In this article we will explain revocable living trusts in Illinois. We will answer the following questions:
Revocable living trusts are estate planning documents that, like a will, are used to state the creator’s wishes as to the disposition of his or her property after he or she passes away. Unlike a will, a revocable living trust is a legal entity that can own property.
Because of this feature, trusts have many benefits that wills do not, such as:
The person who creates a revocable living trust is known as the grantor. The grantor will name a series of trustees who will act in succession to manage the assets of the trust according to the trusts terms for the benefit of the beneficiaries named in the trust.
During the grantor’s lifetime and while the grantor remains mentally competent, the grantor will be both the trustee and the beneficiary of the trust. This means that the grantor’s only obligation as trustee is to manage the assets owned by the trust for his or her own benefit as he or she sees fit. For this reason, when you transfer your assets from ownership in your individual name to ownership by the trust, you will not notice any practical difference. Grantors retain full control of any assets owned by their trusts.
If the grantor of a trust becomes mentally incompetent either through old age, sickness, or disease, the role of trustee will pass to the first person named by the grantor as a successor trustee who is willing and able to act in that role. All that is needed for this to occur is a doctor’s certification that the grantor is no longer competent to manage his or her own affairs.
The successor trustee will now be responsible for managing the assets of the trust for the benefit of the grantor during the remainder of the grantor’s lifetime. In the absence of a revocable living trust or a power of attorney, a guardianship proceeding would be necessary to grant the ability to manage the disabled individual’s affairs. These can often be costly, time, consuming and stressful for the disabled individual’s family.
Probate is a court case during which the court oversees the executor’s or administrator’s gathering and distributing of a deceased person’s assets. In Illinois, probate is typically required in order for a deceased person’s assets to be distributed to beneficiaries and heirs if the deceased individual owned any real estate or more than $100,000.00 in non real estate assets. For more on this, check out our article: When is Probate Required in Illinois?
We want to avoid probate if possible for three primary reasons:
We help our clients avoid probate by transferring any real estate they own as well as major savings accounts to their trust. They do not lose any control over these assets during their lifetimes. However, the assets that they transfer to their trusts will not be part of their estate when they pass away for the purpose of probate.
The goal is to ensure that the client does not own any real estate outside of his or her trust and owns less than $100,000.00 of other types of assets outside of his or her trust or payable on death accounts when he or she passes. If this is the case, then probate will not be necessary.
Instead of going through a probate case, the trustee named in the trust will be able to distribute assets immediately to the trust beneficiaries without the need to hire an attorney. The trustee will do this by showing a copy of the trust, the grantor’s death certificate, and a document called a Small Estate Affidavit to the financial institutions responsible for the grantor’s accounts.
Both a will and a trust allow the creator of the document to state how he or she would like his or her assets distributed when he or she passes. However, unlike a trust, a will does not allow the creator’s estate to avoid probate.
If a deceased individual had a will but not a trust, a probate case will typically be opened and the deceased person’s assets will be fully distributed according to the terms of the will at the conclusion of the case. If one of the heirs is a minor child, the assets will typically be distributed to the minor’s guardian.
A trust, on the other hand, allows long-term control over assets. If the terms of the trust dictate, the trust assets may be distributed immediately to the beneficiaries. However, many of our clients choose to have their successor trustees manage trust assets for the benefit of their children until the children are old enough to responsibly manage them on their own.
Parents of young children typically choose to allow their children to demand payment of ⅓ of the balance of their trust upon reaching the age of 21, ⅔ upon reaching the age of 25, and the rest of the balance upon reaching the age of 30. This prevents the child from blowing their inheritance frivolously when the child is too young to responsibly manage it.
During the entire life of the trust, the trustee will typically have discretion to pay the child more than these amounts if the trustee determines that doing so is in the child’s best interest. This means that if an 18 year old asks for trust funds to buy a sports car, the trustee can deny the request. If the 18 year old asks for funds to pay for college, the trustee can distribute the funds.
Grantors can get as creative as they like in laying out how they would like trust assets invested, managed, and distributed after they pass.
O'Flaherty Law is happy to meet with you by phone or at our office locations in: