What Are the Benefits of a Living Trust in Illinois?
The situations in which Illinois estate planning attorneys would recommend itBy Super Lawyers staff | Reviewed by Canaan Suitt, J.D. | Last updated on May 4, 2023 Featuring practical insights from contributing attorney David M. Lutrey
Use these links to jump to different sections:
- How a Living Trust Works
- Avoiding Probate
- Other Situations for a Living Trust
- The Cost of a Living Trust versus a Will
- Update Your Trust Over Time
Many people associate estate planning with making a will. But there is another common estate planning tool used in Illinois: a living trust. While you might think a trust is something only the ultra-wealthy need, the truth is that there are many advantages of a living trust that can be enjoyed by nearly everyone.
How a Living Trust Works
A trust is basically any document that transfers certain property from a grantor to a trustee.
In a living trust, the grantor and the trustee are usually the same person. So, if you create a living trust and fund it with your own assets, you still retain effective control over your trust property as the trustee.
The trust documents will then name someone – a family member, loved one or whoever you chose – to take over as trustee in the event of your disability or death, as well as direct how to distribute any property remaining in the trust.
“The number one reason why people are interested in using revocable living trusts is to avoid probate,” says David M. Lutrey, an estate planning attorney at Lesser Lutrey Pasquesi & Howe in Lake Forest. “And the main reasons you might want to avoid probate are expense, privacy and ease of administration.”
Probate can happen in two different scenarios:
- Death: “If I own assets in my name and I pass away, even if I have a will, the person who is named as the executor under the will has no power unless and until that person goes to probate court and has themselves appointed as the executor,” Lutrey says. “Using a living trust takes the assets out of the range of probate. Now the successor trustee takes over when you pass away, and there’s no need to clear title to the assets.”
- Guardianship Estate: “If I have a revocable living trust and I don’t pass away but rather I become unable to manage my own affairs during my life due to an illness or injury, then my successor trustee steps in for me during my lifetime and takes care of my finances for me,” says Lutrey. “If I don’t have any estate planning and someone is trying to manage my affairs for me, they may have to go to probate court and be appointed as my guardian.”
Avoiding probate can potentially save your heirs thousands of dollars in probate fees and estate administration costs. Just as important, since trusts are not subject to probate, their terms can remain private, so nobody aside from the trust’s beneficiaries need to know what is in the trust.
Another thing to consider is that if you own real estate outside of Illinois—say, you have a second home in Arizona—putting it in a living trust can avoid the need for a secondary or “ancillary” probate in multiple states.
Other Situations for a Living Trust
“There’s a lot of flexibility with trusts, in that you can have special directions as to what’s going to happen in a wide array of circumstances,” Lutrey says.
“For example, if you are in a second marriage and you have children from a prior marriage, using revocable living trusts can be a way of helping to ensure that the children from your prior marriage actually receive your assets when you pass away. If you are in an unmarried, romantic relationship, that’s another time when a revocable living trust may be your best bet to ensure that if something happens to you, your partner receives ongoing support (upon your incapacity) or ownership of your assets (upon your passing.”
Lutrey also recommends them as a protective tool in case of disability or loss of mental capacity.
“As you age, the chances of some form of disability increase. I do get a lot of people calling, and sometimes it’s the kids to say mom or dad or both need trusts because they’re moving into assisted living. It’s time to get a revocable living trust in place so, if something happens, the child can take over for them seamlessly,” he says.
Powers of attorney can do a lot of the same as it relates to property, but there’s no requirement that the person who is named as the agent to act. And if multiple people have POA, and fail to agree on how to act, it could be a problem. A trust directs the action.
Living trusts that are irrevocable, as opposed to revocable, are mostly used for transfer tax planning, Lutrey adds. “The concept of transfer taxes is really a combination of gift and estate taxes. By giving things away now, if we do it right, we may be able to save on estate tax later when someone passes… In some cases, irrevocable trusts can be used for asset protection to place assets beyond the reach of your creditors.”
The Cost of a Living Trust versus a Will
“When it comes down to it, when my clients come in and ask me, ‘What do I need for an estate plan,’ I usually tell them that regardless of whether I prepare a will or a revocable living trust for you, I have to deal with the same information. The cost is basically identical,” Lutrey says. “So, if I have one product that is obviously superior but the same basic cost, only rarely can I justify recommending the inferior product.”
When you consider cost, it’s also worthwhile to remember that a living trust can save you money in probate administration. There is an exception in Illinois, however, for those with $100,000 or less. “Generally speaking, if you have a small estate, you can use a small estate affidavit to bypass the probate process. But anytime you’ve got over $100,000, the living trusts become more attractive,” Lutrey says.
Update Your Trust Over Time
A trust is a two-step process: setting one up with an attorney, and placing things into it. The second part is where you need to stay vigilant.
“Once you sign the documents with a lawyer, your job isn’t quite done yet,” Lutrey says. “You have to make sure that your accounts, your real estate, many of your beneficiary designations, mostly everything you own, is properly titled to make sure that, to the extent you want it, the trust is operating over those things.”
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