Creating an Estate Plan: A Legal Perspective

June 2011 | Ray Koenig, III, Esq.

Proper planning will ensure that your property is distributed upon your death as you wish. It makes dealing with the issue of your death easier for your partner and your family. Furthermore, proper planning can save on taxes, allowing more property to be passed to your loved ones.

What Will Happen if I Do Not Plan? If you die without a Will or Trust (i.e., intestate) the assets titled solely in your name will be distributed pursuant to intestacy, the default rules governing to whom your estate will be distributed. While the provisions are intended to mirror how most people would want their estates distributed (i.e., first to the widow and children), intestacy laws do not protect unmarried couples. Thus, if your estate passes by intestacy and you and your partner are not civilly united or married, your partner will not receive any of your estate assets titled solely in your own name. Couples who enter into civil unions or marriage, however, are generally protected. For more information, please see the article Creating and Protecting Your Personal and Financial Legal Rights.

Last Will and Testaments

  • If you die with significant assets held solely to your name (i.e. not held in trust, not joint tenancy with the right of survivorship), a probate estate may have to be opened. The amount in question varies by state.
  • If you have a Will, the Executor you nominated in your Will generally must petition to probate your Will. This means that a judge will admit your Will to probate and your Executor will be charged with collecting and distributing your assets pursuant to the provisions in your Will.
  • The clear benefit of drafting a Will is to ensure that your partner or other individuals of your choosing will receive a part or all of your estate upon your death.
  • A specific type of Will, called a pour over will, contains language transferring some or all of your probate assets to the trustee of your Trust (if you have one). A pour over will allows the terms of your Trust, a private document, to determine how these assets are then distributed.

The Probate Process and Reasons to Avoid Probate

Probate is a process whereby a judge oversees the distribution of the estate. The amount of court involvement varies by state. The probate process is important because:

  • it provides for an orderly transfer of title for your estate;
  • it ensures that creditors receive notice, an opportunity to present their claims, and payment;
  • it extinguishes claims of creditors who do not present their claims to the probate court; and
  • it ensures that the decedent’s property is properly distributed to those who are entitled to receive it.

However, Probate can create costs and delays that are not necessary with proper planning. Tools used to avoid probate include:

  • Holding property in a Trust;
  • Holding property as Joint Tenants with Rights Survivorship; and
  • Making sure that your partner or other individuals are listed as the beneficiaries on any life insurance policies, payable on death accounts and joint tenancy accounts.

Revocable Trusts

  • In addition to providing income to you during your lifetime, a Revocable Trust can continue to operate after your death to provide for beneficiaries you select. Beneficiaries can receive income from your trust or outright principal distributions. Again, the benefit of a trust is that it is flexible and tailored to your specific needs and circumstances.
  • Any property that is in your trust passes to whomever you direct without the need to open a probate estate.

Irrevocable Life Insurance Trusts

An Irrevocable Life Insurance Trust is a trust that owns an insurance policy on your life. Since the Trust (not you) owns the policy, the life insurance proceeds payable at your death do not become a part of your estate for estate tax purposes, leaving more money to your beneficiary.
Having a life insurance policy in an Irrevocable Life Insurance Trust generally gives those you love, upon your death, more than you own. It is a way to provide for your family when you no longer can.
Depending on the value of your estate and the tax laws at the time of your death, a portion of your estate may be subject to Estate Tax. Estate Tax is a tax on your assets at the time of death.

Joint Tenancy Accounts

  • Accounts held in Joint Tenancy with Rights of Survivorship provide that if one account owner dies then that owner’s interest passes by operation of law to the surviving owner or owners.
  • Accounts held in joint tenancy pass outside of probate.

Warning: adding someone as a joint tenant means that they have the immediate right to access and withdraw the entire amount of that account. It also means that account may be subject to the joint tenant’s creditors.

Payable On Death Accounts

  • You create a payable on death account by naming a beneficiary to that account. Upon your death, typically the beneficiary need only present the bank or financial institution with a copy of your death certificate to access the funds in the account.
  • Payable on Death Accounts pass outside of probate.

And What About Taxes?

  • Proper estate planning can reduce taxes upon your death. Not everyone will be affected by estate tax. In fact, the vast majority will not. However, tax laws changes regularly and a well-written estate plan can protect your estate from many future tax changes as well.

Ray J. Koenig III, is a member in Clark Hill’s Litigation Practice Group in its Chicago office. He practices in the areas of probate litigation, trust litigation, fiduciary litigation, elder law, estate planning, and estate administration, with an emphasis on will, trust, guardianship, and advance directive contests and other fiduciary litigation. Ray has vast experience representing same-sex couples and LGBT individuals, and is frequently asked by community groups to speak on the complex planning issues facing members of the LGBT community.