Tag: beneficiary

Do You Need a Will If You Already Have Life Insurance?

Do You Need a Will If You Already Have Life Insurance?

If you already have life insurance, you may wonder why people keep saying that you need to make a will. Life insurance sounds like it will help your family out if you are not around. There are many reasons to make a will in addition to paying for life insurance.

  1. Life Insurance Provides a One-Time Payout to One Person

Life insurance requires you to make premium payments to an insurance company over time. If you pass away while the policy is in effect, the insurer will pay a lump sum to your chosen beneficiary. You can choose one or maybe more beneficiaries, but they only receive one payment. Depending on the type of policy, your family may only receive enough money to replace your income or pay expenses for a year or two. After that, the insurance will no longer help them.

In contrast, you can use a will to make gifts to many people. You are not limited to one or a few beneficiaries. Further, you can even use a will to roll your assets over into a trust. The trust can make payments to your family over time, and the trust assets may even grow in value.

  1. No Premium Payments or Term Required for a Will

To maintain life insurance, you have to make premium payments on a regular basis. These payments may not seem expensive at first. But if you fall on hard times, you could lose the insurance. You do not need to make regular payments to “afford” a will. Once you and your witnesses sign it, it will remain in effect until you die or change the will.

Further, many younger people purchase term life insurance, which stays in effect only for a specified term (such as 10 years). After the term ends, you are no longer covered. Older people often buy policies that last longer but end up costing a lot of money in premiums. Again, a will stays in effect for as long as you want with no extra cost.

  1. Dispose of All Your Assets with a Will

Life insurance assures a payment from the insurance company to a beneficiary. It has no effect on distribution of your assets after you die. You may not think you have many assets to distribute. But if you have a house, own stock, have valuable jewelry, or own a car, you have assets. Further, you might want those assets to go to specific people after you are gone. A will can give you peace of mind that your wishes will be carried out.

Want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.

What Is a Spendthrift Trust in Illinois?

If you have a relative who is bad with money but needs support, you may want to form a spendthrift trust. Many people have someone close to them who cannot manage their own money. A relative may have a gambling problem, have a mental impairment, have a lot of debt, or just need help handling finances. You might be surprised to learn that estate planning could allow you to provide for and protect a family member who is like this.

The Perils of Supporting a Family Member Who Is Bad with Money

You may think that giving money outright to a relative is the best option, even if he or she is bad with money. Or you might want to put money in an ordinary trust for the relative’s benefit. Neither of these methods are usually your best option for a few reasons:

  • Your relative may spend all the money right away
  • Creditors could access the money (even if in a trust) to satisfy debts
  • You may owe gift taxes depending on the size of your gift
  • You lose any control over how the relative spends the money

Instead, consider starting a spendthrift trust to both provide for and protect your relative.

What Is a Spendthrift Trust?

A spendthrift trust is a special type of trust that give the trustee full authority to decide how to spend trust distributions for the beneficiary’s benefit. The trust’s language explains how often the trustee needs to make distributions and may specify the amount to be spent. In addition, the trust language must include a special “spendthrift clause” explaining the settlor’s intent that the trust be a spendthrift one.

Because the beneficiary of a spendthrift trust has no authority to spend or receive trust distributions as he wishes, most creditors cannot access those distributions to satisfy debts. The typical exceptions are debts like child support, alimony, and payment for “necessaries” like food and shelter.

It is very important that your spendthrift trust include the necessary language and have an appropriate trustee. If the trust is not set up right, creditors could go after the distributions and your trust would not have the effect you expected. Talk to a lawyer about how to set up a spendthrift trust to benefit a relative.

Want to create a spendthrift trust or another type of trust? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.

What Are Discretionary and Mandatory Trust Distributions?

If you are a trustee or trust beneficiary, you may want to know more about discretionary and mandatory trust distributions. You might have questions about how often the trustee needs to make distributions and in what amounts. It is important to get answers to these questions so that the trust functions properly, as the settlor intended.

What Are Trust Distributions?

To help the trust beneficiary, the trust’s settlor permits the trustee to make periodic distributions from the trust. The settlor decides on which language to include in the trust document regarding distributions. For example, the settlor could choose to allow distributions on a regular schedule, distributions if certain events happen, or discretionary distributions at the trustee’s option. Read the trust document to determine which kinds of distributions apply for a particular trust.

What Are Mandatory Trust Distributions?

Some trusts require trustees to make mandatory distributions. These distributions might take place every month or every year. Often, a trust requires distribution of a percentage of the interest earned on trust assets during the year. Or the trust might list a specific amount of money or property to be distributed. Sometimes, mandatory distributions must happen after certain triggering events. These could include a significant birthday (turning 18 or 21, for example) or marriage.

Trustees must make mandatory distributions described in the trust document. If they do not, they could face legal liability for breaching their fiduciary duties to the beneficiaries.

What Are Discretionary Trust Distributions?

In contrast, trustees do not have to make discretionary trust distributions. They get to decide when it is appropriate to distribute money from the trust (interest or principal) to the beneficiaries. Maybe the trust assets do not earn much interest in a particular year, so the trustee decides not to make a distribution. Or a beneficiary runs into hard times and the trustee decides that a distribution would help him out. Trustees need to be careful, however, not to favor any one beneficiary over the others. They also need to carefully track distributions over time. Finally, trustees or beneficiaries with questions about distributions should seek legal advice.

Need help with a trust or will? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.

What Happens If One of Your Heirs Dies Before You?

If one of your heirs listed in your will happens to die before you, your estate gets distributed differently. It is a good idea – for your own peace of mind – to figure out who would receive the inheritance instead. Also, you should be aware of the effect that the language in your will could have on estate distribution.

Figuring Out Who Inherits When an Heir Dies Before the Testator

If an heir listed in your will dies before you, ideally you would change your will to take that person out. But not everyone has the chance to make that change. Sometimes, the testator does not even know that the heir died. When the will leaves a gift to a deceased person, there are a few options for what happens to the gift.

Often, the will’s language explains that the gift will go to someone else (a successor). The will may use language like “to the survivor” or “if John does not survive me, then to Jane”. It is important to be very clear about the language you use to describe who inherits if an heir predeceases you. In one recent case, family members got into a dispute over the meaning of the phrase “to share and share alike in equal shares or to the survivor or survivors of them.”

What If the Will Doesn’t Mention a Successor?

If the will is silent about who inherits a gift if the heir dies, it matters whether the gift is to a descendant or to a group of people. If the gift is to a single descendant (child, grandchild, etc.) of the testator, then the descendants of the heir who are alive at the time will receive the gift “per stirpes” (each branch of the family receives an equal share of the gift). In other words, if the deceased heir was the testator’s sister and she had one living child and two living grandchildren from another deceased child, then the child gets 50% of the gift and each grandchild gets 25%.

If the gift is to a group of people, and one of the people dies, then the rest of the group receives the portion of the gift that the deceased heir would have received. However, if the deceased heir is the testator’s descendant, then the rule described above for a single descendant applies.

Finally, if neither of the two situations described above apply, then the gift becomes part of the residue of the estate (anything left over after making specific gifts). Whoever inherits the residue will inherit the gift.

As you can see, determining who inherits if an heir predeceases the testator is extremely complicated. It is best to include language in your will specifying what happens if an heir dies.

Want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.

Can a Trust Creator Ever Act as the Trustee, and Why?

Sometimes, the creator of a trust also acts as its trustee. This situation most often happens when someone creates a trust intended to benefit relatives after the creator passes away.

Why Would the Trust Creator Act as the Trustee?

Often, someone placing his or her property in trust (a “settlor”) wants to maintain some control over the property. He or she might create a trust that appoints himself or herself as the trustee, at least for now. The property can get transferred into the trust, but the settlor still gets to make the management decisions. The settlor might even be one of the beneficiaries too (but cannot be the only beneficiary).

As long as the settlor is alive, he or she can manage trust property and add more property to the trust. Placing property in trust during your lifetime has many advantages, including privacy, asset protection, and sometimes tax benefits.

What Happens If the Settlor Passes Away?

If the settlor passes away, a successor trustee should take over trust management. This trustee is either named in the trust document or appointed by the court. The successor trustee picks up where the settlor-trustee left off, managing assets for the benefit of the beneficiaries.

Often, settlors structure their trusts so that assets in their estate “pour over” into their trust once they pass away. This may avoid the need for probate of the estate. It also may allow the settlor to more readily pass on assets to the trust beneficiaries over time.

If a settlor does not have a “pour over” will and trust, then assets not placed in trust before the settlor’s death must get distributed according to the will. Unfortunately, some settlors intend to transfer ownership of assets to their trust but never get around to completing the formalities. This can result in a complicated estate distribution and beneficiaries not receiving the benefits that the settlor intended. If you plan to be settlor and trustee, ensure that you complete all transfers of ownership as soon as possible.

Want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.