Uncategorized

ESTATE PLANNING AFTER THE TAX CUTS ACT

On December 20, 2017, Congress passed a tax bill (herein “Tax Cuts Act”), with provisions that impact the Estate, Gift, and Generation Skipping Taxes (transfer taxes) effective January 1, 2018 through December 31, 2025.

For people who have not reviewed their estate plan documents for some time, it may be prudent to take another look. The current increased federal estate tax exemption is scheduled to sunset at the end of 2025 and a later Congress may take action to roll back the exemption or indeed repeal the federal estate tax.

For people who have estate plans drafted a number of years ago, taking a second look is warranted. Several provisions in older documents are phrased in terms of tax concepts, such as the estate tax exemption and marital deduction that may skew your intentions based on the increased federal exemption and the separate Illinois estate tax. It may be important to update the estate plan to match your intentions to protect against a future drop in the exemption (such as expiration of the current exemption in 2026 or earlier or later action by a new administration.)

Action Steps for People Not Likely to be Subject to Federal or State Estate Tax

For people with older estate plan documents, their plans should be reviewed to make sure thie intentions match the tax concepts that may be included in those plans in light of the Tax Cuts Act.
People who will not likely be subject to the federal or state estate tax, the non-tax benefits of proper estate planning still exist, including protections for an immature beneficiary or beneficiary with a disability, creditor protection, protections in case of divorce or remarriage, probate avoidance, or incorporating business planning strategies to take advantage of the qualified business income deduction for pass through entities.

Action Steps for People Subject to Illinois Estate Tax

Older estate plan documents may not take into account the disparity between the Illinois estate tax exemption and the substantially increased federal estate tax exemption. Upon the death of the first spouse, the trust may mandate that the amount exempt from federal estate tax be placed in an exemption trust (sometimes called a “Family Trust.”) The end result is that trust being overfunded and possibly exposing the trust to Illinois estate tax. A review can confirm whether any changes to the documents should be made.

Action Steps for a Person who is a Current Beneficiary of a Trust

For a person who is beneficiary of a trust created by a deceased spouse or other deceased Grantor, these trusts should be reviewed to ascertain whether any action can be taken to secure basis step up at the death of the beneficiary. For many such trusts, upon the death of the beneficiary, the assets in the trust do not receive another step up. These trusts should be reviewed to examine withdrawal rights and powers of appointment. A strategy such as “trust decanting” may enable the trust to be amended to allow basis step up, if appropriate.
For people who have created irrevocable gift trusts for the benefit of other family members, these trusts should also be reviewed to consider whether any action can or should be taken to secure basis step up at the trust’s termination. In addition, there may be opportunities to sell low basis capital assets to the irrevocable gift trust or perhaps a swap of assets may be an option.

Action Steps for People with Significant Wealth

For people with significant wealth, the increased exemption presents a “use it or lose it” opportunity to leverage gifts for future generations particularly if the increased exemption does sunset. Traditional estate planning techniques take on new significance in the current environment and might include:
Making gifts to existing or new irrevocable gift trusts, including but not limited to GST Trusts, Grantor Retained Annuity Trusts (GRATs), Spousal Lifetime Access Trusts (SLATs), Lifetime QTIP Trusts;
Leveraging gifts to support funding of life insurance or existing sales to trusts;
Pairing gifts with philanthropy;
Re-evaluating valuation discounts on gifting assets;
Re-evaluating estate plans for maximum creditor protection.

Some people may feel comfortable they will not be subject to the federal estate tax, but for a client who is still working, he or she can expect their estate to double within ten years; they may want to evaluate their current estate plans in that light.
In light of the tax law changes and uncertainty in the future, now is the time to review your estate plan. Estate planning reviews are an integral part of the process to be sure your plan accomplishes your goals, complies with current law, allows for flexibility for the future, and takes advantages of benefits available now but not guaranteed in the future. To schedule a review, please contact our office at 630-571-0222. We look forward to working with you!

REAL PROPERTY TRANSFERS

STARTING JANUARY 1, 2017, REAL PROPERTY IS TRANSFERRED INTO TRUST BY WRITTEN AND RECORDED CONVEYANCE OF LEGAL TITLE.

 

Public Act 009-609 amends section 6.5 of the Illinois Trusts and Trustees Act. The amendment will become effective January 1, 2017. The amendment requires that all transfers of real property to a trust must include a written conveyance of legal title and an acceptance by the trustee. Further, the amendment mandates that the trustee shall record the conveyance of the real estate to the trust with the county’s recorder’s office.  760 ILCS 5/6.5.

 

This amendment clarifies the confusion created by the holding in the Estate of Mendelson, where the Court on appeal found that the failure to create and record a deed did not negate the grantor’s stated intention to dispose of the home in accordance with the terms of the trust. 2015 IL (2d) 150084. The Court held that “a settlor who declares a trust naming herself as trustee is not required to separately and formally transfer the designated property into trust.” Id.

 

However, the amendment to section 5/6.5 sets forth the rules requiring a written and recorded conveyance of legal title for transfers of real property into trusts.

STARTING JANUARY 1, 2017, REAL PROPERTY IS TRANSFERRED INTO TRUST BY WRITTEN AND RECORDED CONVEYANCE OF LEGAL TITLE.

 

Public Act 009-609 amends section 6.5 of the Illinois Trusts and Trustees Act. The amendment will become effective January 1, 2017. The amendment requires that all transfers of real property to a trust must include a written conveyance of legal title and an acceptance by the trustee. Further, the amendment mandates that the trustee shall record the conveyance of the real estate to the trust with the county’s recorder’s office.  760 ILCS 5/6.5.

 

This amendment clarifies the confusion created by the holding in the Estate of Mendelson, where the Court on appeal found that the failure to create and record a deed did not negate the grantor’s stated intention to dispose of the home in accordance with the terms of the trust. 2015 IL (2d) 150084. The Court held that “a settlor who declares a trust naming herself as trustee is not required to separately and formally transfer the designated property into trust.” Id.

 

However, the amendment to section 5/6.5 sets forth the rules requiring a written and recorded conveyance of legal title for transfers of real property into trusts.

Senate Bill to Reduce LLC Filing Fees in Illinois House for Consideration

SENATE BILL TO REDUCE LLC FILING FEES IN ILLINOIS HOUSE FOR CONSIDERATION

Currently Illinois LLC fees are among the highest in the nation. To address this, the Senate, on April 1, 2014 passed SB 2776 (the bill) with bi-partisan support and without opposition. The bill would amend the filing fees currently charged to LLCs pursuant to 805 ILCS 180/50-10.  The bill calls for a reduction in the filing fee of an LLC from the current charge of $500.00 to $39.00, and a reduction in series LLCs from $750.00 to $59.00.    If approved, LLCs may be encouraged to form in Illinois rather than form in another state. The bill remains in the House for consideration.

Illinois Implements changes to the Medicaid eligibility rules for long-term care as directed under the Deficit Reduction Act of 2005 (DRA)

Illinois Implements changes to the Medicaid eligibility rules for long-term care as directed under the Deficit Reduction Act of 2005 (DRA)

For Medicaid applications for long-term care nursing care filed on or after January 1, 2012, Illinois will apply its new rules that incorporate changes required by the DRA.  The rules increase the look-back period from 36 months to 60 months and significantly alter the methodology for determining the penalty periods imposed on family gifting plans.  Other common planning strategies to accelerate eligibility for Medicaid to cover the cost of long term care have also been impacted, including among other changes: the exemption for transferring the home to a child who has resided in a home with a parent for at least two years (“the caretaker child exception”), personal care agreements, prepaid burial plans, and imposing a limit of $750,000 on the equity in an applicant’s home.

 With Illinois’ implementation of the DRA, clients who have incorporated planning strategies to accelerate eligibility for Medicaid to cover long term care or who may need to do so in the future, should contact our office to understand how the post-DRA rules may affect them.

Autism NOW

Autism NOW

The Arc, through a grant from the Administration on Developmental Disabilities, has created a national resource and information center called Autsim Now, http://autismnow.org/ ,for people who identify as having an autism spectrum disorder or other developmental disability. This new resource provides high-quality information about issues important to people on the autism spectrum or with other developmental disabilities, their families, and professionals through a unique Web site with searchable resources, a free Webinar series and more.

STATUS REPORT: IMPORTANT NOTICE REGARDING THE ILLINOIS ESTATE TAX

STATUS REPORT

January 28, 2011

 IMPORTANT NOTICE REGARDING THE ILLINOIS ESTATE TAX

Earlier this month I reported to you that the Federal government re-imposed the federal estate tax with a $5 million exemption per person in 2011.  The exemption amount is indexed for inflation beginning in 2012; however, the federal estate tax will sunset on December 31, 2012 unless Congress takes action to extend the tax.

As of January 1, 2011, there was no Illinois estate tax; but as a result of the enactment of Taxpayer Accountability and Stabilization Act (the Act that increased the Illinois income tax), Illinois now imposes an Illinois estate tax upon decedents’ dying after December 31, 2010.  It provides for a $2 million exemption per person.

Some estate plans provide for a division of assets between a credit shelter trust (sometimes called the ”Family Trust”) and a marital amount according to a formula that allocates the maximum amount that can be sheltered from federal estate tax to the  credit shelter trust.  Of course, with the substantially increased exemption, a greater portion (or perhaps all of the property) will be allocated to the credit shelter trust.

With the Illinois Estate Tax exemption set at $2 million, an Illinois decedent with a $5 million estate being administered under a typical formula clause requiring allocating the $5 million to the credit shelter trust, would expose that estate to $352,158 of Illinois estate tax.  

This disconnect between the Federal exemption and the Illinois exemption suggests that you undertake a review of your current estate plan to ascertain whether there are any changes that should be considered at this time. If you would like to meet, please call our office at 630-571-0222 to schedule an appointment.  We look forward to seeing you.

Cordially,

Darcy J. Chamberlin

Alert! Potential Coverdell Education Savings Accounts (ESA) Changes

Alert!  Potential Coverdell Education Savings Accounts (ESA) Changes

Coverdell Education Savings Accounts (CESAs) aid families in saving for elementary through college education expenses.  Several changes to the ESA were implemented in 2002, including: contributions of $2,000 per year, per beneficiary, and coverage of expenses from kindergarten though high school.  However, these improvements will expire at the end of 2010 unless Congress chooses to extend the contribution limit and the coverage of K-12 expenses.  If Congress decides not to allow an extension, the $2,000 contribution limit will return to a $500 limit, and the K-12 coverage of expenses will be removed.

Works Cited

 “What Are Coverdell Education Savings Accounts?” AllBusiness. AllBusiness.com, Inc., 2009. Web. 13 July 2010. <http://www.allbusiness.com/print/2493-1-22eeq.html>.

Edward Jones. Education Savings Plans. N.p.: n.p., 2010. Print.

Passing on Passwords: Your Online Legacy

If you manage your financial assets online, pay bills online, bank online, use photo sites, participate in virtual communities or simply use email, it is important that you consider how your family will access those accounts should you become incapacitated or upon death.   Many popular Internet services have policies barring access, short of a court order, unless someone has the password.

Your estate plan is not complete unless you begin to think about what happens to all your online data.    Legacy Locker is one of many companies that offer a secure way to pass online accounts to loved ones.  http://legacylocker.com/.  As an alternative consider keeping a portable flash drive with usernames and passwords and let a family member or friend know its whereabouts.