This article is the third in a series of nine articles explaining the Eight Goals of a Good Estate Plan. In this article we will discuss using a trust to ensure that your estate avoids probate when you pass.
What is Probate?
A probate case consists of court oversight of the distribution of the assets of an estate to creditors and heirs. If probate is required for a particular estate, the executor of the estate cannot simply sell the real estate owned by the deceased individual or distribute the deceased individual’s bank accounts to the estate’s heirs.
Rather, the executor must hire an attorney to prepare a petition for issuance of letters of office along with several accompanying documents. This is a petition requesting that the probate court enter an order, called letters of office, appointing the person who would be executor to the position of executor. Notice of the petition must be served on all potential heirs. Often, the executor will be required to pay a bond to the court to ensure proper administration of the estate.
After the court issues letters of office the executor, the executor will be able to use the letters of office to liquidate the assets of the estate (e.g. close out bank accounts and sell real estate). However, the executor will not be able to immediately distribute those assets to the heirs.
First, the executor must mail notice of the probate estate to known creditors and publish notice to unknown creditors in a local newspaper for three consecutive weeks. Creditors will then have 6 months to file claims.
After the 6 month claims period has expired, the executor must present a final accounting of the estate’s assets and liabilities to creditors and prepare a final report for the court. Notice of the hearing on the final report must be sent to all interested parties, after which a hearing on the final report will be held by the court. Once the final report is approved by the court, the assets can be distributed by the executor to creditors and heirs, and the probate estate can be closed. This usually takes place approximately a year after the probate estate is opened.
Why is Illinois Probate Bad?
Probate is bad for three reasons:
(1) Your loved ones cannot have access to your assets for approximately a year—until the probate case is completed;
(2) Your estate will be significantly reduced by attorney fees and court costs. Your estate will typically spend 5% to 10% of the value of the estate on attorney fees alone; and
(3) The administration of your estate will be significantly more difficult for your executor. He or she will spend a lot of time dealing with an attorney, preparing reports, and gathering information.
When is Probate Necessary in Illinois?
According to Illinois law, an individual’s estate must go through Probate if either:
(1) the deceased individual’s estate owns real estate (meaning land, a home, a townhouse, or a condominium); OR
(2) the deceased individual’s estate owns more than $100,000.00 of non-real estate assets.
A common misconception is that a simple will will allow your estate to avoid probate. This is not the case. A will can ensure that your assets are distributed appropriately in the probate case, but your case will have to go through probate with or without a will. A better estate planning option for individuals who own real estate or have a savings account is to use a revocable living trust either in place of or in conjunction with a will.
How Can I avoid Probate in Illinois?
Probate can be avoided by executed a revocable living trust and transferring your real estate and savings accounts into it during your lifetime. A revocable living trust is a legal entity that can own property. It typically provides that the creator of the trust has complete control over the property owned by the trust during his or her lifetime, and describes how the trust assets will be distributed after the creator’s death.
During your lifetime, there is no practical difference between property owned by you as an individual and property owned by your trust. However, when you pass away, property that is owned by your trust at the time of your death is not considered part of your estate.
So, we can avoid probate by taking the following steps:
(1) Create and execute a revocable living trust;
(2) Deed any real estate owned by the client into the trust;
(3) Transfer any savings accounts that are not qualified retirement accounts into the trust; and
(4) Ensure that proper beneficiaries and successor beneficiaries are named on qualified retirement accounts and life insurance policies.
Following These Steps Allows Your Estate to Avoid Probate:
• Because your life insurance policies and qualified retirement accounts will pass directly to the beneficiaries named in the account so long as there is a living beneficiary when you pass away. Therefore, as long as you have properly titled your beneficiaries, these accounts will bypass your estate for the purposes of probate; and
• Because property held by your trust does not count as part of your estate for the purposes of probate.
As you recall, probate is only necessary if your estate owns real estate or more than $100,000.00 of non-real estate assets. By transferring your assets to a trust, we are able to take them out of your estate thereby reducing the amount of property owned by your estate so as to make probate unnecessary.
What Happens if Probate is Avoided?
If, when you pass away, you own no real estate outside of a trust and less than $100,000.00 in non-real estate assets outside of a trust, then the trustee of your trust can simply download a one-page form called a Small Estate Affidavit from the probate court’s website. This form can be completed without an attorney. The affidavit simply states that there is a trust in place, that the person filling out the affidavit is the trustee of that trust, and that there is no real estate and less than $100,000.00 in non-real estate assets outside of the trust.
Once your trustee signs this affidavit before a notary, the trustee can then use this affidavit to immediately liquidate accounts and distribute assets to creditors and heirs. The time delay and cost of probate, as well as the headaches associated with it, will be avoided.
Illinois Law Blog: Learn About Law
O’Flaherty Law is based in Downers Grove, Elmhurst, and Naperville, Illinois. Our team has expertise in many areas of law including but not limited to bankruptcy law, business & corporate representation, civil litigation, criminal defense, estate planning, divorce & family law, immigration; probate, guardianship & elder law; and real estate law. If you have any questions or would like to schedule a free consultation, please e-mail us at firstname.lastname@example.org or call us at (630)324-6666.
Where You Can Read Us
O'Flaherty Law of Downers Grove
5002 Main Street, Ste. 201
Downers Grove, IL 60515
O'Flaherty Law of Downers Grove is open Monday thru Friday from 9:00 AM to 5:00 PM CST. We are available by appointment before or after our regular hours.
O'Flaherty Law has experience in legal services in the following legal practice areas: estate planning and probate; featuring wills and trusts, powers of attorney, living wills, estate tax avoidance and probate practice; real estate law; featuring commercial and residential sales and leases, foreclosure defense, short sales, REO closings and consent foreclosures, mechanic's liens and landlord and tenant disputes; family law; featuring divorces, child custody, child support, paternity, adoption and orders of protection; criminal law; featuring DUI, traffic and criminal defense; business representation; featuring entity selection, incorporation and s-corp election, bylaws and operating agreements, annual reports, annual meetings of shareholders, employment agreements, handbooks and warning and termination letters, business contracts, independent contractor agreements, trademarks and copyrights, regulation and licensing compliance and dissolution and mergers; business and personal bankruptcy; featuring Chapter 7, Chapter 11 and Chapter 13 cases; litigation; featuring commercial contract and tort law, employment and labor law, personal injury and collections; and immigration law.
Located in Downers Grove, Illinois, O'Flaherty Law serves DuPage County, Dekalb County, Will County, Cook County, Lake County, Kendall County, Kane County, McHenry County Winnebago County in Illinois, as well as the following cities: Wheaton, Naperville, Woodridge, Downers Grove, Darien, Willowbrook, Westmont, Lisle, Oak Brook, Warrenville, Glen Ellyn, Aurora, North Aurora, Batavia, Geneva, St. Charles, Lemont, Joliet, Bolingbrook, Plainfield, Crest Hill, Lake Forest, Lake Bluff, Northbrook, Highland Park and Chicago.
© 2015 by O'Flaherty Law. All rights reserved.