Estate Planning

KGN Estate Planning

At Koth Gregory & Nieminski (KGN), our estate planning attorneys have over 80 years of combined experience representing the legal needs of our fellow Bloomington Normal citizens. The people at KGN have lived in McLean County for all or most of their lives. We love and care deeply about one another and the people in our community. Our goal is to first help you identify where you are in your life journey to determine what estate planning needs you have. Most estate planning issues fall into one of two categories, determining what happens to your property after you die (Wills and Trusts) or determining how your healthcare is managed when you are incapacitated or terminally ill (Health Care Directives).

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Wills & Trusts

The first step is understanding whether you should have a will, a living trust, both, or neither. There are a lot of common misconceptions about estate planning. Many people mistakenly believe that everyone should have a will. Other people mistakenly believe that they know what will happen to their property if they die without a will. Unfortunately, most people do not know what a living trust is, the pros and cons of having a living trust versus a will, and whether these are necessary for their current situation.

We recommend that most people set up a living trust as opposed to a will because it makes it much easier on the loved ones and saves them money. A living trust makes it easy to transfer property quickly and inexpensively while bypassing the slow, complex, and expensive legal process of probate through the court. Probate through the court can last up to three years and take up to 10-to-15% of your estate’s value. Setting up a living trust allows your loved ones to focus on coping with your passing as opposed to dealing with the stress, cost, and delay of the court system.

The way a living trust works is that a Living Trust Agreement is executed, which identifies your assets and the person or people (beneficiaries) who are to receive each of those assets upon your passing. The Living Trust Agreement designates a trustee who holds legal possession of the property that flows into the trust. However, you still own the property and can change who is to receive assets at any time. You can also change the trustee at any time. Neither the trustee nor the trust beneficiaries have any involvement with the assets in the trust until your death.

The only downside to a living trust is that they are a little more difficult to set up. First, you must accurately identify all of your assets and specifically designate who the intended beneficiaries are of each asset. If you hold a variety of assets, you will need to contact your different banks and agents to have everything you own moved over, which is a process that could involve a fair amount of paperwork. Also, the Living Trust Agreement is more complicated than a simple will. However, most people believe it is worth it to make the additional effort upfront to set up a living trust because they know their loved ones will be very grateful to not have to deal with the stressful pitfalls of the court system.

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Living Trust

Dying without a Will or Living Trust

In Illinois, if you die without a will or living trust, the intestate laws apply and those laws may not be consistent with your wishes. While we believe it is very helpful for most people to have a living trust or at least a simple will, it is especially important to have an estate plan if you are not okay with how your property will be disbursed according to the intestate laws, if you own property outside of Illinois, or if your estate is worth more than $4 million. If your situation falls into one of these categories, then it is essential for you to complete our basic estate planning form and meet with one of our experienced estate planning attorneys to best carry out your wishes and minimize the tax consequences to your estate and heirs.

Tax Consequences

General tax consequences
It is important to understand the potential consequences of estate tax and inheritance tax. Depending on the value of your estate, your state of residence, and the state(s) where you own property, estate tax, inheritance tax, both, or neither could apply. The difference between estate tax and inheritance tax can be thought of as the taxes before versus after a person receives an inheritance. The tax before the inheritance is the estate tax. It is the value of the decedent’s estate that is taxed. Whereas, the tax after the inheritance is the inheritance tax. This is the tax paid by the person inheriting the property after receiving the property.

Federal tax consequences
While there is no federal tax on inheritances, there is a federal tax on estates worth over $11.7 million. However, it is portable between spouses, so up $23.4 million can be protected.

Illinois tax consequences
There is no Illinois state tax on inheritances, but the inheritance tax of other states could apply if property is located there.

Illinois does have an estate tax, but the threshold is $4 million. This means that if you die and your total estate is worth less than $4 million, the estate will not owe anything to the state of Illinois. If your estate is worth more than $4 million, the entire estate is taxed but it is a graduated rate with 16% as the highest rate. However, there is an exemption for transfers to the surviving spouse. Although, unlike the federal estate tax exemption, it is not portable, meaning when the second spouse dies, the estate can only use one spouse’s exemption so only $4 million can be protected, not $8 million.

Tax consequences of other states
If you plan to move out of Illinois or own or plan to own property outside of Illinois, contact one of KGN’s knowledgeable estate planning attorneys to discuss the tax consequences of the state(s) that impact your assets.

Tax mitigation strategies
Some common tax reduction strategies include transfers during the person’s life (a.k.a. inter vivos transfers), exempt spousal transfers, gifts to family, irrevocable life insurance trusts, grantor retained annuity trusts, charitable donations, establishing a family limited partnership, and funding a qualified personal residence trust.

Irrevocable Trusts
The grantor transfers all ownership of assets into a trust and cannot revise the trust without the approval of the trust grantor’s beneficiaries. An irrevocable trust is often created for the purpose of protecting assets, reducing estate taxes, and government benefits. A revocable trust, on the other hand, allows the grantor to modify the trust, but loses certain benefits such as protection from creditors.

Health Care Directives

Health care directives are legal instructions that help ensure your wishes will be carried out if a medical emergency arises. There are many types of health care directives (often referred to as advance directives) such as a living will, medical power of attorney, do-not-resuscitate (DNR) order, do-not-intubate (DNI), Portable Order for Life Sustaining Treatment (POLST).

It is important to have healthcare directives so that all medical personnel and family members know your preferences and the health care agent acting on your behalf (medical power of attorney) is empowered to act in accordance with wishes, notwithstanding any personal objections from friends or other family members.

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