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Kevin O'Flaherty

We’re amidst a new decade, and there are a slew of recent Illinois trust laws and federal tax reforms to keep all of us in the estate planning business paying close attention! There are many updates that will affect almost all of our customers, as well as a few that may not. This brief update is being sent to inform you of any new laws that can necessitate changes to your estate planning documents.

This article discusses changes to the Illinois Trust Code. We will discuss the following topics:

  • Aspects to Consider When Creating a Trust
  • Illinois Trust Document Updates
  • Additional Exemption Amounts in Illinois Trusts

Aspects to Consider When Creating a Trust

Important changes prompted by the introduction of the new Illinois Trust Code include: the ability to opt in or out of the requirement to provide trust accountings to remainder beneficiaries; the ability to opt in or out of the requirement to provide trust accountings to remainder beneficiaries; and the ability to opt in or out of the requirement to provide trust accountings to remainder beneficiaries.  

  • Choose whether or not you want your Power of Attorney representative to be able to change your trust agreement;  
  • Opt in or out of providing a “designated agent” for a beneficiary between the ages of 18 and 30 for his or her beneficial interest in your trust;  
  • Changes to the federal minimum mandatory distribution rules for inherited IRAs;  
  • Updates should be done on a regular basis;  
  • Exemptions from federal gift and estate taxes currently in effect;  
  • Prior to 2026, there will be gifting opportunities for clients with larger estates; and  
  • There are ways to stop Illinois estate tax on your Illinois home or other Illinois real estate if you have defined residency outside of the state.  

The Illinois Trust Code has been updated. Illinois has a new Illinois Trust Code that took effect on January 1, 2020, replacing the old Illinois Trusts and Trustees Act. Although the Illinois trust statute has been rewritten in its entirety, the following are some of the clauses that should be included in most clients’ Wills, trusts, and Powers of Attorney:  

  • A trustee must also give trust accountings to the trust’s remaining beneficiaries, which is a new provision (e.g., the trustee would be required to provide children with trust accountings showing them how the surviving spouse is using the trust funds). This obligation can be waived if the trust agreement or Will expressly states that no such accounting is needed.  

  • You can allow your Agent under your Power of Attorney for Property to make any or relevant amendments to your trust agreement while you are alive but unable to act for yourself if both the trust agreement and the Power of Attorney for Property expressly say so.  

  • Under the new Trust Code, a Designated Representative between the ages of 18 and 30 can be assigned to represent a current or remainder beneficiary for various purposes under the trust instrument, such as authorizing accountings and receiving trust notices. The trust agreement must include this information.  

The Setting Every Community Up for Retirement Enhancement (“SECURE”) Act, which took effect on January 1, 2020, modifies the criteria for eligible plan and IRA distributions. When IRAs or eligible plan accounts are payable to a trust (e.g., Descendants’ Trusts for children), the trust terms must be revised and possibly updated to reflect the new requirement that inherited IRAs be paid out within ten (10) years of the account owner’s death, with a few exceptions.  

Illinois Trust Document Updates

It’s always a good idea to have your estate plan checked on a regular basis. It’s time to check your documents with us if it’s been more than five (5) years. Here are some of the most common updates that clients have requested over the last few years:  

  • Since 2009, it’s been critical to include language about the Illinois “QTIP” election in married clients’ documents to ensure that there won’t be a potentially significant Illinois estate tax due upon the first of the spouses’ deaths, due to the use of obsolete formulas in documents prepared before 2005 or so.  

  • After the federal estate tax exclusion increased to $5,000,000* at the end of 2010, and then to $10,000,000* at the end of 2017, we’ve been able to simplify many of our married clients’ estate plans by removing unnecessary asset splits into separate “Family” and “Marital” Trusts, making it easier and more flexible for the surviving spouse to manage and use the assets.  

  • In 2016, Illinois enacted the Fiduciary Access to Digital Assets Act, which clarified the authority of a Power of Attorney holder, a Trustee, or an Executor to access your “digital assets” (your on-line accounts, e-mail accounts, social media accounts, etc.). If the authorization is missing from your records, please contact us to get them updated.  

Exemptions from gift, estate, and GST taxes are currently in effect. In 2020, the annual gift tax exclusion remained at $15,000; however, the lifetime gift and estate tax exclusions, as well as the GST tax exclusion, rose to $11,580,000 due to the index for inflation.  

Additional Exemption Amounts in Illinois Trusts

The increased exclusion sum of $10,000,000 for gift and estate taxes remains in place until 2025. On January 1, 2026, it is set to return to $5,000,000. The IRS released Proposed Regulations stating that any gifts made in excess of the current exclusion amount would not be “clawed back” if the exclusion amount is reduced. For clients with larger properties, there is still time to use the additional $5,000,000 in gift tax exemption until the end of 2025 to reduce the future estate tax on your estate.  

The primary residence is located in a different state. We’re considering how we can help our “non-resident” clients from paying an Illinois estate tax if they die in the state. Even if your Illinois real estate is worth less than the Illinois $4,000,000 estate tax exclusion, an Illinois estate tax may be owed if your total estate is worth $4,000,000 or more. The Illinois estate tax is measured on the total value of your taxable estate, regardless of where it is located; the Illinois estate tax is then calculated on that total value; and the resulting tax sum is prorated based on the ratio of the value of your Illinois real estate to the total value of your estate. This can be fixed by modifying the ownership structure of your Illinois property. Please contact our office to discuss your specific situation, and we will advise you on one of many options for getting your Illinois real estate out of the Illinois estate tax’s control.  

Request a consultation with an Illinois Trust and Estate Attorney. Call our office at (630) 324-6666 or schedule a consultation with one of our experienced lawyers today. You can also fill out our confidential contact form and we will get back to you shortly.

Disclaimer: The information provided on this blog is intended for general informational purposes only and should not be construed as legal advice on any subject matter. This information is not intended to create, and receipt or viewing does not constitute an attorney-client relationship. Each individual's legal needs are unique, and these materials may not be applicable to your legal situation. Always seek the advice of a competent attorney with any questions you may have regarding a legal issue. Do not disregard professional legal advice or delay in seeking it because of something you have read on this blog.

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