Estate Planning

WHO NEEDS ESTATE PLANNING?

Estate planning isn't about how much money you have, it's about protecting what you have for you, during your life, and for those you love, after you're gone. It ensures what you have gets to the people you love, the way you want, when you want.

If you were to die today, are you comfortable that everything will be taken care of the way you want? Have you left instructions about what will happen to you and your assets if you were to become disabled and unable to manage your affairs? Are you confident that your wishes regarding long-term care are known and will be followed? Estate planning is legally ensuring that your affairs will be handled the way you want by providing sufficient instructions for your loved ones.

Estate planning really is for everyone. It doesn't matter if you have $40,000 or $400,000. You still have to plan for the future whether it's to name a guardian for your minor children or to ensure your children don't blow through your assets if you unexpectedly die or become disabled.

Estate planning can only be done by attorneys. Banks, financial advisors, and brokerage firms may offer to create your "estate plan", but they can only help you with the financial planning aspects of your estate. You are probably also concerned with asset protection, providing for your long-term care in the case of your disability, and stating your wishes regarding health care. You need a qualified estate planning attorney, with extensive knowledge in probate law, estate administration, trusts, asset protection, Medicaid laws, income tax, estate tax, and gift tax to draft the legal documents for you. A qualified estate planning attorney will work with your financial advisor and accountant to create the best plan for you. It can be as simple as a Will, Health Care Power of Attorney, and Power of Attorney for Property, but it can also include a revocable, probate-avoidance trust, asset protection trusts, and many other strategies tailored to you life and values.

Keep Your Estate Plan Current

Once completed, your estate plan should be reviewed and kept current with life events such as birth, death, marriage or divorce of anyone included in your plan. In addition, you should review your plan if there is a significant increase or decreases in your finances or if the laws related to your estate plan change. An attorney that focuses on estate planning will keep current on changes in the law.

WILLS

If you own assets in your name alone, they may pass from you to the people you love, as long as you leave a Will. Without a Will, your assets pass according to the State's rules, also know as intestacy. The State may not pass your assets to the people you care about. You should be sure of to whom your assets are going.

Also, you should know that:

• Assets will pass through your Will to your loved ones if the Will is written properly.
• You can reduce your estate tax liability by using a trust in a Will.
• You can protect the ones you love by creating a trust in your Will that can protect that person from creditors.
• You can protect disabled beneficiaries by creating a Supplemental Needs Trust for them, which preserves assets for family, while keeping their eligibility for public benefits.
• Your Will must go through probate.

POWERS OF ATTORNEY AND LIVING WILLS

Everyone should have a Power of Attorney for Property and an advance directive that provides for the appointment of an agent to make health care decisions or instructions about his or her wishes regarding health care. States differ on the advance directives that they recognize regarding health care. Illinois recognizes the Health Care Power of Attorney and Living Wills; other states may use Health Care Proxies to designate an agent and may have different rules or reject Living Wills.

Powers of Attorney allow you to decide while you are well who will make decisions for you if you become sick or disabled, either temporarily or permanently. You have a lot of flexibility in who you may appoint for each power. You may appoint a single person to exercise both powers or you may appoint one person to make decisions regarding your property and another to make decisions regarding your health. You may also choose for more than one person to act together to make decisions for your health.

Powers of Attorney allow your agent to pay bills, get records, and make other decisions that are necessary to make sure you can get treatment, pay doctors, or for Medicare. If you lack a Power of Attorney, your family may have to seek guardianship of you if you become disabled. This process involves the Court, several lawyers, and usually at least $4,000 to $50,000. A Power of Attorney might cost $200 and allows your family to focus on helping you immediately. As you can see, it is important to give your family the tools to help you if you cannot help yourself.

Powers of Attorney are very powerful documents. They allow a trusted person to care for you, pay bills, and make decisions. On the other hand, the Power of Attorney for Property can be seen as a "blank check;" it generally allows your agent to access your assets and to buy or sell property in your name. It is possible to limit these powers within the Power of Attorney for Property or to leave binding instructions for your affairs through the use of trusts. An attorney can help you set up your estate so your loved ones may act to help you during disability, but also preserve your wishes through legally binding instructions.

Living Wills

A Living Will is a document in which you instruct your physician to withhold merely life prolonging treatment in the event of imminent death. While a Heath Care Power of Attorney may contain instructions on your wishes for the appointed agent, a Living Will provides instructions to physicians. In practice, the Living Will can become restrictive and can end up conflicting with your wishes. On the other hand, your agent, acting under the Health Care Power of Attorney, can better evaluate the particulars of your condition in light of your wishes and make a decision for you, especially if your condition is one that you could not foresee. You can have both a Health Care Power of Attorney and a Living Will, but you must be careful that they do not conflict.

TRUSTS

A trust is a contract between the Grantor (the person who creates the trust), the Trustee (one who controls the trust) and the beneficiaries (those entitled to benefit from the trust). You, as Grantor, determine how the trust will be operated by the Trustee and who benefits, how, and when.

Revocable Living Trusts

You can create a trust that permits you to be Trustee and gives the right to receive full benefits from it. This is typically referred to as a Revocable Living Trust and is often used as a substitute for your Will. It permits you to keep total control and access to all your assets during your life and provides for the distribution of your assets to your beneficiaries at your death. You can look at your revocable living trust as your Book of Instructions. A well established advantage of Revocable Living trusts is the avoidance of probate, which is required if you use a Will to distribute your assets after death. Other advantages of a Revocable Living Trust, when properly drafted, can include:

• Asset protection for your spouse after your death.
• Special needs planning for disabled beneficiaries.
• Asset management and protection for children who are not proficient with handling money.
• Disability planning in case you become disabled prior to death.
• Asset protection for your children if they are in bad marriages or to ensure that your assets don't go to the in-laws.
• Keeping your affairs private (as opposed to open for public review in probate).
• No Court intervention required (handled entirely by Trustee you name in accordance with your detailed instructions).
• Plan for proper management of your business in your absence.

Unfortunately, very few living trusts actually provide these benefits. Only a qualified estate planning attorney will know how to incorporate these protections into your plan. While a Revocable Living Trust has many advantages, it does not protect your assets from a nursing home, lawsuits, bankruptcy or other creditors.

Irrevocable Trusts

While a Revocable Trust permits you to maintain full control (as Trustee) and have access to all your assets (as beneficiary), an Irrevocable Trust, once created, may prohibit your right to control the trust (as Trustee) or have access to your assets, but you get to decide to what extent.

It is a common misconception that irrevocable trusts, once created, cannot be changed. While that is true of many irrevocable trusts created to avoid taxes (tax reduction or avoidance trusts), it is not true of all irrevocable trusts. An irrevocable trust is a trust you create for the benefit of yourself or others and once created, you as Grantor, must give up your right to something.

Debtor/Creditor law provides that whatever you get, your creditors can get. You can have known creditors (i.e. bank/credit card debt) or unknown potential creditors (unforeseen lawsuits, nursing home, divorce). A typical "income only" irrevocable trust permits you to receive the income on your assets, but you must give up your right to your principal. In some irrevocable trusts, you can retain the right to change who gets your assets during your life and after your death and maintain 100% control of your assets until your mental disability or death. These are asset protection trusts.

PLANNING FOR THOSE WITH DISABILITIES OR SPECIAL NEEDS

Supplemental Needs Trusts

In the past, families would disinherit disabled family members and leave assets to someone else who agreed to care for them. If assets are left to a disabled beneficiary, it could disqualify them from the state and federal programs they are receiving. In 1993, Congress enacted new laws that entitled disabled individuals to derive the same estate planning benefits as non-disabled individuals without affecting his or her eligibility for state and federal benefits. The law created Supplemental Needs Trusts, which enable you to leave any amount of money to a loved one who has special needs without affecting his or her eligibility for the state or federal benefits he or she receives.

The law further provides that trust proceeds must be used to provide luxuries for the disabled individual that he or she would not otherwise receive under the state and federal programs. Luxuries can include trips, computers, power wheel chairs, prosthetics and other comforts not generally provided by the government.

A Supplemental Needs Trust can be created by an individual with their own funds or be created by someone other than a disabled individual, typically a parent or relative. There are different rights and restrictions to each of these trusts, but both ensure immediate qualification for federal and state benefits (i.e., Medicaid) and provide luxuries to the disabled beneficiary he or she would otherwise not likely be able to have.

Guardianships for Special Needs Children

As a parent of a special needs child, you are the child's "natural guardian" and can make all of the decisions regarding the child. However, your rights as guardian do not allow you to have access or control of your child's assets (i.e., proceeds from a lawsuit of gifts from a family member). In addition, when your child turns 18, you lose your rights as natural guardian to make health care and other life decisions for him or her. To maintain these rights, you must commence a guardianship proceeding or the State will assume legal authority over your disabled loved one. To avoid losing your authority, you should contact a qualified attorney to begin guardianship proceeding at least six months prior to your child's 18th birthday.