there was a relationship between many parties and so you can tell by my previous description of a trust we have this relationship between the owner the trustee and the beneficiary I understand that while you're alive you it's kind of like saying me myself and I or because you are all three roles in the trust but when you die you see that the roles are clear more clearly defined when um the trust then has different people as the owner the trustee and perhaps end times the beneficiary now why is all of this so important well the reason is contract relationships that have beneficiary whether it's your life insurance your 401k um your living trust anything where there is this owner manager and then beneficiary type of relationship all of these in the contract realm avoid probate that was a long way to get around to explain the fact that these contract relationships avoid probate because probate does not is not it probates only in the testamentary body of law in the illinois probate act governed by your will or in a state that doesn't have a will as soon as you move your asset from the testamentary body of law over to the contract body of law and we do that using trusts and other vehicles life insurance annuities 401ks iras brokerage account specifically designed money markets and or savings account all of these things when beneficiaries are attached to them remove the asset from the testamentary body of law over to the contract realm and avoid probate when you die now you're saying chris I think that's clear I think what you're trying to tell me is I should do an analysis of my estate which is all of my assets and I should determine which asset would be governed by the illinois probate act the testamentary law and which assets are governed by contract law and that is correct that is the analysis and what we want to do at a minimum is design an estate plan that removes all of the assets from the testamentary body of law the illinois probate act and move them to contract law so that when you die your whether it's your spouse children nieces nephews aunts uncles parents whoever best friend all of these assets get transferred to them with the avoidance of probate that is the essence of a good estate planning analysis now there is so much more so so much more uh that we could talk about here but I just wanted to take this time and just describe the illinois probate act the testamentary body of law and contract law and why um the two are distinct and different and why we want to move remove your assets from one and put them in the other this analysis could go much deeper we could talk about so many other things that pertain to trusts and their benefits that they provide and um when what so many people when I explain this to them they say chris does that mean that there's never a time that a will it can be used and and that is not true there are many many instances where having a simple will is a wonderful uh vehicle for helping administer your estate when you die however I gave you earlier the um a little bit of the analysis um that we like to do with regard to the complexity and the size of your estate and when you're the complexity and the size of your state meet that certain threshold then a will is no longer the most efficient tool and we should move your estate to the testamentary excuse me to the contract side of things using a trust or other instruments that have a beneficiary designation now while I was uh going through all of this um several questions have come in so let's do a quick recap here answer a few questions and then be done for today um first of all again my name is christopher nudo i'm an attorney serving the chicagoland area and I we we serve in estate planning real estate and other transactional forms of law did I say that we have offices in early tonight's intelligent I think I did a couple times but just in case you didn't hear it the other time so oh by the way you really should go back and look at my video that I did last time which um was the benefits and nuances of estate planning for police officers and other first responders um if you were a first responder first of all my heart goes out to you thank you so much for your service but second um please take a look at it or if you know somebody that's a first responder um please share um the video link and uh I just think it would be a blessing to them to understand estate planning from their perspective um now let's move on to a few questions that came in like always I the questions are just unbelievable we really appreciate you taking the time and entering them it says what type of trust is best for someone who doesn't have any children well excellent question um one of these grantor trusts living trust revocable trust remember I said that they're all the same thing a trust that ensures that we've removed your estate from the testamentary body of law over to the contract law and that makes sure that we've appointed a very accountable and responsible adult to manage your affairs to transfer your assets to your nieces or your nephews or your brothers sisters girlfriend boyfriend uh parents um best charity these is the type of trust that we want to use it doesn't have a specific name like I don't have like the single person's trust but it is the essence within the trust that um what that we design that really um will benefit the single person with no children great question thank you second let's see um can I designate a beneficiary that is not my child such as a second spouse or a family member I think I just nailed that in the previous um and previous question the answer is of course children do not have an entitlement to your inheritance um they often think they do but they do not and so um you using your newly drafted living trust can specify uh charities churches other family members friend um your pet by the way that's a big one let's make sure that fluffy is taken care of when you die um because you know what fluffy's every bit is um important to the family as um sometimes the children as a matter of fact may dare I say that some parents treat fluffy better than the children I don't know I suppose i've said it already what if I have children from two different marriages how would I handle the distribution of assets ooh a complicated question well there's no chance I can do this question thorough justice right now this this could be a whole topic for a video but if you have children from different marriages which by the way is extremely popular then we need to do what is termed advanced estate planning we really really really want to make sure that both children benefit from your estate and that no unintentional consequence comes where one or both of your children become disinherited because they come from different families and let me tell you it is actually easier to become unintentionally disinherited when you are have a blended or mixed family from multiple marriages than it is for your estate to transfer to your children directly when you die so that's why we call it advanced estate planning because truly it takes a lot of thought and nuance and specific provisions to ensure to absolutely make sure that your children don't get unintentionally disinherited great question small answer certainly not adequate but let me just finish this answer by saying if you have a mixed marriage please make an appointment with an estate planning lawyer who understands the nuances of this specific advanced planning so that your children are well taken care of let's see next question um if i'm a business owner should my business be owned by my trust the answer is yes why because if you own your business and you die your business is a probate asset there is no relationship so we need to transfer the ownership of your business to your trust now we have that relationship because of the beneficiary trustee relationship so absolutely if you own a corporation or an llc or any kind of business we want to make sure that entity is not a probate asset when you die but rather controlled by the contract law and so we want your trust uh we want your business to be owned by your trust let's see what do we have here I love the questions that could be a whole segment on their own and that would be our next question are there any tax advantages lawyers know about that everyday people do not I would say for sure but we're not going to get into those right now and whether or not those tax advantages are applicable to your estate or not would require an analysis again what a wonderful reason to make an appointment with a talented estate planning lawyer who can walk you through those various tax advantages that may or may not apply to your estate um how much does it cost to work with an estate planning lawyer I like to answer that question by uh saying this how much will it cost for you or your loved ones if you don't plan properly we have this saying here at the office and that is that friends don't let friends play stunt lawyer the there are certain things that do-it-yourselfers can do like you know hanging some cabinets putting up some pictures maybe you're really talented and you can do some carpentry some plumbing some electrical work yeah but estate planning is not necessarily the do-it-yourselfer kind of thing despite the fact that there are a number of websites out there that claim that they can help you do it yourself so um I ask you do you want your assets to be transferred to the people that you intend them to go to or are you willing to um risk the chance that the documents you did on a do-it-yourselfer kind of way fail and your state doesn't get administered the way you thought it was going to do working with an estate planning lawyer is expensive i'll just say that um and expensive is relative to a lot of people but it's going to cost two to three to four thousand dollars depending on uh the complexity of your estate let's see do you offer oh I love this question comes up very often do you offer virtual appointments or on-site visits yes I do so listen virtual appointments they're nice and I have designed some magnificent estate plans for people who I have met only virtually honestly my preference is to meet you in person but I do whatever you're most comfortable with so if you want to do a phone call if you want to do a virtual meeting using interactive video like this or if you want to use if you want to come in and visit me face-to-face I offer all of that and my job is to work for you and so whatever is most comfortable for you is what I will do for you all right so that leads us to where can you contact me for a consultation on the screen below you're going to see various contact information from addresses to phone numbers for your ability to text me um call me text I often say if I could read smoke signals you could put a bonfire up and i'd respond but I don't know how to read smoke signals so let's pass on that one any way you want to contact me go for it email is probably uh the most common but we have a generation of uh folks coming up where text message is their preferred method of communication and i'm very cool with text messaging as well by the way I like to say my favorite form of communication is the telephone I love talking to people I don't know what it is today but you know we carry our smartphones around and so many don't even use them for phone calls um you know I understand that's generational that may show my age so does the gray hair the receding hairline on this side you know what are you gonna do we're all different I want to really thank you for uh joining me today it's been my privilege to be able to share with you this knowledge hopefully you gleaned something just a little bit from uh what I had to say um it's my heart that the knowledge that the lord has blessed me with I can impart a little of that on you and that that little impartment of knowledge can uh you can embrace and make your life better with like everything in life this estate planning process is a process and it takes some time um don't procrastinate it please um let's get make a plan get started make an appointment and get it done it's really important you you cannot go back and do it after you've died I know that sounds so ridiculous but it's the truth um get it done before you need it because when you need it it's always too late so I invite you to see me back here next week on our facebook live fridays I try to do fridays 8 30 central time um you will find that i'm not necessarily right on time or punctual but you know what um we will all work together and get this done together so that we can all enjoy the information uh please feel free to invite your friends share our recordings with your friends and loved ones and I just want to say may the lord be with you this week have a great week take care