Tag Archives | Illinois

New Illinois decanting statute allows trustees to fix some trust problems

I have a confession to make:  I am not a wine connoisseur.  There are a few wines that I enjoy, but my taste palate for wine is not very broad.

Even so, I occasionally end up discussing wine with our clients because of the concept of decanting.  Decanting is the practice of pouring wine into another container before serving it.  This is done to expose the wine to air, refreshing its flavor.  Or so I am told.

The same concept exists in trusts and estates.  Over time, a trust may not do everything it needs to do, which can be a problem if the trust is irrevocable (because, for example, the creator of the trust has passed away).  At times like this, we turn to decanting.

Decanting a trust allows the trust assets to be “poured” from one trust into another trust.  The newer trust can be designed to fix some of the problems found in the original trust.

A great example of the usefulness of decanting is in the case of special needs beneficiaries.  We often see cases where someone passes away and leaves an inheritance to a special needs relative in a general needs trust.  The problem is that, for benefits purposes, a general needs trust is treated the same as an asset of the beneficiary.  The result can be a loss of benefits for the special needs individual.

In an attempt to address this problem (and others), Illinois recently passed a law amending the Trusts and Trustees Act (Public Act 097-0920).  The new law allows trustees to decant most trusts, whether or not the trust includes the right language.

Under the new law, a general needs trust can be “poured” into a new special needs trust for the same beneficiary.  The essential parameters of the trust aren’t changed.  The trustee, beneficiary, and remainder beneficiaries are all the same.  But the special needs individual won’t lose access to their benefits

The decanted trust works better, just like decanted wine.  Same wine, but better tasting.

Of course, a special needs beneficiary is just one use for trust decanting.  But it’s good to know that Illinois has joined the list of states that allow trustees to “freshen” trusts through the use of decanting.

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Looking back at 2011: the Illinois estate tax resurfaces

The past year ushered in many changes to the Illinois estate planning landscape.  There’s a lot to cover, so I’m breaking it into three posts.  First up is the Illinois estate tax.

The Illinois estate tax rules have caught many people by surprise.  So much attention has been paid to the federal estate tax (which currently has a $5 million exemption) that many have forgotten that Illinois has an estate tax too.

Under the 2009 and 2011 Illinois estate tax rules (there was no Illinois estate tax in 2010), a person dying with an estate of $2.5 million would owe no federal taxes.  But their estate would have to write a $128,518 check to the Illinois Department of Revenue.  That big number often shocks people who think of their estates as “just a little bit over the $2.0 million limit.”

Good news arrived last week, though, for Illinois families.  On December 20, Governor Quinn signed a law raising the estate tax exclusion (the minimum estate size before Illinois estate taxes are due) from $2.0 million (currently) to $3.5 million for 2012 and $4.0 million for 2013 and beyond.

Too many times this year I’ve had clients ask whether they should consider moving to another state to avoid Illinois estate taxes.  By narrowing the gap between the Illinois and federal estate tax rules, fewer families will need to consider advanced planning techniques.

But…the good news from Illinois is tempered by the uncertainty behind the federal estate tax rules that is still hanging over everyone’s heads.  The federal estate tax exemption for 2012 is currently $5.0 million, but it drops back down to $1.0 million for 2013 and beyond.  Several proposals have been made in Congress for a permanent solution.  So stay tuned!

In Part 2, we’ll fill you in on the changes to powers of attorney.

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