The beginning of what you need to know about wills and trusts:
Will. Document which states the individuals and organizations to receive property
after testator's (will preparer's) death. Typically used to name guardian of minor or
disabled children. Only affects property in the testator's own name or which may
be payable to the person's "estate" upon person's death. Does not affect joint property,
insurance which is not payable to insured's estate or property owned by a trust.
Testate. A description of the estate of a person who died with a will.
Intestate. Describes the estate of a person who dies without a will. The
property division in an "intestate estate" under Illinois law is as follows:
Spouse but no children. All to spouse.
Children and no spouse. All to children in equal shares, with
grandchilden receiving share of a deceased child.
Children and spouse. 1/2 to spouse, 1/2 to children. Even if children are
minors. This is my number 1 reason to have a will.
(Other states will have different provisions.
Remember, these provisions only apply to the property in the individual's own
name who dies without a will.)
Living Will. Statement in which person directs and authorizes physician to
terminate "death-delaying procedures" in specific, near death circumstances.
Trust. Agreement under which a person ("Grantor" or "Trustor" or "Trustmaker")
establishes terms under which property will be owned for benefit of one or more
persons. Key elements of a trust are:
Trustee - Persons or institutions having control and responsibility
of trust assets.
Beneficiary - Persons or entities for whom trust income and principal
are to be used according to the directions in the trust.
Corpus or Res. - The assets or property under the control of the trustee.
A person may be the grantor, initial trustee and initial beneficiary of his
own trust. Most revocable Living Trusts are set up with that scheme.
Testamentary Trust. A trust established by the terms of a will. I often
recommend a Children's Trust in wills for couples who may not have a current
need for a Living Trust, but who may not have a current need for a Living Trust,
but who may want a trustee to handle assets for their chldren if both parents
died. The Children's Trust established is not in effect until the second parent dies.
(If one parent dies, all of his property would go to the surviving spouse) and
it would be considered a type of testamentary trust. Other property, such as life
insurance, may be made payable to a testamentary trust.
Living Trust. Same as a Grantor Trust, Intervivos Trust. A trust established by
a document other than a will, and funded during the grantor's life. One
feature of a living trust is that the trustee is to use the trust assets for the
the grantor in the event the grantor becomes disabled. A Grantor trust will generally use the same social security number as the
grantor/beneficiary during the beneficiary's life. A new number for tax
purposes is obtained after the grantor's death.
Estate Tax. A tax imposed by United States law on property owned or otherwise
under the control of a person who dies. Assessed on the net value of the property.
No tax unless net value exceeds $675,000.
Gift Tax. Same as estate tax. Gifts over $10,000 per year per person are
counted against a person's $675,000/$1 Million.
Inheritance Tax. The federal estate tax is sometimes referred to as an inheritance
tax. Illinois imposes a tax related to the estate tax which is called the inheritance
tax. It is calculated based on the federal estate tax, and does not increase the
amount of taxes paid upon death.
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