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Taking A Second Look At Your Estate Plan

It is vital to review your estate planning documents on a regular basis.

Estate plans are not meant to be static, but to be fluid and adaptable to the changing needs of your assets and family. It is important to review all documents on a regular basis to ensure they take into account changes in your family structure, such as births, deaths, divorces and marriages, and changes in the law related to taxes, regulations and other matters.

When crafting or fine-tuning your estate plan, one item to evaluate is the use of a will and/or a revocable living trust.

Both wills and trusts allow you to:

  • Name beneficiaries
  • Leave property to minors
  • Revise the document if circumstances change

Only trusts can help you to:

  • Avoid probate (required in Illinois for estates valuing more than $100,000)
  • Keep your estate plan out of public record
  • Plan for incapacitation

Only wills allow you to:

  • Name guardians and property managers for your children
  • Leave instructions for paying taxes and debts

    Marriage, divorce and other family changes

    If your marital status changed since you last drafted or reviewed your estate plan, you will most likely want to make changes. This also may be the case if you have added to your family through birth, adoption or remarriage, or if any of your intended beneficiaries have died.

    Although people don't like to think about the possibility of divorce, it is an important consideration for estate plans. Provisions can be made that pass your inheritance to your children or another beneficiary in the event of a divorce. And if a divorce has already occurred, documents can be changed to reflect these new circumstances.

    In addition to changes to your will or trust, you also may wish to review your beneficiary designation for pension plans, retirement accounts and insurance policies. Failing to keep these current can create additional financial expense and confusion among loved ones.

    Changes in Illinois law

    In addition to personal life changes, it is also vital to review your estate plan to account for changes in Illinois law. Considerations include careful attention to the following:

    Transfer tax exemption - Every person may give away a certain amount without federal tax obligation, both in their lifetimes and upon death. In 2015, this amount increased from $5,340,000 to $5,430,000. In Illinois, however, estates that are valued in excess of $4,000,000 are taxed at rates ranging from 8 to 16 percent.

    QTIP trusts - Qualified terminable interest property, or QTIP, trusts are a tool married couples can use in response to the disparity between the federal tax exemption and Illinois estate tax exemption. Without this provision, the surviving spouse may potentially face a $382,857 Illinois estate tax.

    Generation-skipping transfer (GST) - A GST tax that equals the highest estate tax rate can be assessed onto inheritances of grandchildren or other remote descendants. This is only applied to assets that exceed the $4,000,000 exemption.

    Taxable gifts - In some situations, making taxable gifts and paying a gift tax can be the most viable option. The federal government will tax the assets at a rate of 40 percent, but Illinois does not have a gift tax. This may equate to more overall savings than if estate taxes were applied.

    Retirement plan adjustments - In 2015, the elective deferral contribution limits for 401(k), 403(b) and 457(b) plans increased from $17,500 to $18,000. Additionally, the catch-up contribution for individuals age 50 and older with 401(k), 403(b) and governmental 457(b) plans increased from $5,500 to $6,000.

    When reviewing your estate plan, it is in your best interests to thoroughly review all documents with help from an experienced attorney.

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