See below for information and our recommendations regarding:
- Important changes you should consider, precipitated by the adoption of the new Illinois Trust Code, including:
- Opt in or out of requirement to provide trust accountings to remainder beneficiaries;
- Opt in or out of allowing your Power of Attorney agent to amend your trust agreement;
- Opt in or out of a beneficiary between the ages of 18 and 30 having to have a “designated representative” for his or her beneficial interest in your trust; and
- Changes to the federal inherited IRA minimum required distribution rules;
- General periodic updates recommended;
- Current federal gift and estate tax exclusions;
- Gifting opportunities prior to 2026 for clients with larger estates; and
- A reminder to those who have established residency out of state that there are ways to avoid Illinois estate tax on your Illinois residence or other Illinois real estate.
New Illinois Trust Code. Effective January 1, 2020, Illinois has a new Illinois Trust Code, which replaces the former Illinois Trusts and Trustees Act. While it is a lengthy, comprehensive rewrite of the Illinois trust law, here are some of the provisions that should be incorporated into most clients’ Will, trust, and Power of Attorney documents:
• There is a new mandatory requirement for a trustee to provide trust accountings to the remainder beneficiaries of a trust (e.g., the trustee would be required to provide children with trust accountings showing them how the surviving spouse is using the trust funds). This requirement may be eliminated if it is specifically stated in the trust agreement or Will that no such accounting is required.
• If specifically stated in both the trust agreement and Power of Attorney for Property, you may authorize your Agent under your POA to make any or specific amendments to your trust agreement while you are living but unable to act for yourself.
• The new Trust Code provides that a Designated Representative may be named to represent a current or remainder beneficiary between the ages of 18 and 30, for various purposes under the trust instrument, including approving accountings and receiving notices regarding the trust. This must be specified in the trust agreement.
SECURE Act. Effective January 1, 2020, the Setting Every Community Up for Retirement Enhancement ("SECURE") Act changes the requirements for qualified plan and IRA distributions. In cases in which IRAs or qualified plan accounts are payable to a trust (e.g., Descendants’ Trusts for children), the trust provisions must be reviewed, and may need to be modified to incorporate the new requirement that, with few exceptions, inherited IRAs must be paid out within ten (10) years of the account owner’s death. Please contact our office if you would like to review these provisions.
General Updates to Documents. It’s always recommended to have your estate plan reviewed periodically. If you haven’t reviewed your documents with us in five (5) years or more, it’s time. Here are some of the updates that have been most commonly needed by clients in the past several years:
• Since 2009, it has become important to include in married clients’ documents language regarding the Illinois “QTIP” election, to ensure that there will not be a potentially large Illinois estate tax due upon the first of the spouses’ deaths, due to the inclusion of outdated formulas in documents prepared prior to 2005 or so.
• Since the federal estate tax exclusion increased at the end of 2010 to $5,000,000*, and increased again at the end of 2017 to $10,000,000*, we have been able to simplify many of our married clients’ estate plans by eliminating unnecessary splits of the assets into separate “Family” and “Marital” Trusts, making it easier and more flexible for the surviving spouse to manage and use the assets after the first death.
• In 2016, Illinois passed the Fiduciary Access to Digital Assets Act, which adopted law regarding the authority of an agent under a Power of Attorney, a Trustee, or an Executor to access your “digital assets” (your on-line accounts, e-mail accounts, social media accounts, etc.). If your documents do not include that authorization, contact us to update them.
Current Gift, Estate and GST Tax Exclusions. The annual gift tax exclusion remains at $15,000 for 2020; the index for inflation resulted in an increase in the lifetime gift and estate tax exclusion and the GST tax exclusion to $11,580,000 in 2020.
Gifting Extra Exemption Amount Through 2025. The increased gift and estate tax exclusion amount of $10,000,000* is in effect through 2025. It is scheduled to revert to $5,000,000* on January 1, 2026. The IRS issued Proposed Regulations providing that any gifts made in excess of the current exclusion amount will not be “clawed back” if the exclusion amount does in fact drop back down to the lower amount. For clients with larger estates, you have an opportunity to make gifts to reduce the potential estate tax on your estate, utilizing the extra $5,000,000 of gift tax exemption prior to the end of 2025. Contact us to discuss your options.
(*The federal estate and GST tax exclusion amounts are indexed for inflation annually.)
Primary Residence Established in Another State. Some of our clients are reading this after escaping the cold to spend the winter months in a warm state, far from Illinois. More and more of our clients are establishing residency elsewhere, but still maintaining a residence or ownership of other real estate here in Illinois. We are thinking of ways for our “non-resident” clients to alleviate the potential Illinois estate tax that may be due on death. If your total estate is worth $4,000,000 or more, even if your Illinois real estate is worth less than the Illinois $4,000,000 estate tax exclusion, there may still be an Illinois estate tax due. The Illinois estate tax calculation takes into account the value of your entire taxable estate wherever located; the Illinois estate tax is then calculated on that entire value; and the resulting tax amount is pro rated based on the ratio that the value of your Illinois real estate is to the value of your entire estate. This can be remedied by changing the form of ownership of your Illinois real estate. Please contact our office to discuss your particular situation, and we will recommend one of several options to move your Illinois real estate out of the reach of the Illinois estate tax.
Please contact our office any time, to discuss these or other questions or concerns. We look forward to hearing from you!