Estate Planning

Why Might a Client Desire a Revocable Living Trust?

Here are some reasons why you might want to establish a revocable living trust.

1.  Avoiding Probate

          The main reason that most of our clients establish a revocable living trust is to avoid having the probate court involved after their death.  In Lake County the probate court fee will be over $200 and the fee to publish a claim notice in a local newspaper for 3 consecutive weeks as required by Illinois law is less than $200.  The attorney handling the probate estate will make 2 or more court appearances before the probate judge, once to open the estate and once to close the estate (with possibly other appearances if needed). 

          If a person dies individually owning real estate in more than one state at the time of his/her death, then there could be more than one probate estate opened (because a probate judge in Illinois has no jurisdiction over real estate in another state).    

2.  Privacy

          A trust doesn’t have to be filed with the probate court, whereas a will does have to be filed after a person’s death. 

3.  Avoiding the need to inform heirs

          If there is a probate proceeding, then all of the heirs need to receive specific information and documents relating to the probate proceeding.  (An “heir” is a person who would inherit if there were no valid will.)  If the heirs’ addresses are unknown and cannot be easily determined, then an additional newspaper notice will have to be published to “give the heirs notice”.  This notice is an additional cost.  If the heirs reside overseas, the embassy or consulate of that country may need to be contacted. 

4.  The trust can be named as a beneficiary of life insurance or other assets (such as an IRA or an annuity) that pass by a beneficiary form.  This can help to make sure that particular contingent beneficiaries (such as grandchildren) are not disinherited.  If you have only one beneficiary to help, and such beneficiary is receiving government benefits such as Medicaid or SSI, then you don’t want to name the person as a direct beneficiary; it would be better to name such person as the beneficiary of your trust (and have your trust become a special needs trust at your death) and then name the trust as the beneficiary of the life insurance, IRA, annuity, or other benefit. 

          Example 1:  Donna names her three children Alice, Bob, and Carl as beneficiaries of her life insurance policy.  The beneficiary form doesn’t give Donna a place to state that the distribution to the children should be “per stirpes”, which is the distribution that Donna wants.  If any of the children die before Donna, it is her desire that the children of such deceased child receive the share that the deceased child would have received (that is a “per stirpes” distribution).  Alice has one child: Alan.  Bob has 2 children: Beth and Brenda.  Carl doesn’t have any children (and none are born before he dies). 

If Carl dies before Donna and the life insurance proceeds all go to Alice and Bob that is okay, because that is what Donna wants.  If Alice dies before Donna, the life insurance proceeds go 50% to Bob and 50% to Carl, that isn’t what Donna desires (Donna wants Alice’s share to go to Alice’s son Alan). 

          Example 2:  Ellen names her revocable trust as the beneficiary of her life insurance proceeds.  The trust states that Ellen’s three children (Alex, Ben, and Connie) are the beneficiaries. The distribution is to the 3 children per stirpes (meaning that if a child dies before Ellen, such deceased child’s children receive the share designated for the deceased child). Thus there is no risk that grandchildren will be mistakenly disinherited because the life insurance beneficiary form doesn’t allow a per stirpes distribution. 

5.  Avoiding the potential problem of one death after the other which can cause a distribution of assets that may not meet your desires

          Example:  Dennis names his 2 children (Adam and Barry) as equal beneficiaries of his life insurance proceeds.  If one of Dennis’ sons dies before him, Dennis desires that the share designated for such deceased child be paid to the children of such deceased child (per stirpes distribution).  Adam doesn’t have any children.  Barry has a daughter named Dawn.  Adam has a wife named Wilma (who is the sole primary beneficiary of Adam’s will).  Barry has a wife named Wendy (who is the sole primary beneficiary of Barry’s will). 

Dennis and his sons are driving together in the same car. There is an accident.  Dennis dies at the scene of the accident.  Adam and Barry are taken to the hospital.  Adam dies that evening.  Barry dies 2 days later.  At the time of Dennis’ death, Adam and Barry were alive and became entitled to receive the $100,000 life insurance policy that Dennis had.  When Adam died, his wife Wilma became his beneficiary (and the life insurance proceeds Adam “received” from his father Dennis then go to Wilma per the instructions of Adam’s will).  When Barry died, his wife Wendy became his beneficiary (and the life insurance proceeds Barry “received” from his father Dennis then go to Wendy per the instructions of Barry’s will).  Dennis (looking down from heaven) is not happy that Wilma got one-half of the insurance proceeds.  Dennis is happy that Wendy got one-half of the insurance proceeds (because Wendy is raising Dennis’ grandchild Dawn). 

6.  If you desire not to give your spouse the percentage that your spouse would otherwise receive under your will (in Illinois that is one-half if you die without any descendants surviving you, or one-third if you die with a descendant surviving you), then you could have your assets in a revocable trust (because your spouse doesn’t have the right to receive a specific percentage of the trust assets – unless you have a premarital agreement that states your spouse is entitled to receive a particular percentage or dollar amount of your assets).  Thus you can use a revocable living trust to disinherit your spouse (or reduce the percentage/amount that you give to your spouse if your spouse survives you). 

What if I enter a nursing home and apply for Medicaid benefits, and at such time my home (or other real estate) is owned by a “revocable” living trust?  Owning your real estate in a “revocable” living trust doesn’t provide protection from nursing home expenses.  For example: Joe is a widower (or single or divorced) and he enters a nursing home owning a house in his revocable trust.  Joe applies for Medicaid benefits to pay for his nursing home care.  If he qualifies for Medicaid, then after he has been in a nursing home for 100 days, the State of Illinois will place a lien against his home (filing the lien paperwork with the county recorder) so that if the home is sold during Joe’s lifetime, then Illinois must be paid back what money it has spent on his nursing home care.  Or after Joe’s death, when the home is sold, then Illinois must be paid back what money it has spent on his nursing home care.  {If Joe has a wife who is residing in the home, then the State can’t place a lien against the home.  But if the wife dies, and Joe then becomes the sole owner of the home, then the State can place the lien against the home.)