Those putting together an estate plan in Illinois often choose to use a will as their primary testamentary document. A will can give someone an opportunity to name a person they trust to serve as the representative of their estate after they die. A smaller number of testators decide that they want to create a trust either in addition to or in lieu of a will. Trusts can serve a variety of different personal and financial purposes, and people in a broad range of different circumstances may determine that a trust is a great option for their estate planning needs.
The personal justifications for creating a trust are vastly different from individual to individual, but there are certain consistent financial reasons that motivate people to create trusts.
Avoiding estate taxes
Those with large estates in Illinois may have to worry about a portion of their resources going to the state and the federal government after they die. If the assets included in someone’s estate are worth $4 million or more, then estate taxes could be a concern. Those who move assets to a trust can reduce the value of their estates and can potentially lower the amount of estate taxes they owe or eliminate estate taxes entirely.
Qualifying for benefits later
Those who have too much property in their own names may not be able to qualify quickly for Medicaid coverage when they discover that they need skilled nursing support in their homes or when they need to move to a nursing home facility. Advance planning will reduce the value of an individual’s personal holdings and make it easier and faster for them to qualify for Medicaid.
Preserving resources for the next generation
Many older adults live frugally even when they have enough savings to cover their cost-of-living expenses for the foreseeable future because they want to pass as much as possible to their children, grandchildren and other selected beneficiaries when they die. Creditor claims and Medicaid estate recovery efforts could consume most or even all of the property someone has in their name when they die. The person managing their estate will have a legal obligation to use resources to repay creditors, including Medicaid, before distributing any assets to the beneficiaries of the estate. Those who move certain property into a trust before they die and before creditors take legal action against them can potentially protect those resources from probate claims.
Recognizing the financial motives that lead to people adding trust to their estate plans may help someone utilize the right tools for their intended legacy.