Can the Surviving Spouse’s Award Be Taken From Assets Owned by a Revocable Living Trust in Illinois?

In this article we answer the question, “can the Surviving Spouse’s Award be taken from assets owned by a revocable living trust in Illinois?”  We also answer the following: “what is the Surviving Spouse’s Award in Illinois probate?”, “what is a Revocable Living Trust?”, “what rights does a surviving spouse have to assets owned by a Revocable Living Trust?”

What is the Surviving Spouse’s Award in Illinois Probate?

In Illinois the surviving spouse of a deceased individual is entitled to a payment from the deceased spouse’s estate that the probate court finds reasonable to support his or her standard of living for 9 months after his or her spouse’s death.  The minimum Surviving Spouse’s Award in Illinois is $20,000.00 plus an additional $10,000.00 per dependent child.  

The Surviving Spouse’s Award is only granted to the extent that there are enough assets in the estate to pay it after paying funeral expenses.  If an estate does not have enough assets to pay all claims, the Surviving Spouse’s Award takes precedence over creditors’ claims, taxes, and payments to beneficiaries of the estate.   

For more on this, check out our article: Surviving Spouse’s Rights in Illinois Probate.

What is a Revocable Living Trust?

A trust is a legal entity that can own property separate and apart from its creator allows its creator, known as “the grantor.”  It is also the document that sets forth how that property is to be managed and distributed once it is transferred into the trust.  The grantor of a trust will specify a trustee who is responsible for managing the assets of the trust for the benefit of the beneficiaries of the trust according to the trusts’ terms.

Revocable Living Trusts are commonly used as primary vehicles of estate plans instead of or in addition to wills.  A Revocable Living Trust allows the grantor to retain full control of the assets in the trust during his or her lifetime and to change the trusts terms or revoke it at will.  For this reason, assets transferred to a Revocable Living Trust are treated as the grantor’s assets during the grantor’s lifetime for many purposes, including tax purposes.

For more on this, check out our article: Illinois Revocable Living Trusts Explained.

Upon the grantor’s death, the assets owned by a Revocable Living Trust will not go through probate or be part of the grantor’s probate estate.  Probate is a court case whereby the court oversees the collection of a deceased individual’s assets and distribution of those assets to creditors, heirs and estate beneficiaries.  The trustee of a Revocable Living Trust can begin managing and distributing assets owned by the trust immediately upon the death of the grantor, without going through the probate process.  

What rights does a surviving spouse have to assets owned by a Revocable Living Trust?

In Illinois assets owned by a Revocable Living Trust at the time of the grantor’s death are generally not subject to the Surviving Spouse’s Award so long as the grantor’s transfer of assets to the trust is not “fraudulent.”  

The term “fraudulent” in this context is a term of art used by Illinois courts that is different from the term’s ordinary usage.  A transfer of assets to a Revocable Living Trust is only “fraudulent” for the purposes of the Surviving Spouse’s Award if it either “illusory” or “colorable.”  These are two more terms of art.  

An “illusory” transfer to a Revocable Living Trust is one that “takes back all that it gives,” meaning that the assets are not truly owned by the trust at all, but in reality continue to be owned by the grantor outside of the trust at the time of the transfer.  

A “colorable” transfer to a Revocable Living Trust occurs when there is a tacit understanding between the transferor and transferee such that the parties understand the ownership of the assets to be retained by the transferor.  

The fact that a transfer is made to a Revocable Living Trust with the specific intent of avoiding the Surviving Spouse’s Award does not make the transfer “fraudulent.”  

While the legalese used by the case law on this subject is somewhat arcane and confusing, the upshot is that the Surviving Spouse’s Award may not be taken from standard Revocable Living Trusts, as commonly used for estate planning purposes.  Revocable Living Trusts can even be used as an intentional tool by their creators to avoid the Surviving Spouse’s Award.  

If a Revocable Living Trust is the primary vehicle of an estate plan, the Surviving Spouse’s Award can only be exercised to the extent that the deceased individual owned assets outside of the Revocable Living Trust.