Estate Planning

A trust is a legal arrangement under which a person known as the grantor or settlor appoints another person, the trustee, to hold property subject to the terms of the trust (usually memorialized in a written document) for the benefit of the trust beneficiaries. The trustee may be an individual or a bank or trust company that has trust powers. More than one individual or entity may act as co-trustees. The trustee is the legal owner of the trust property, but the beneficiaries have the beneficial interest in the trust. A trustee is a fiduciary, meaning that the trustee owes special duties to the grantor and the beneficiaries.

The duties of a trustee are defined in the trust instrument and under the law of the state governing administration of the trust. The terms of trusts and state law can vary, but in general the trustee has the following duties:

• Duty to Administer Trust by its Terms. The trustee has a duty to administer the trust by its terms. Distributions are to be made to the beneficiaries only pursuant to the trust terms. The trust may also contain special instructions about trust investments and trust administration.
• Duty to Furnish Information. The trustee has a duty to keep the beneficiaries informed about the trust and its administration.
• Duty to Account. The trustee has a duty to periodically provide certain beneficiaries with a trust accounting of the assets, liabilities, receipts and disbursements of the trust.
• Duty to Segregate Trust Property. The trustee has a duty to keep the property of the trust separate from the trustee’s personal assets and the property of any other individual or Thus the trust property should be held in accounts that are titled in the name of the trust.
• Duty to Invest Prudently. The trustee has the duty to invest the trust assets prudently. Unless the trust otherwise directs, the trustee generally has a duty to diversify investments. A trustee generally may hire an investment advisor to assist with trust investments.
• Duty of Loyalty. The trustee must administer the trust in the interests of the trust beneficiaries and not for the benefit of the trustee’s personal
• Duty to Avoid Conflicts of Interest. The trustee has a duty not to administer the trust in a manner that creates a conflict between the interests of the beneficiaries and the trustee’s personal interests.
• Duty of Impartiality. Unless otherwise directed by the trust instrument, the trustee has a duty to treat the beneficiaries impartially. Thus the trustee must impartially balance the interests of the various current beneficiaries, as well as the interests of the current beneficiaries and the remainder beneficiaries.
• Duty of Care. The trustee has a duty to exercise reasonable care, skill and caution in administering the trust.
• Duty Not to Delegate. A trustee has a duty not to delegate to others the trustee’s responsibilities that involve the exercise of judgment and discretion (other than delegable investment duties).

An executor administers the will of a deceased person, is appointed by a court, is subject to court supervision, generally acts for a shorter period of time than a trustee and generally has narrower investment responsibility than a trustee. An executor’s job terminates after the executor completes the duties described in the FAQ titled “What are the duties of an executor?” Once the executor completes these duties, the executor is discharged by the court. A trustee administers a trust (which can be a trust established by the property owner during the lifetime of or upon the death of the property owner), is usually not appointed by a court, can be but often is not supervised by a court, and generally acts for longer periods of time and with greater investment responsibility. Although some of a trustee’s duties are similar to those of an executor, a trustee’s main focus typically is administering the trust assets for a period of years and sometimes even for the lifetimes of the beneficiaries; and the trustee’s duties usually include distributing income and principal to the beneficiaries in accordance with the provisions of the trust.

A trust may be irrevocable or revocable. A trust that is revocable may be terminated (and usually changed) by the settlor. A revocable trust provides the settlor with flexibility. The income of a revocable trust is reported on the income tax return of the settlor. The rationale is that by retaining the right to revoke the trust, the settlor has retained enough control over the property in the trust to treat it as if it were owned in his or her name. An irrevocable trust cannot be changed or terminated by the settlor. Irrevocable trusts have less flexibility, but can provide significant tax advantages.

• Revocable Living Trusts. Revocable Living Trusts are perhaps the most common type of trust. These trusts enable a settlor to be the creator, beneficiary and trustee of the trust.
• Generation-Skipping Trusts (a/k/a Dynasty Trusts). Generation- Skipping Trusts are estate tax-saving trusts that can benefit grandchildren, great-grandchildren, other more remote descendants, or other generation- skipping beneficiaries. They are often designed to last for multiple generations, or even forever, if the trust is an Illinois qualified perpetual
• Irrevocable Life Insurance Trusts (“ILITS”). ILITs are estate tax-saving trusts that own life insurance policies. The proceeds of the life insurance policy are used for the benefit of the settlor’s designated beneficiaries.
• Charitable Trusts. Charitable Trusts are trusts created to benefit charitable organizations. Often these trusts will be structured as so-called “split-interest” trusts, which provide a benefit for a non-charitable beneficiary such as a family member (or even the settlor himself or herself) and a benefit to one or more charitable organizations.

Trusts can be very useful in many situations, but they are not for everyone. The advice and expertise of a good estate planning lawyer can help you to determine whether a trust is right for you. Some examples of when a trust may be helpful are:

• For young children. If you are a parent or grandparent of a young child, you may want to provide assets for their future needs. It is generally not appropriate to give money outright to a minor A trust can be used to hold property for a minor. The trustee manages the property for the child until the child reaches a specified age or, if the settlor prefers, for the child’s life.
• For people who need help managing money. Trusts are a good idea if you want to give money (either during your life or at your death) to people who are not able to manage property This may include beneficiaries with disabilities or beneficiaries who are not able to handle money prudently.
• For disabled persons. If you wish to leave funds for the benefit of a disabled person, a properly drawn trust (often known as a special needs trust) will allow the disabled person to receive state assistance without requiring the exhaustion of the trust funds.
• To reduce estate taxes. Trusts may be useful for people with significant assets to reduce or eliminate estate taxes.
• To avoid probate. In general, if individually owned personal property in excess of the Illinois small estate limit (currently $100,000) and individually owned real property is transferred to a trust, the settlor’s estate need not be probated.
• To promote the privacy of the settlor’s estate plan. Upon an Illinois resident’s death, that person’s will must be filed with the clerk of the court in the county where the deceased person resided, but a trust agreement is not filed with the clerk of the circuit court. Thus a will is a public record. If the dispositive provisions (who gets what) of an estate plan are contained in a trust, those provisions are generally not subject to public

A guardian is a person (either an individual, a corporation with trust powers, a public agency or a not-for-profit corporation) who is charged with the care of (a) any individual who is a minor (under the age of 18) or an individual (18 or older) who has been adjudged by the court to be unable to care for himself or herself (disabled adult) or (b) the assets of any such individual. The minor or disabled adult is often referred to as the “ward.” An individual can designate a guardian for his or her minor children (usually by a will). An individual can designate a guardian (by a written instrument) for himself or herself (if of sound mind at the time of the designation) to act at a future date when such individual becomes a disabled adult. All appointments are subject to the approval of the court. For a disabled adult the guardian may be limited (powers limited as specified in the court order) or a plenary guardian (all powers granted by statute). An individual acting as guardian must be 18 or older, a resident of the United States, of sound mind, not adjudged disabled or convicted of a felony (however, the court has some leeway in this requirement).

If the guardian is charged with the care of any individual, the guardian is referred to as a guardian of the person (or personal guardian); if the guardian is charged with the care of the assets of such individual, the guardian is referred to as the guardian of the estate (or estate guardian). The same person can be the guardian of the person and the guardian of the estate, but often there are different persons serving in those capacities.

The guardian of the person of a minor is charged with the custody, nurturing and education of the minor. The guardian of the estate of a minor is responsible for the care, management and investment of the estate. The guardian of the estate shall apply the income and principal of the ward’s assets for the comfortable and suitable support and education of the ward, his/her children and persons related by blood or marriage who are dependent upon the ward or entitled to support from the ward or for any other purpose the court deems to be for the best interests of the ward. The guardian of the estate represents the ward in all legal proceedings unless another person is appointed as representative or next friend by the court. All of the preceding is subject to control by the court. The guardian of the person of a disabled adult is charged with the custody of the ward and his/her minor and adult dependent children. The guardian of the person shall procure for them and make provision for their support, care, comfort, health, education and maintenance and professional services as are appropriate. The guardian of the person shall assist the ward in development of maximum self-reliance and independence. The guardian of the estate shall apply the income and principal of the ward’s assets for the comfortable and suitable support and education of the ward, his/her children and persons related by blood or marriage who are dependent upon the ward or entitled to support from the ward or for any other purpose the court deems to be for the best interests of the ward. The guardian of the estate represents the ward in all legal proceedings unless another person is appointed as representative or next friend by the court. The court may authorize the guardian of the estate of a disabled adult to do estate planning for the ward (e.g., make gifts, change beneficiaries for insurance and retirement plans, etc., create revocable or irrevocable trusts for the benefit of the ward or others, and modify trusts or wills). All of the preceding is subject to control by the court. The guardian must periodically report to the court and expenditures by the guardian must be approved by the court. A guardian of the estate must post a bond. The guardian with the approval of the court may retain any investment received by the guardian at the time of appointment. Otherwise, investments are limited to those authorized by statute.

A standby guardian of a minor is designated by a parent or parents of a minor child (or a child yet to be born) and approved by the court. The standby guardian only assumes duties when there is no living parent who is able to assume the day-to-day care of the minor and the guardian has knowledge of this inability to act. The standby guardian can act as guardian of the estate and of the person (and with respect to acting as guardian of the person can act for up to 60 days without the direction of the court), but within 60 days must file a petition with the court for the appointment of a guardian of the person and/or estate. A standby guardian of a disabled adult is designated by the acting guardian and approved by the court. The standby guardian only assumes duties when the standby guardian has knowledge that the guardian can no longer act. The standby guardian can act as guardian of the estate and of the person (and with respect to acting as guardian of the person can act for up to 60 days without direction of the court), but within 60 days must file a petition with the court for the appointment of a guardian of the person and/or estate. A short-term guardian of a minor is designated by a parent or parents of a minor child (or a child yet to be born) and the court does not need to approve the appointment. A short- term guardian can act for up to 365 days from the date of appointment (or 365 days from the effective date if a later date is specified) as guardian of the person without direction from the court. The short-term guardian may not act as guardian of the estate, except as to benefits from any governmental unit or charity. A short-term guardian of a disabled adult is designated by the acting guardian without court approval to assume the guardian’s duties as guardian of the person (but not as guardian of the estate, except as to benefits from any governmental unit or charity) when the guardian is unavailable or unable to carry out his/her duties. The short-term guardian of a disabled adult may act for a cumulative total of 60 days within any 12-month period. With respect to a disabled adult if, prior to the appointment of a guardian, there is a showing of necessity for the immediate welfare and protection of the alleged disabled person or his/her estate, the court may appoint a temporary guardian for up to 60 days. The temporary guardian shall have the all the powers and duties of a guardian of the person or estate as are specifically enumerated by court order.