Estate Planning in Illinois
Estate Planning Primer
Please not: We are in the final year of the most recent estate tax law which, effectively, repealed the federal estate tax. All indications seem to point to the fact that the US Congress is expected to retroactively reinstate the unified credit at some point in 2010.
There’s no doubt about it – estate planning is complex. It is complex because estate planning is an art, not a science. There are no set rules and there is no one right answer. There are, however, a few (maybe more than a few) wrong answers. Most notably, the failure to do any sort of estate planning can lead to trouble and perhaps even disaster for your spouse, children or other family.
The key concern guiding estate planning is most certainly taxes. Many people want to avoid unnecessary estate taxation. Still others may wish to avoid federal and state income taxation during their lifetimes and pay little regard to the estate tax consequences after they have passed away. Others choose to ignore tax consequences altogether and, instead, plan with specific objectives such as providing income security for a spouse or making sure a family business stays in the family. Plans can be made for probate avoidance or even to take advantage of the benefits of the probate system.
Federal Estate Tax and Unified Credit
The federal estate and gift tax rules generally determine the basics of estate planning. The Taxpayer Relief Act of 1997 and later the Economic Growth and Tax Relief Reconciliation Act of 2001 have gone a long way toward easing the estate tax burden. Currently, the law provides that all persons are given a “unified credit” (in 2002 and 2003) of $1,000,000 of property which can be transferred by gift or at death free of gift or estate taxation. With a Republican controlled House and Senate, there may even be further modifications to the Estate Tax in the coming years. Currently, the unified credit is scheduled to increase and the estate tax rate is scheduled to decrease until 2010. After that, we go back to the rules of the Taxpayer Relief Act of 1997 if Congress takes no other action.
Certain other rules apply. For instance, there is an unlimited estate tax deduction for married persons. Thus, a spouse can transfer all of his or her income to a spouse free of any gift or estate tax. This may sound great, however, there are instances in which a person would actually want their property to be subject to estate tax. In the case of a family with an estate valued over $1,000,000, any property transferred between spouses will lead to some eventual tax on the amount over the unified credit.
For example, take a husband and wife who have $1,500,000 and one child. Without any estate planning, the husband, who holds title to the entire $1,500,000 dies. His wife takes the entire $1,500,000 estate free of estate taxes under the spousal deduction rules. Upon the death of the wife, their child will take $1,000,000 (the wife’s unified credit) free of estate tax. The remaining 500,000 will be subject to estate tax. Assuming that wife dies in 2003, the estate tax would be $245,000. This result is a bad one considering that between the husband and wife, their combined unified credit was $2,000,000.
If the husband had thought to do some estate planning, he could have taken advantage of estate planning devices that would allow his wife to have free use of the entire $1,500,000 but which would also use up his entire $1,000,000 unified credit. As such, upon the wife’s death, she would be able to pass the remaining 500,000 plus an additional 500,000 if her assets increased!
Use of Annual Exclusion Gifts
In addition to devices that allow the full utilization of the unified credit, there are a number of gifting strategies which allow a person to take control of his or her estate. The federal gift tax laws allow a person to make an unlimited number of gifts of up to 11,000 per year (currently indexed for inflation) to any persons of their choosing. These gifts do not reduce the unified credit of the person making the gift.
As such, a person with a large estate may be able to lessen its value and avoid estate taxes by giving away money that is not needed during the person’s lifetime. In addition, a number of estate planning devices allow the donor (the person making the gift) to restrict the donee (the person receiving the gift) from using the gifted monies until a certain age or condition has been met.
Further, family business planning allows a parent or grandparent to provide gifts of discounted stock to children and grandchildren over time to ensure that the business remains in the family.
The World of Estate Planning
There are a number of other devices that may be employed to help plan your estate: personal residence trusts, life insurance trusts, disclaimer trusts, etc. Your estate plan can be as simple or as complex as you like. The key ingredient is that it suits your needs and desires.
Services and Fees
Services vary based on the client’s estate planning needs. Items include simple wills, wills with contingent trusts, estate tax planning wills, estate tax planning living trusts, gifting plans, crummey trusts, and other estate planning devices.
Call to set up an appointment for a free consultation to discuss your current and future estate planning needs.
Prices vary depending upon the type of planning devices needed. In most cases, fees for estate planning documents are fixed and determined in advance of engagement.
Generally, a simple will with powers of attorney starts around $500, wills containing contingent trusts for minor children are generally $800, wills with contingent trusts and disclaimer language $1000 and a simple trust around $900 with complex estate tax avoidance beginning around $2750.
How to Get Started
The first step to the will drafting process is to think about the nature and value of your estate. Determine what specific property, if any, you wish to give to specific individuals and decide who should take or share in the remainder. Also think about who you would like to serve as executor of a will or trustee of a trust. If you have children, think about who you would like to act as guardian to take care of the children and their assets. To get this process started, please feel free to contact Richard Magnone. We are generally willing to have a short (5 to 15 minutes) initial discussion over the telephone to determine if we can assist in your situation and to determine if we might be an appropriate match to work with you. Face to face Initial consultations are by appointment only and a consultation fee is generally charged. To get this process started, please feel free to contact Richard Magnone via email or by phone at 773-399-1122.