An Estate Plan is Essential to Achieve these 4 Important Goals

• As published by CQHV attorney Amber Desselles in the January 2023 edition of The Docket

A common understanding is that an estate plan is a compilation of legal documents created to predetermine the disposition of one’s real and personal property upon his or her death. A comprehensive estate plan will certainly establish a schedule for distribution of assets, but if done properly will accomplish much more. A thorough estate plan will lay the foundation for establishing guidance for one’s loved ones during incapacitation, can help to avoid probate, and additionally ensures a trusted fiduciary is appointed to make it all happen.

The ideal estate plan ensures that a person’s intentions are fulfilled and that he or she can pass the maximum amount of assets to beneficiaries while incurring the least amount of taxes and costs. If a person dies without a formal plan, his or her assets will instead be disposed of according to state statutes. In this article we will discuss some of the most commonly cited goals given by clients for initiating estate planning and the commonly used tools implemented to achieve these goals.

Some of the most well used estate planning tools include wills, trusts, transfer-on-death instruments and powers of attorney. The decision on which tools to implement will vary based on the client and should be need oriented and goal based. A great way to determine what a client’s goals are is to explore what initially brought them in to discuss the matter.

A common reason clients give is that they have experienced a life-event that has challenged their mortality. They may have experienced a tragedy and have seen first-hand what can happen when someone dies without an estate plan, or they may have been diagnosed with a serious illness that has caused them to think critically about what their absence would look like for their loved ones. Determining what led them to contact an attorney for estate planning assistance is often an excellent way to initiate the conversation.

Goal 1: Avoiding Probate.

A goal frequently cited by clients is the desire to avoid probate. This can be accomplished several ways. The Illinois Probate Act states that formal probate is not required where the decedent owned no real property in his or her name individually and the personal property of the decedent did not exceed $100,000.[1] Thus, the goal to avoid probate can be achieved by 1. Ensuring real property transfers by title or contract upon death, and 2. Making sure the individual’s assets transfer automatically (either by contract or via trust instrument) so as to guarantee that the fair market value of the individual’s assets that need to be transferred after death total less than $100,000. So long as this is true, the decedent’s heirs can transfer assets via the use of a small estate affidavit.

1. Removing Real Property from the Probate Estate. There are several ways to remove real property from one’s probate estate, or otherwise ensure the property automatically transfers upon death. The first consideration can be found on the face of the deed itself. If the property is held in joint tenancy, or in the case of the primary marital residence “tenancy by the entirety,” the decedent’s interest will transfer to the surviving co-owner automatically upon death. A possible issue that can arise with this method of planning is that if the co-owners die simultaneously then the property is no longer protected from probate. Additional methods commonly implemented to accomplish this particular goal of avoiding probate are the trust and the transfer-on-death instrument.
2. Trust.    The benefits of having a living trust are plentiful. Trusts can work to avoid probate, can provide an instrument for tax planning, allow for the intentional distribution of assets and provide for the immediate appointment of a fiduciary to take control of the trust assets and management upon the settlor’s death or incapacity. Transferring real property into a living trust avoids probate by removing the property from an individual’s estate. When the individual dies, the successor trustee named in the trust instrument has the automatic authority to continue managing the property. The real property is not considered as having been owned by the decedent individually for probate purposes.
3. Transfer-on-Death Instrument. A Transfer-on-Death Instrument, or a “TODI,” does exactly what it sounds like: it provides for the automatic transfer of real property upon the death of the individual owner. A TODI is similar to a deed and requires recordation with the local County Recorder’s office. Additionally, the recipient of the real property must file an acceptance of transfer to complete the transaction after the owner-transferrer’s death. Since the transfer is automatic, the requirement of probate is unnecessary.
4. Removing Personal Property from the Estate. The methods used to ensure that the total fair market value of the individual’s personal property does not exceed $100,000 are similar to those used to remove real property from the individual’s estate. Many clients will transfer assets to intended beneficiaries through gifts during their lifetime. Others will transfer assets through the use of a trust, joint tenancy or a pay-on-death assignment.
5. Trust. Assets with significant value, for example valuable art collections, boats, airplanes, mobile homes, etc., should be assigned or re-titled into the trust. The trust instrument can name specific beneficiaries for these valuable assets, or can provide for the sale and distribution of proceeds to beneficiaries. It may make sense to transfer savings accounts, brokerage accounts and even business interests into the trust as well. The goal is ensure that the fair market value of the client’s estate outside of their trust totals less than $100,000 so that the use of a Small Estate Affidavit is possible and probate can be avoided.
6. Pay-on-Death. Another way to remove personal assets from an individual’s estate is by having named beneficiaries on accounts. Retirement Accounts such as IRA’s and 401k’s, life insurance policies and other accounts where there are named beneficiaries operate as third-party contracts and are distributed directly to the beneficiaries outside of the decedent’s individual estate. It is a good idea to ensure the account has contingent beneficiaries listed in the event the named beneficiaries pre-decease the owner, and the term “per stirpes[2]” should be included where possible. In some cases, it may make sense to have a beneficiary or a contingent beneficiary be the individual’s living trust.

Goal 2: Ensuring Intentional Distribution of Assets.

Not all clients wish to avoid probate. In some cases, probate proceedings may even be desirable to protect beneficiaries by ensuring potential creditors are barred from making unexpected demands past the statutory claims period ending 6 months after the publication initiated during the probate proceedings. Avoiding probate may not be necessary for all clients as they may not own real property and may have less than $100,000 in assets that require transferring. In these cases, a simple will may be the best solution.

Every estate plan should include a Will as the initial document. A will acts as a guide that lays out the testator’s intentions for the post-mortem distribution of their assets. It also nominates an executor to act as a fiduciary in charge of ensuring the decedent’s final wishes are met, however, the document itself does not grant authority to the named executor to transfer assets. That authority comes from the court and is granted by the judge in response to a petition to open probate and appoint an executor. Once approved, the court will issue “Letters of Office” to the petitioner, which is the formal document of authority used to access accounts and sign transfer documents to move assets from the decedent’s estate to a third party.

Goal 3: Planning for Incapacitation.

Incapacitation can happen to any of us and at any time. Often it comes unexpectedly, so every client should be prepared by having an established plan to guide their loved ones during unforeseen incapacitation. Tools commonly used for this purpose include powers of attorney[3] and living trusts. Both trusts and powers of attorney provide the ability to name successor fiduciaries in the event the named individual is unable or otherwise unavailable to act.

1. Power of Attorney for Property. The power of attorney for property is a powerful legal document intended to grant broad authority to the individual’s agent to handle their financial affairs. The document goes into effect the day the individual signs it and terminates upon their death. The powers and discretions granted to the agent, defined in the power of attorney act, notably include the power and authority to effect real property transactions, access financial institution accounts and safety deposit boxes and make decisions for the individual regarding claims and litigation, to name a few. The document also nominates a named individual (the acting agent at the time) to act as a guardian should the individual be adjudicated disabled with the appointment of a guardian of their estate being necessary.
2. Power of Attorney for Healthcare. Similar to the property power of attorney, the healthcare power of attorney also becomes effective upon execution and terminates upon death. There are a few purposes for which the document survives the decedent, including the power to authorize anatomical gifts and an autopsy, as well as authorization for the disposition of remains. The named agent also has decision-making authority regarding life-sustaining treatment and end-of-life care. The document also nominates a named individual (the acting agent at the time) to act as a guardian should the individual be adjudicated disabled with the appointment of a guardian of their person being necessary.
3. Living Trust. While the power of attorney for property allows the named agent to access accounts held individually, only the acting trustee has the ability to access accounts held in the trust. A well-drafted trust instrument provides a procedure for the appointment of a successor trustee during the settlor’s incapacitation. Upon the appointment, the successor trustee will have immediate access to the trust assets and the ability to manage the individual’s affairs using trust assets during their incapacitation.

Goal 4: Ensuring Access to Digital Assets: Passwords, Keys, Crypto Accounts

Digital assets include more than just electronic currencies. The term encompasses an array of electronic assets such as social media accounts, emails, online financial account information, digital photographs and more. The Revised Uniform Fiduciary Access to Digital Assets Act[4] provides authority to fiduciaries to access and manage these electronic assets, but the language authorizing access must be included in the documents themselves. The documents should include specific language authorizing the fiduciary to exercise authority regarding all digital assets and accounts. It is important to include the language in wills, trusts and property power of attorneys.

An estate plan is important for every person to have, not just to ensure their final wishes are met but to provide for their incapacitation as well. Having a thorough, well-organized, and intentional plan in place is something everyone can use and can bring peace of mind to clients who have been putting off the task for any number of reasons. Encourage your clients to plan ahead and seek out the advice of an experienced estate planning attorney, they will thank you once it’s done!

[1] 755 Ill. Compiled Stat. 5/25-1

[2] The term “per stirpes” is Latin for “by branch” and stipulates that a share of an estate shall be given to an individual or their heirs (down the branch of their family tree) if they predecease the testator.

[3] Powers of Attorney are governed under the Illinois Power of Attorney Act, 755 ILCS 45.

[4] Revised Uniform Fiduciary Access to Digital Assets Act (2015)