2014 The Gierach Law Firm. All rights reserved.

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1 Based in Naperville, IL, the business and estate planning lawyer at The Gierach Law Firm serve clients throughout northern Illinois and the Chicagoland area, including Chicago, Wheaton, Geneva, St. Charles, Oak Brook, Aurora, West Chicago, Bolingbrook, Willowbrook, Glen Ellyn, Evanston, Downers Grove, Lisle, and Naperville, as well as other communities in Cook County, DuPage County, Kane County, and Will County The Gierach Law Firm. All rights reserved.

2 Secret #1 If I have a will, no probate proceeding will be necessary. The reality: This is a fallacy a will merely gives direction as to how you would like to have the probate proceeding go. The will appoints the representative of your estate (usually called an executor). The will appoints a guardian for your minor children. And your will tells where you would want your assets to go to your family, or to your friends or to your church or another charitable organization. If your assets are listed solely in your name at your death, there will be a probate estate that is necessary to appoint an executor who will liquidate your assets, pay your taxes, pay your remaining bills and distribute your assets. There is a way to keep from having to have a probate estate. The Gierach Law Firm has prepared thousands of estate plans, including wills and trusts, which are designed to preclude the necessity of a probate estate. G i e r a c h L a w F i r m. c o m Page 2

3 Secret #2 I have a trust, so no probate estate will be necessary when I die. The reality: This is another fallacy that most people believe. The problem with that statement is that whether you have a probate estate is controlled by the title to your assets. If they are titled in joint name, neither the will nor trust controls where they go, as they go by operation of law to the surviving joint tenant. If the assets are titled in your sole name at death, you are guaranteed to need a probate estate. Your will directs where these assets go, but your executor will have be appointed by the court to be able to liquidate your assets, pay your taxes, pay your remaining bills and then make distribution of your assets to the beneficiaries stated in your will. How can you avoid a probate estate in this circumstance? The title to each asset that you own must be changed to that of your trust. Most attorneys that state that they specialize in estate planning, wills and trusts, do not do those transfers of title, instead leaving it up to you to do. The attorneys at The Gierach Law Firm handle all of the transfers of your assets into the proper trust name, which will avoid the necessity of a probate estate. G i e r a c h L a w F i r m. c o m Page 3

4 Secret #3 My Attorney will recommend using a living trust if I need it. The reality: Many attorneys who state that they specialize in estate planning, wills and trusts, recommend that their clients only use wills, rather than wills and living trusts. If living trusts make it easier on their clients families when they die, why would they not recommend them to their clients? Recently, we attended an estate planning, wills and trust conference and that very issue was discussed. Several of the attorney participants stated that they did not recommend living trusts because they make more money from handling probate estates! This is a true statement. In some jurisdictions, the attorney for the estate gets a percentage of the value of the estate as their fee for handling the estate! In other jurisdictions, where their compensation is done on an hourly basis, the attorney s fees earned from the estate greatly exceeds the cost of having a well drafted will and living trust, along with the transfer of your assets into the living trust name before you die. The attorneys at The Gierach Law Firm will work with you to devise the right estate plan for you, prepare the will and trust documents and do the transfer of the title to your assets into your trust name, saving your estate money! G i e r a c h L a w F i r m. c o m Page 4

5 Secret #4 All of my assets are in joint name or I have named beneficiaries, why do I need a will and trust? The reality: Many people ask this question, thinking that if they have set up joint accounts for each child or have already named beneficiaries for their accounts or life insurance, that will negate the need for having a will and living trust. What happens if the person needs the money in an account for their care has the child named as a joint account holder been cut out of the estate? What happens if the child who is named a joint account holder predeceases the owner of the account and that owner did not change the joint account holder to someone else? Did the owner of the account intend to cut out that child s children? What if the joint account holder is a minor child? Who will handle the account until the child attains the age of majority? The answer is to make the living trust the centerpiece document of your estate plan and to title all assets in the trust name. In that living trust, you can provide certain amounts or percentages for each of your children. If any do not survive, you can keep the share in trust for the grandchildren. The Gierach Law Firm can assist you in planning your estate to make sure that your bequests go as you plan. G i e r a c h L a w F i r m. c o m Page 5

6 Secret #5 I have life insurance and it is not taxable. The reality: Many people believe that life insurance passes to their beneficiaries free of tax. This is true in part and false in part. The true part is that life insurance proceeds are not taxable for income tax purposes. The false part is that life insurance proceeds are taxable for federal estate tax purposes. It is also taxable if your state has a state estate tax, which many states have. That being said, if the size of your estate at the date of your death is under the amount of the exemption that is allowed at that time, your estate will not pay estate taxes on the insurance proceeds. If conversely, your estate is larger than the exemption allowed, that same life insurance will still be subject to estate taxes. If you are in that circumstance, there is another option using a particular type of insurance trust. The Gierach Law Firm has handled tax planning for thousands of estates for clients. G i e r a c h L a w F i r m. c o m Page 6

7 Secret #6 Your IRA and your 401(k) is not subject to taxes upon your death. The reality: This is another fallacy. Both IRA and 401(k) plan are deferral vehicles. This means that someone received a deduction when money was transferred into the account. The other side is that when money is taken out of the account, there are income taxes that will have to be paid on the distribution. What most people do not know is that in addition to the income taxes that will have to be paid on the distribution, the entire account will be subject to estate taxes when you die! If the fair market value of your estate when you die exceeds the exemption that is in effect at that time, your entire IRA and your entire 401(k) will be subject to the highest marginal rate for estate taxes and your highest marginal rate for income taxes. The combined taxes on these accounts may exceed 70%! The Gierach Law Firm has handled tax planning for thousands of estates for clients and can plan around these taxes using various techniques. G i e r a c h L a w F i r m. c o m Page 7

8 Secret #7 There is no tax on gifts I make to my children and I get an income tax deduction for the gifts I make. The reality: When you make a gift to your children, you do not get an income tax deduction for that gift. In addition, there is a combined gift and estate tax that includes all gifts that you make. Your gift will be subject to that tax. The gift tax law allows you to have an annual exemption amount. If your gift exceeds that amount, you will then use up a part of your lifetime exemption for federal estate tax purposes. If you have already used up your lifetime exemption, then there will be a gift tax that you will need to pay on that gift. That being said, there are a couple of freebies, you can pay the medical expenses or educational expenses directly and that will not be considered a gift that is subject to gift tax. The Gierach Law Firm has handled tax planning for thousands of estates for clients. G i e r a c h L a w F i r m. c o m Page 8

9 Secret #8 No matter how I structure my estate, the administration of my estate will be hard on my family when I die. The reality: The truth is that the more you have your estate and living trust organized, the simpler it is on your family that remains behind. For instance, if you have a living trust set up and all of your assets re-titled into that trust name, with the trust listed as beneficiary of your other assets, the trustee that you appointed in your will can immediately take over with a death certificate and a copy of the trust. Once they are listed as the go-to person on the trust, they can start liquidating assets, paying your bills, having your taxes done and making distributions. If you have a more complex estate or the size of your estate is over the federal estate tax exemption, there are additional taxes to do and tax issues to resolve. The Gierach Law Firm has handled trust administration and tax work for thousands of estates for clients. G i e r a c h L a w F i r m. c o m Page 9

10 Secret #9 If I own a business, that does not affect my estate planning. The reality: This is absolutely not true. Many times, that business owned by you is a major portion of your assets. Your spouse and/or your children may be involved in that business. The income from the business may support the lifestyle of you and your spouse. You may have a partner in that business. Alternatively, you may have no one in the business who can take your place if you die, let alone become disabled. You may have one child involved in the business, but another not involved in the business. There are many planning issues that need to be dealt with that connect with estate planning. To provide for your family after your death, your trustee should be in charge of the business as the owner. You need a written succession plan or alternatively, an exit strategy. If you have not worked that succession plan out yet, at a minimum, you need to leave a list of companies that could potentially buy your company while it is still viable to provide assets in your estate for your spouse and children. There are but a few of issues that need to be addressed. The Gierach Law Firm has counseled thousands of clients on what is the proper strategy for selling their company upon death or passing it to another generation, and knowing the tax consequences of each option. G i e r a c h L a w F i r m. c o m Page 10

11 Secret #10 I can use any lawyer to handle my estate planning. The reality is: Estate planning is a specialized field. It requires a different skill set from an attorney who does personal injury work. This field requires an attorney to know how to plan estates, what are the tax consequences of the planning, incorporating specialty wording to further your goals in your documents, a knowledge of elder law, guardianship law and special needs provisions. In addition, they need to have knowledge of businesses and exit strategies for those businesses, gifting strategies for gifts of business interests, how to sell the business interests and the tax consequences. For larger estates, it is also helpful to have a thorough knowledge of the part of charitable gifts in your estate planning. The Gierach Law Firm has held and perfected these specialties for over thirty years. See our full website for more. G i e r a c h L a w F i r m. c o m Page 11