How to decide whether a will or a living trust best for you

How to decide whether a will or a living trust best for you

When engaging in the estate planning process, one of the threshold issues is whether to have a will or a living trust as your primary estate planning document. There are several types of living trusts. One type is a revocable living trust where the creator of the trust (the grantor) is also the initial trustee. When considering various aspects of wills and living trusts, the revocable living trust may best meet your estate planning needs.

One of the most common misconceptions is that living trusts reduce estate taxes. They do not. The fact is that while certain provisions can be included in a living trust to reduce estate taxes for married couples, these same provisions can be included in a will, resulting in exactly the same tax savings.

A properly funded living trust does provide a means of avoiding probate proceedings that are totally unrelated to the issue of estate taxes. In Illinois, probate proceedings, which involve filing a petition and having a judge enter an order declaring that the will filed on behalf of the decedent is valid, are necessary when a person dies owning assets (other than real estate) in his name alone having a total value in excess of $100,000. Several years ago, Illinois adopted what is known as “independent administration,” which has made the probate process less cumbersome. In Kane County, the process is even more streamlined due to the fact that estates can be opened and closed by mail without ever setting foot in the courthouse.

Avoiding probate will normally reduce the cost of settling an estate; however, the savings is partially offset by the fact that establishing a living trust and funding it will typically cost substantially more than having a will prepared. In addition, fees incurred in establishing a living trust are generally not deductible for federal income tax purposes while the costs of settling an estate are deductible for either income tax or estate tax purposes. In spite of the increased costs, Illinois residents who own real estate in another state are well advised to have a living trust as their primary estate planning document because not only will they avoid probate proceedings in Illinois but also in the state where the real estate is located where the probate process may not be as streamlined.

Having a living trust does not necessarily shorten the time that it takes to settle an estate because the time frame is frequently determined by the necessity to liquidate assets and resolve estate and income tax issues before distributing the shares to the beneficiaries. However, with a living trust partial distributions to the beneficiaries can be made sooner because, when probate proceedings are necessary, the executor must wait until a six-month claim period has expired before making a partial distribution of assets to the persons designated to receive them.

As mentioned previously, the probate process is commenced by filing a petition which, along with other information, includes the approximate value of the decedent’s personal estate and real estate. This petition, along with a copy of the decedent’s will, is available for viewing at the office of the clerk of circuit court by anyone who wishes to do so. Therefore, if keeping the value of your estate and the terms of your estate plan private is important to you, you will wish to have a living trust in order to avoid probate.

Being aware of what living trusts do and do not accomplish should place you in a better position to determine the type of estate planning document that best accomplishes your estate planning goals.

Ronald Hem is an attorney and a member of the Aurora Law Firm of Alschuler, Simantz & Hem, LLC. He can be reached at hem (at) ashlaw (dot) net or 630-892-1468.

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