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Estate planning for the rest of us: most people don't own enough to owe estate tax when they die. But they still need the kind of estate-planning advice you get from a competent lawyer.

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Last Will and Testament of Mr. John A. Smith

Section I Declaration

Articles and presentations on estate planning usually focus on clients with substantial resources, as Bloomington attorney Paul Meints observes. "Wonderfully creative and complex arrangements are possible for [these] people....Trust departments, attorneys, CPas, CFPs, ChFCs and other professional advisers joyfully extend their services to clients with wealth." And historically, counseling wealthy clients on lawful methods of managing their estates so as to minimize or avoid federal estate taxes has been a prime reason for these services.

Most people today, however, have no need of estate-tax counseling because they don't own enough property to be subject to the federal estate tax. In fact, for most people, two million dollars--the current estate amount excluded from federal estate tax--would be riches almost beyond imagining.

With federal estate taxes of no concern, and with less money available for the expenses of estate planning and management, does it make any sense for attorneys to encourage clients in humbler circumstances to create estate plans? Or should lawyers abandon this market to the purveyors of do-it-yourself living-trust and will kits?

Estate planning isn't just minimizing federal estate taxes for rich people, say Meints and other experienced attorneys with estate planning practices, and lawyers should absolutely court and welcome the business of those of low to moderate wealth. Pretty much everyone, whatever their level of prosperity, wants to be able to remain independent and in their home as long as they wish, not to have their family members impoverished in the event that they must enter a nursing home, and to make sure that the persons of their choosing will receive their property on their death without costly and unpleasant disputes.

Those who have minor or disabled children also want to know that they've done what they can to ensure that those children will be cared for in the event that they are no longer able to do so. Too, everyone wants to achieve their goals while maintaining their privacy--and in as cost-effective a manner as possible.

Countering advice from nonlawyer "counselors"

A threshold challenge for the lawyer advising clients of any means is that the clients may think they or their friends, relatives, bank clerks, or brokers know better than the lawyer what their legal needs and options are. Walking hand in hand with this challenge is "the widespread mythology that probate is bad and expensive," as Joliet attorney Richard Teas puts it.

Advice from nonlawyers can be a big problem, Teas says. It's common, he reports, for bank clerks and brokers to ask someone who's opening an account, "Whose name besides yours do you want on your account?"

The rationale those nonlawyers usually give to their customers, Teas explains, is generally, "You ought to put someone else's name on your account because if you get sick you'll want someone else to be able to write checks." Fears that probate will be public and costly may also influence people to put assets into joint tenancy. The same apprehensions may make some clients susceptible to pitches from living trust salesmen.

Alas, Teas laments, "It's far too common to have a well-planned estate that goes awry because of the advice of some broker or bank clerk who wants to show how smart they are." To counteract this possibility, Meints includes at the end of his set of client instructions the following admonition: "If anyone has any questions or any suggestions on how better to handle your situation please call me first."

The not-so-painful probate process

Misinformation about probate is so prevalent that it makes sense to educate clients about the probate process first to enable them to make fully informed decisions about all aspects of their estate plan.

Clients initially should understand that probate does not have to be a costly process. "In Illinois, probate often costs less than setting up a trust," comments Teas.

Sterling lawyer Mark Zumdahl observes that misconceptions about the expense of probate may stem from the historic, though now generally disapproved and discontinued, practice of attorneys charging a percentage of the estate as their fee. But because lawyers now usually charge an hourly fee for their services in probate, attorney fees are likely to be very reasonable where an estate is neither complex nor contested, Zumdahl and the other experienced attorneys interviewed for this article say.

Second, clients of low to moderate wealth need to know that the probate of their estates may be streamlined. Meints and Zumdahl note that executors of Illinois estates of any size may opt for independent administration under Article XXVIII of the Probate Code (755 ILCS 5/28-1 et seq). Independent administration allows the estate's heirs to retain some of the same privacy afforded to trust beneficiaries because the estate inventory and accounting are simply served upon each interested person and not filed with the court.

And under Article XXV of the Probate Code (755 ILCS 5/25-1 et seq), estates of less than $100,000 may be administered without court involvement at all. Both procedures are designed to maintain heirs' privacy and minimize court time and attorney fees.

Equally important, Meints adds, is for clients to understand that disputes among heirs that require court resolution will take their estate out of independent administration or administration as a small estate, costing their estate and heirs both money and privacy. While "there are no hard and fast rules," Meints says, in some circumstances, as when it seems likely that a dispute requiring court resolution will arise, "it's just easier and often quicker"--as well as, in the end, less costly--"to open the probate estate and let the judge make the decisions for anything which is not agreed upon."

Because disputes may arise even when the stakes are small, to best advise their clients and attempt to forestall future difficulties, Meints and the other lawyers interviewed routinely ask about any family issues that could result in future problems.

Though probate is far from an evil to be avoided at all costs, it does cost both money and time, and, especially where an estate is relatively small, it can be easy and cost-effective to avoid it. Additionally, probate has one potentially serious disadvantage: Because the process includes opening a court case and notifying heirs, it may invite litigation from unhappy campers who, left undisturbed by any notices, would have caused no trouble.

On the other hand, notes Coles County lawyer Janet Grove, referring to the limitations period in which to file claims against an estate under 755 ILCS 5/18-3, "if there is a disgruntled beneficiary, opening a probate estate will start the six-month period of putting up or shutting up."

Most clients need a will

Having cleared up the mysteries of probate, the lawyer can proceed to consider the clients' needs and wishes. Attorneys agree that three documents are essential for everyone, no matter how small their estate: a will and durable powers of attorney for property and health care.

A living trust may also be appropriate, even for clients with small estates. If a client has a disabled child, and if assets are sufficient, a supplemental needs trust may also be desirable.

Some clients with relatively few assets may question whether they really need a will. After all, they reason, they can, and, perhaps, already have, put their house and bank or brokerage accounts into joint tenancy with a spouse, partner, or child.

Or, they may have opted to use the Illinois Trust and Payable on Death Accounts Act, 205 ILCS 625/1, or the Uniform ToD Security Registration Act, 815 ILCS 10/0.01 et seq, which permit payment on death (POD) or transfer on death (ToD) ownership of both real and personal property, to vest the property's ownership in their chosen beneficiary immediately upon their death. Both choices also avoid the need for those assets to pass through probate after the client's death.

Springfield attorney Michael C. Connelly and the other attorneys interviewed recognize that joint tenancy, POD or TOD accounts, and other devices commonly urged by nonlawyers, including living trusts and gifting, can be easy, inexpensive, and valuable estate planning tools for clients of moderate means as well as wealthy ones. Indeed, Connelly even allows that under the right circumstances, use of one or more of these tools may make a will unnecessary.

Zumdahl, for example, describes a common and simple estate plan for a husband and wife that bypasses probate: "Put everything into joint tenancy, and name the spouse as beneficiary of all IrAs and insurance policies." Under this scenario, the first of the spouses to die will end up not having needed a will.

But who can know which will be the first to die--or that the spouses or partners will not die together? The spouses in his example do need wills, Zumdahl explains, for whatever property remains will have to be transferred upon the death of the second to die. For this and other reasons, Zumdahl and Connelly agree with other Illinois attorneys who focus their practices on estate planning that any good estate plan, no matter what the client's income or assets, starts with a will.

"New assets may come into existence," Connelly says. "Things have a way of changing, and you never know what may happen tomorrow."

If someone who lacks a will acquires an asset and doesn't think of or get around to retitling it so that the desired beneficiary will receive it on the person's death, the law of descent and distribution found in Article II of the Probate Code (755 ILCS 5/2-1 et seq) will dictate who gets it--which may or may not be what the intestate decedent would have wanted.

Where clients have minor children, a will that includes guardianship provisions for their persons and property is also essential. To cover all bases, then, Connelly and Zumdahl recommend the preparation of a will to all of their clients. Comments Meints, "The cost of the will is often paid for many times over by the reduced paperwork and efforts associated with ... closing out one's estate."

Take an inventory, form a strategy

Connelly and the other attorneys interviewed begin an estate plan for anyone by taking an inventory of the clients' assets. Because it's not uncommon for clients of modest means to think they have less than they do, "make sure to include things people don't normally think of as assets," such as life insurance, Connelly says.

"Check and double check the beneficiaries on IRAs and retirement plans as well as the title on the clients' real estate." Connelly warns that clients often don't know whether they hold title to their real estate jointly, as tenants in common, or as tenants by the entireties--or, sometimes, with only a life estate.

He also cautions that it can be difficult to verify the clients' IRA beneficiary designations. "People don't keep records, or they lose them. It can be tough to find [the beneficiary designation] when banks have merged two or three times."

Having inventoried the clients' assets, it's time to explore the clients' wishes and needs. Are the beneficiary designations on their IRAs, life insurance policies, and retirement plans current? If not, the clients should be advised to change them.

What do the clients wish to happen to their property after their deaths? Do they have health care and property powers of attorney in place? Are they likely to have to enter a nursing home soon? If so, will they be able to pay for their care with their own assets, or will it be necessary for them to apply for Medicaid?

Joint tenancy pros and cons

Deciding how best to provide for the transfer of real or personal property after the clients' death requires the lawyer to thoroughly explore their situations. Let's say clients want property to go to the surviving spouse or partner and/or their children after their deaths. Putting property into joint tenancy with a spouse, child, or children is one effective, popular, and inexpensive strategy for ensuring that its title will vest in the survivor immediately upon death, without the need for probate or any other additional procedures.

Indeed, holding most or all property in joint tenancy with a spouse or partner may be an excellent way for the clients to achieve their goals. But different considerations may apply to holding property with children.

Grove reports that "of the clients who come in wanting their houses retitled [in the names of their children], half end up deciding not to." That's because she explains to her clients that putting property into joint tenancy with their children may subject it to the claims of their children's creditors or future ex-spouses.

If a child who's a joint tenant with the client of the client's longtime home files for bankruptcy or gets a divorce, for example, the client may end up in the unpleasant position of having to find another place to live. That can be an enormous hardship for someone who owns little besides a house. Clients should also understand that putting bank or brokerage accounts into joint tenancy with children puts those accounts at the same risk, as well as placing the funds or securities at the disposition of their children.

Using TOD and POD designations may be a better option than joint tenancy. These designations are wholly revocable under 815 ILCS 10/6 and 205 ILCS 625/3 and have no effect on ownership until the owner dies. Connelly, however, notes that problems may still arise where clients choose the POD or TOD option without sufficient attention to future contingencies.

"Let's say that a client has three CDs of equal value and puts one child on each as the POD beneficiary. Then, the client becomes disabled and one CD needs to be cashed in." Without further action on the client's part, the child who's the named POD beneficiary on that CD will lose out upon the client's death, he notes, contrary to the client's intention. An easy solution for that scenario, Connelly suggests, might be to name all three children on each CD as the POD beneficiaries.

A personal-property plan

Lawyers should discuss the clients' wishes for disposition of tangible personal property even when it is of little or no value. Are there certain items of personal property that the clients wish to go to certain beneficiaries, so that they need to be enumerated in the will, or will it suffice to direct that the children divide the personal property among them?

Because even items of slight value may become the subject of postmortem disputes, it's a good idea for the clients to specify their disposition in their wills. Clients who wish property to go to individuals or entities other than their heirs at law--friends, for example, or collateral relatives, or charities, should likewise identify that property and the chosen beneficiaries in their wills.

Minor and disabled children

Grove warns that it's inadvisable to leave property to minor children in a will, for that will necessitate the appointment of a guardian for that property. The better course, she says, is to create and name a trust for the benefit of the children as the beneficiary, whether of a will, life insurance, or 401(k) plan. The parents or parent can then determine the terms of the trust, as, for example, at what age the children should come into possession of their funds, and can choose a trustee to administer the funds.

Creating a trust, naming it as the beneficiary for a minor child, and designating a trusted grandparent, relative, or friend as trustee is particularly important for the single parent who may prefer that the other parent not end up with control over the child's funds, Grove advises.

Clients who have children who are so disabled that they will require public assistance for their support should create discretionary supplemental needs trusts for them, if they have sufficient assets to do so, to fund items that public assistance will not cover while still enabling the children to retain their public benefits. Grove says she often advises disinheriting disabled children altogether so that they will not lose their public benefits as the result of the inheritance, where clients have insufficient assets to warrant the expense of a supplemental needs trust. "If the other kids get a greater share, they may understand it's their job to take care of that sibling."

Living trusts--for some, not all

Revocable living trusts may also be advisable, even for clients of modest means, attorneys agree.

In a nutshell, here's how they work: The lawyer creates a trust that becomes the owner or beneficiary of the clients' property during their lifetimes. The terms of the trust specify how the property is to be distributed while the clients are alive and after their deaths. The clients' wills then make their trust the beneficiary of their property, which is then distributed according to the terms of the trust declaration.

The advantages to this common setup include increased privacy, for, unlike a will, the trust document remains private and is not filed with a court, and speed, for assets may be distributed without the need for probate. If a client owns real property out of state, such as a small fishing cabin, transferring ownership to a trust will avoid the need for opening up an estate in that state after the client's death. Additionally, say Meints and Zumdahl, there are fewer trust contests than will contests.

Meints, however, comments that revocable trusts are not his first choice for clients with few assets. "If you have $30,000, I'm not sure it is worth paying $2,000 for a trust." And Connelly notes that clients do not always follow through by transferring their property to their trust or making sure that they have newly acquired property titled in the trust's name.

Everyone needs a POA

However their property is held, and whatever their current health, all clients need powers of attorney for both health care and property, Grove and the other lawyers interviewed say. The reason is simple: if clients become disabled, someone has to pay the bills and make decisions for them. And a property power of attorney is necessary even if clients hold all of their property in the name of a living trust, for, as Connelly notes, someone must, at a minimum, process insurance claims and sign tax returns for clients who become disabled.

Connelly says, "Don't name anyone you don't absolutely and unconditionally trust as an agent under a power of attorney." But finding a trustee or agent under a power of attorney may be difficult for the client who does not have a trusted family member or friend who is willing to serve.

Banks and trust companies will not be likely to be interested as serving as trustees or agents under powers of attorney for estates of under $200,000 or so, and nursing homes are prohibited from doing so, as Grove notes. She and Zumdahl, like many other lawyers, counsel against a lawyer's agreeing to serve in either capacity.

Medicaid planning--whose needs are served?

Some of the most complex planning issues may arise for clients with relatively small estates when they become infirm and need or are likely to need nursing home care. Aurora attorney Connie Renzi notes the particular difficulty of advising clients on whether and to what extent they may make property transfers and still qualify for Medicaid in the event they must enter a nursing home, for Illinois has yet to adopt rules implementing the federal Deficit Reduction Act of 2005, which substantially changed the rules for Medicaid applicants.

In any event, many lawyers express significant reservations about counseling clients to make gifts of their property in order to attempt to qualify for Medicaid. As Grove remarks, "Who benefits? I don't care whether [my client's] kids inherit anything--they're not my clients."

Renzi additionally cautions that when parents inquire about making gifts to their children, it's important to make sure that the parents are willing to give up control of their assets. "Do they understand that gifting means they can't take it back?

Peoria lawyer Susan Dawson-Tibbits notes that many clients who grew up during the Great Depression are unaccustomed to spending money on themselves and are initially concerned only with preserving assets for their heirs. Yet these same clients want to remain independent and in their own homes, despite growing frailty or infirmity. She views estate planning as life care planning, saying that "clients need to spend their money on themselves to ensure that their needs are met at an early stage so that they can have the best possible quality of life for the remainder of their lives."

In addition to helping these clients prepare traditional estate plans, Dawson-Tibbits helps them focus on using their assets to help them achieve their own life care goals. Infirm clients may stave off a move to a nursing home by, for example, spending money on fixing up their homes or remodeling them to make them handicap-accessible, or bringing in home health caregivers. Dawson-Tibbits says she's also counseled clients on assisted living and supportive living options, both of which are less expensive than the skilled care offered by nursing homes or than 24-hour in-home care.

Even clients with scarce resources have choices

Dawson-Tibbits' comments, and the advice of the other lawyers consulted for this article, shows that estate planning for those with less money available may present the lawyer with special challenges.

But even clients with scant resources have choices. The lawyer who's aware of those challenges and choices can not only show clients how they can address their preferences and needs but also build a practice that's every bit as satisfying as one focused on the carriage trade.

ISBA resources on estate planning for small estates

ISBA publications contain a wealth of helpful information for the lawyer with an estate planning practice.

Basics of Estate Planning

* After witnessing litigation over a family member's will, Cynthia K. Hagemeyer developed some good estate planning advice for clients which she shares in her article, Adventures in dying: The journey of a Law Clerk, in the June 2007 issue of ISBA's Trusts and Estates Section newsletter.

* David A. Berek's article, Estate planning with the increasing exclusion amount, appeared in the August 2006 issue of the Journal, 94 Ill Bar J 440, and again in the December 2006 issue of ISBA's Trusts and Estates Section newsletter.

* For some universal lessons for estate planners from the sad story of Vickie Marshall, a/k/a Anna Nicole Smith, see Katarinna McBride's article, Anna Nicole Smith's Will: A Tragedy in Many Acts in the May 2007 issue of the Journal, 95 Ill Bar J 270.

Funding living trusts

Richard P. Miller's article, Funding Living Trusts: An Overview and Introduction, appeared in the December 2001 issue of the Journal, 89 Ill Bar J 628.

Medicaid planning

* Spousal elections in Medicaid planning, by Martin W. Siemer, appeared in the February 2007 issue of ISBA's Elder Law Section newsletter.

* Before Implementation--What is an elder law attorney to do about the Deficit Reduction Act? by Anthony J. DelGiorno, appeared in the May 2007 issue of ISBA's Elder Law Section newsletter.

* Also in the May 2007 issue of ISBA's Elder Law Section newsletter is Steven Perlis's article, N.Y. Court allows reformation of trust to conform to grantor's Medicaid planning intent.

* Impending Regs Affect Planning for Clients Facing Long-Term Care appeared in the Law-Pulse feature in the February 2007 issue of the Journal, 95 Ill Bar J 66.

* The effects of the Debt Reduction Act on Medicaid, by Michael C. Wiedel, appeared in the November 2006 issue of ISBA's Trusts and Estates Section newsletter.

* Also in the November 2006 issue of ISBA's Trusts and Estates Section newsletter, Phillip Koenig summarizes Hines v Illinois Department of Public Aid, 221 Ill 2d 222, 850 NE2d 148 (May 18, 2006). For more on Hines, see Steven C. Perlis's article, The Hines case--The story behind the story, in the June 2006 issue of ISBA's Elder Law Section newsletter, and State can't dun surviving spouse's estate for nursing home bill in the LawPulse feature in the August 2006 issue of the Journal, 94 Ill Bar J 398.

* Section Council to meet with Healthcare and Family Services Department officials regarding implementation of Deficit Reduction Act, by Peter R. Olson, appeared in the May 2006 issue of ISBA's Elder Law Section newsletter.

Supplemental needs trusts

Helping Parents Plan for Children with Special Needs, by Kerry R. Peck and D. Rebecca Mitchell, appeared in the February 2007 issue of the Journal, 95 Ill Bar J 82.

Powers of attorney

Helping Clients Make the Most of Health-Care and Property POAs, by Daniel M. Moore, Jr. appeared in the January 2003 issue of the Journal, 91 Ill Bar J 35.

Unmarried couples

What to Do When There's No "I Do," by Helen W. Gunnarsson, appeared in the June 2006 issue of the Journal, 94 Ill Bar J 292. The article touches upon the need for estate planning for unmarried couples.

More small-estate-planning resources

* Lexington, Kentucky lawyer Michael T. Palermo's A Crash Course in Wills and Trusts, available at http://www.mtpalermo.com/, explains many probate and estate planning issues clearly and in some depth.

* The Chicago law firm of Peck, Bloom, Austriaco, and Mitchell maintains a number of articles on probate and estate planning issues on its website at http://www. peckbloom.com/peckbloom_articles.html.

* Chicago lawyer Donald M. Thompson maintains basic information about probate and estate planning topics at http://www.willsandtrustschicago.com/.

* Oak Park lawyer Joel Schoenmeyer publishes commentary on estate planning and other topics on his weblog, Death And Taxes: The Blog at http://www. deathandtaxesblog.com/.

* ISBA member Charles R. Goerth, licensed in Illinois and Pennsylvania, also offers commentary on his estate-planning weblog at http://www.goerthlaw.com/.

* Lillian B. Rubin's essay, Hey, Folks, You're Spending My Inheritance, excerpted from her forthcoming book, 60 On Up: The Truth About Aging in America, appears in the fall 2007 issue of Dissent magazine. In the essay, available on line at http:// dissentmagazine.org/article/?article=887, Rubin addresses the tension adult children feel as a result of wanting their elderly parents to receive satisfactory health care but realizing that their own inheritance will, as a result, be diminished if not eliminated altogether. Rubin notes that adult children may even end up supporting their parents at the same time that they are trying to provide for their own retirements.

* Providing instructions to survivors for cleaning up e-mail and Internet accounts, which may include financial matters, is a new aspect of estate planning. Katherine Rosman discusses this topic in her article, Passing on Wills ... and Passwords in the September 1, 2007, issue of The Wall Street Journal (p A8). Separately, on page A1 of that issue, she discusses her personal experience with unraveling her deceased mother's eBay account and e-mail correspondence, in Over the Internet, Into My Mom's Heart.

Helen W. Gunnarsson, a lawyer in Highland Park, is an Illinois Bar Journal contributing writer.
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Title Annotation:Illinois
Author:Gunnarsson, Helen W.
Publication:Illinois Bar Journal
Date:Oct 1, 2007
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