Compare the Old Trust vs. the Modern Trust:
Old Trust = Probate Avoidance + Estate Tax Savings
Modern Trust = Probate Avoidance + Estate Tax Savings + Asset Protection!
Dear Clients, Friends and Colleagues:
Many of you have prudently chosen to create a revocable living trust during your lifetime. Please recall that the motivations for creating trusts were primarily:
1. Avoidance of estate tax; and
2. Avoidance of probate.
These objectives for your trust, while still valid, may not be a primary concern any longer for the following reasons:
First, estate taxes no longer impact as many Americans because, as of this writing, there is no federal estate tax in 2010. But in 2011 the estate tax will return with a tax free exemption amount of $1 million. At the time your trust was created, the estate tax exemption could have been as low as $600,000. Thus, the need for “A/B trusts,” as they were called, to minimize estate taxes may no longer be necessary for many Americans. Thus, a simpler, less complex trust may be available to you.
Second, probate can be easily avoided with upgraded trusts that I will discuss below. Also, many of our clients have the bulk of their retirement assets held in accounts such as IRAs and 401(k)s, which, if handled properly, avoid probate by themselves.
Modern Trusts Can Provide for Asset Protection from New Challenges
You should consider upgrading you revocable living trust and creating a more modern asset protection trust. The reasons for using an asset protection type trust are due to new challenges and the needs that have emerged over time:
- To protect your assets from a spend down due to the costs of your long-term care;
- To protect your trust assets from the creditors, predators and divorcing spouses of your children after you die; and
3. To do the ROTH IRA Conversions with the modern IRA trust protection planning.
Modern Trusts Can Provide for New Income Tax Basis Requirements
From a tax standpoint, the good news is that for the year 2010, as of this writing, there is no federal estate tax for decedents dying in 2010; the bad news is that there is no “step-up” in income tax basis for decedent’s dying in 2010. There are, however, certain allowable limited basis adjustments, but wills and trusts must contain certain provisions to allow an executor to take advantage of these allowable adjustments, which could result in income tax savings. You should at least review your plan to be sure that your priorities (i.e., asset protection or tax savings, etc.) are reflected in it.
Modern Trusts Can Provide for Compliance with the NEW ILLINOIS ESTATE TAX Requirements
Also, while the federal estate tax is eliminated for the year 2010, the Illinois estate tax exemption is capped at $2 million. This is sometimes referred to as Illinois estate tax “decoupling”.
Illinois has joined 11 other states in enacting a state-qualified terminable interest property (QTIP) election, which is different from the federal QTIP election of I.R.C. Section 2044.
Now, a well drafted estate plan allows a married couple to leverage the estate tax exemption at both the federal level and the state level. We can demonstrate this for you with a simple illustration in my office.
The Illinois QTIP election will require that estate documents only fund the non-marital trust with the lesser of the federal or state exemption, with the balance passing to 2 QTIP-type marital trusts.
Thus, while the new Illinois law provides options for dealing with Illinois estate tax decoupling, the QTIP legislation still mandates the need to review and possibly change the funding clause in your current estate planning documents.
As long-term care planning attorneys, we are experienced with matters of elder law, estate planning, estate tax planning, and asset protection planning, as well as with disability, Public Benefits and Veterans Benefits planning. We can update your revocable living trust and possibly create one or more additional trusts that protect your assets from the new challenges and new legal requirements described above.
It is important that you note that this more modern planning involves trusts and trust asset funding that adds increased value to what you may have done previously to avoid probate and reduce federal income and estate taxes.
Contact us at 847-292-1220 and ask for Lori to set up a consultation appointment for a review of your trusts or to discuss how creating trusts may benefit you and your family.
P.S. Also, don’t miss our new workshop: “Don’t Go Broke in a Nursing Home”.
Long Term Care Planning Attorneys
The “3 Phase” Lawyers
Legal Counsel Assisting You in the 3 Phases of Your Life:
– Maturing Years – Will, Trust, Taxes, and Asset Protection
– Senior Years – Long Term Care: Pre-Planning and Crisis Planning
– Post Death Years – Estate, Probate, and Trust Administration
“Educate to Motivate”
Anthony B. Ferraro
The Law Offices of Anthony B. Ferraro, LLC
The Estate & Trust, Elder and Asset Protection Law Firm
Columbia Centre I
5600 N. River Road, Suite 764
Rosemont, IL 60018
PH (847) 292-1220
FAX (847) 292-1221
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