Category: Resources

Decanting a Trust: What does that Involve?

Decanting a Trust: What does that Involve?

When you are administering a trust and discover that the trust contains errors which make it cumbersome to administer or have instructions that you know the original drafter intended, you may wonder what it is you can do to remedy the situation. The answer to this question is likely that you need to decant the trust. But how do you do that?

Decanting a trust is a relatively straightforward process but does have very important steps that must be followed. It is important to first understand where these rules and requirements come from. 760 ILCS 3/1201 is the section of Illinois Statutes which discusses trust decanting and should be followed exactly.

When first determining whether you can decant the trust you should understand what part of the trust you are seeking to amend. If you are looking to change who the beneficiaries are, how much anyone receives, or what specific assets are given to who, STOP, as this is not a valid reason to decant a trust.

Decanting a trust is for the purpose of making the trust easier to follow and administer and to make sure that, despite the changes, the wishes of the deceased are ultimately being adhered to. A valid reason to decant a trust could be to remove the need for multiple trustees should that requirement ultimately be a serious hinderance to the effective distribution of the property. Trusts can sometimes be written when a person is at different stage in their life and the instructions, they left behind in their trust may not necessarily be as applicable to their situation as they were when they were first written. Often a settlor will update their trust throughout their life but life, as we all know, can end unexpectantly and there are plenty of times where a settlor intended to alter his trust instructions and everyone was aware of this intent but the settlor simply did not manage to fit in the time to do so before their unexpected passing.

If you are confident that you are decanting the trust for the correct reasons, you should make sure you are following the correct steps. The first step is to ensure all relevant parties are notified. To do this, you must prepare a notice to:

(1) each settlor of the first trust, if living or then in existence;
(2) each qualified beneficiary of the first trust;
(3) each holder of a presently exercisable power of appointment over any part or all of the first trust;
(4) each person that currently has the right to remove or replace the authorized fiduciary;
(5) each other fiduciary of the first trust;
(6) each fiduciary of the second trust; and
(7) the Attorney General’s Charitable Trust Bureau, if the first trust contains a charitable interest.

To be valid the notice must:

(1) specify the manner in which the authorized fiduciary intends to exercise the decanting power;
(2) specify the proposed effective date for exercise of the power;
(3) include a copy of the first-trust instrument; and
(4) include a copy of all second-trust instruments.

After this notice is sent out to all parties the party wishing to decant the trust must wait for a period of 60 days from the date the notice was sent out. Within that time any of the recipients of the notice will have the opportunity to challenge this use of the decanting power. If they do so, they must submit an application to the court to either approve or deny the application. The application alternatively may request that specific instructions be imposed by the court for the decanting or that a special fiduciary be appointed to either oversee the decanting or to determine if it is needed at all.

If you have trust you are administering that you would like to potentially decant, consider calling the Law Offices of Andrew Szocka P.C. at 815-455-8430 or by emailing us at info@szocka.com. Additionally, if you have a trust document drafted which you want to ensure is written correctly and won’t be in need of decanting, we would be happy to review it for you.  We are a well-established Crystal Lake firm with extensive experience in wills, trusts, and all aspects of estate planning. We would love to meet with you and discuss your long-term goals for your family!

Decanting a Trust: Why would you ever do that?

Decanting a Trust: Why would you ever do that?

When a trust is made and written out, it is often assumed that everything is taken care of. The rules are in place and now probate can be avoided for the assets contained within the trust. But what happens if there is a mistake in the trust? What do you do if it is found out that the way the trust is written means that the distributions will not be effectively carried out. Well, if the trust-maker is still alive, this is a pretty straightforward fix, the trust-maker makes an appointment with their attorney, explains what is wrong, a revision is drafted and then signed off on by the trust-maker. But what do you if the trust-maker has already passed on and a mistake is discovered at a later time? The answer is that you decant the trust.

Decanting a trust is a relatively straightforward procedure and offers a valuable method of revision to trusts should the trust-maker pass on while leaving an error unresolved in the trust. For example, let’s say that Mary Sue has a trust and wants to ensure that the funds put into her trust are paid out directly to her heirs upon her death. However, Mary Sue didn’t read the trust language very carefully when drafting.  In this example, Mary Sue did not realize that the way the trust was written means that all the funds must be paid out to her heirs in small increments for a long period of time or for the duration of their lives. Perhaps it was written this way because Mary did not have much money when she made the trust and thus felt it was a good idea to stretch it out. But what would happen if Mary obtained a large sum of money after this provision was written? If Mary didn’t anticipate having this amount of money and never amended her trust, it could mean that some of her money won’t be accessible by her heirs due to how her trust is worded.

Situations like this are why trust decanting is very valuable. If Mary were to die and her trust still had these instructions it could potentially mean that her heirs would be unable to access the full extent of her assets due to the rules stating that it must be paid in small increments over their lives. Mary’s appointed trustee, could decant the trust. What this would mean would be that Mary’s trustee would either create an entirely new trust with new terms, or modify the original trust with new terms. These changes are able to be made so long as there are no objections by the heirs of the trust. Changes that can be made must relate to HOW the money is distributed, not to who the money goes or how much is distributed to each person. The point of trust decanting is to allow for the effective distribution of the money which also complies with the wishes of the deceased. It is not meant to overrule the deceased, re-assign assets, or make changes to the amounts received by heirs.

Trust Decanting is a valuable tool that trustees can make use of should they find that the trusts they are administering have not been written effectively, or contain mistakes which make distribution cumbersome and ineffective. Changes like this do require a very specific set of steps. The basic steps are contained in another post on our website. However, given the challenges and potential liability a trustee can face if this process is done incorrectly, it is very important to involve an attorney if you are considering making use of this option.

If you have trust you are administering that you would like to potentially decant, consider calling the Law Offices of Andrew Szocka P.C. at 815-455-8430 or by emailing us at info@szocka.com. Additionally, if you have a trust document drafted which you want to ensure is written correctly and won’t be in need of decanting, we would be happy to review it for you.  We are a well-established Crystal Lake firm with extensive experience in wills, trusts, and all aspects of estate planning.

Special/Supplemental Needs Trust: Does My Disabled Child Need One?

Special/Supplemental Needs Trust: Does My Disabled Child Need One?

When any person is putting together a will or a trust, the most important goal is to ensure that the trust provides the greatest benefit and management of the assets. What many people may not realize is that sometimes simply giving a gift directly to an heir can actually be harmful to them. This is especially true when the heir is a disabled person, regardless of whether they are a minor or an adult.

The reason for this is that disabled individuals are often receiving government benefits which can include Medicaid and other supplemental financial assistance. Medicaid and many of these other programs are often needs based. What that means is that the government will calculate the assets and income of a disabled person to determine the amount of their government assistance. If a disabled person were to inherit a massive amount of wealth it would be considered to be income and assets. This loss of assistance can be very costly as that can be thousands of dollars that the individual would otherwise have qualified for and no longer can, due to their inheritance.

Special needs trusts help to get around these situations. Special needs trusts allow for the money or property held within them to be put towards the care and maintenance of a disabled person without replacing the benefits they would otherwise receive from Medicaid and other government benefits. There are two major types of special needs trusts; a self-funded special needs trust and a third-party special needs trust, also often referred to as a supplemental needs trust. A self-funded special needs trust is funded using the assets and income of the disabled person.  A third-party special needs trust a.k.a supplemental needs trust takes the assets and income of another person and funds the trust with that. This is what would be used if you wish to pass money and assets to your disabled child without risk of reducing their public benefits.

In creating a supplemental need trust you would establish who the disabled person is, and you would select a person or organization to serve as trustee. Once you have established the beneficiary and trustee you can outline specific rules and regulations for how the money should be administered.

You can be the trustee of your child’s trust during your life but you should always have one to two trustees in place so that, upon your death, the trust can still be administered to your child without interruption. The money contained in this trust must be used for the sole benefit of the disabled beneficiary and cannot be used for any other purpose. Gifts to family and friends, paying for vacations, and similar distributions must be done in separate trusts and documents. If there is suspicion of ineligible transfers and distributions being done in a special/supplemental needs trust, it can create a risk that the trust will not be considered a special/supplemental needs trust and thus all assets contained within it will be counted against the disabled individual as personal income and assets, which may reduce their eligibility for government assistance.

Often, supplemental needs trusts are established in a will or in an existing trust where the whole of the property is kept, the main trust then distinguishes what is to be distributed to the supplemental needs trust and the rules of the supplemental needs trust will outline how that money is to be used for the benefit of the disabled person. The main trust and the supplemental needs trust may or may not have the same trustee managing them.

A special/supplemental needs trust is a vital tool for ensuring your disabled child is properly cared for and is not at risk of losing their government assistance by receiving property from you upon your death.

If you have a disabled child who you would like to ensure is cared for after your death, consider calling the Law Offices of Andrew Szocka P.C. at 815-455-8430 or by emailing us at info@szocka.com. We are a well-established Crystal Lake firm with extensive experience in wills, trusts, and all aspects of estate planning. We would love to meet with you and discuss your long-term goals for your family!

Interpleader and Its Place in Legal Disputes

Interpleader and Its Place in Legal Disputes

One of the biggest challenges that a bank, loan provider, trustee, or any other holder of money can face is what happens when you have multiple people who are all telling you that they are the rightful owner of the money and it should be given to them. An example would be when a bank holds money that is claimed to be owned by multiple people.

When legal claims start being threatened or filed, the last thing a holder of property wants is to face the potential for double liability or to be forced through a legal case to give property to someone only to be then sued later on by the other parties who were not given the property.

When there are multiple parties, all claiming the right to money, the answer to this dilemma is to file for Interpleader. Interpleader is a type of joinder device available in a civil action, and can be brought by either the plaintiff or the defendant. What it does is it allows the property holder, also known as the stakeholder, to bring all claimants into the same action, at the same time, instead of litigating separate claimants in multiple actions. By bringing an action for Interpleader, a stakeholder can have claimants dispute the issue among themselves, determine which claimants have a rightful claim to the property, and thus allow the stakeholder to avoid multiple liability

There are two legal authorities to bring an Interpleader action under: Federal Rule of Civil Procedure 22 and 28 U.S.C. § 1335.

Interpleader Action Under 28 U.S.C. § 1335

  1. In order for an action for Interpleader to be brought under 28 U.S.C. § 1335, at least two defendants must be citizens of different States as defined in 28 U.S.C. § 1332(a) or (c), and the value of the property in controversy must be at least $500.

Interpleader Action Under Rule 22

  1. In order for an action for Interpleader to be brought under Federal Rule 22 the case must either:
    1. arise under a federal statute, a federal treaty, and/or a provision of the United States Constitution; or
    2. meets the jurisdictional requirements of 28 U.S.C. § 1332, under which no plaintiff may be a citizen of the same State as any defendant, and the amount at stake must exceed the sum or value of $75,000:

There are two parts to an interpleader action, the first part is where the stakeholder proves to the Court that they are entitled to interpleader. The second part, if the Court agrees that the stakeholder is entitled to interpleader is for the stakeholder to deposit the disputed money with the Court. Only once the money is placed with the Court is the stakeholder able to be released from the litigation and have the parties finish the litigation amongst themselves.

If you are a stakeholder facing numerous claims from multiple parties based on property you are holding onto, interpleader may be the solution to your situation. If you need assistance with an interpleader claim, don’t hesitate, call the Law Office of Andrew Szocka at 815-455-8430 or email us at szocka@szocka.com. We would be happy to assist you with your interpleader action and any other business-related matter you may have.

Knowing Your Deeds

Knowing Your Deeds

So, it’s finally time, you are about to buy your first piece of property, you’ve scoped out the house you want, made an offer that was accepted, and now you’re getting into the legal documents for the property transaction. One of the most important things you need to consider and be aware of during this real estate transaction is how you will be taking ownership of your property and how it will be deeded to you. The assurances, or lack of assurances, that you receive from your Deed massively affect your legal standing and your ability to seek reimbursement from the previous owners for defects that were or were not disclosed to you at the purchase or sale of the property. The three main types of Deeds are General Warranty Deeds, Special Warranty Deeds, and Quit Claim Deeds.

General Warranty Deeds are what most lawyers would suggest that buyers obtain if possible. These deeds provide covenants of a right to sell, of quiet enjoyment, and of freedom from encumbrances. The main point of a General Warranty Deed is that it encompasses the entire history of the Property. This Deed promises that there are no encumbrances on this property whatsoever and that the owner has the absolute right to sell the property. In a General Warranty Deed there is also a promise to defend new owners if their ownership of the Property is challenged by a third party or a previously undiscovered encumbrance comes to light.

A Special Warranty Deed is similar to a General Warranty Deed but the key difference is that the Owner is only ensuring that no defects or issues have arisen during THEIR ownership of the property, not anyone else before them. If there were previous encumbrances that the previous owners were unaware of and did not occur during their ownership, they are not liable to the buyers for the discovery of this issue and have no obligation to help defend against it.

Finally, the least encompassing deed, the Quit Claim Deed. This is a deed that should rarely be used and only in situations where both parties require no assurances from each other. The Quit Claim Deed simply conveys the property, it does not warrant against any encumbrances and makes no promises as to the Seller’s actual ownership of the Property. A Quit Claim Deed is often used between families and close friends where there is immense trust or no need to establish liability if encumbrances are discovered at a later date.

Knowing the kind of deed that you have is very important when determining your legal rights in regards to a property you take ownership of or give ownership away. Whether you are buying or selling you want to be positive you are aware of what promises you are making or are being made to you about such an important transaction.

For assistance with drafting or reviewing the deed to your next property sale or purchase, please consider contacting the Law Office of Andrew Szocka P.C. online or by phone at (815) 455-8430.