Estate planning includes arranging your affairs and getting them in order to make things easier for your family members when the time comes. Learn about the "who, what and why" of estate planning and the elements that go into creating a successful estate plan.

1. P R O P E R T Y O W N E R S H I P
C e r t a i n p r o p e r t y o w n e r s h i p a v o i d s a p r o b a t e e s t a t e a n d
p a s s e s a s s e t s t o d e s i g n a t e d b e n e f i c i a r i e s .
ESTATE PLANNING:
Who, What, Why?
©2015 Anthony J. Madonia & Associates, Ltd. All Rights Reserved.

2. Joint Tenancy
 Two or more persons own equal and undivided interests in real or personal
property
 Equal use and enjoyment of that property during their lives
 Creates a right of survivorship transferred in equal parts to the survivors
 Property ownership is considered as joint tenants and not as tenants in
common
 When not properly titled, the property is owned as tenants in common (i.e.
each owner’s interest passes as part of his/her estate under the rules of
descent and distribution
 Joint tenancy ends when owner passes his/her interest to another party or
a creditor successfully sues and acquires the interest; this sets up a tenants
in common arrangement
 Tax consequences may exist for one or both joint tenants depending upon
the size of the estate
 Personal property may also be held as a joint tenancy with a right of
survivorship (i.e. bank accounts, stocks and bond, vehicles, etc.)

3. Tenancy by the Entirety
 Tenancy by the entirety creates a right of
survivorship
 Spouses own an undivided whole of the property
 Allow for extra creditor protection because creditors
of one spouse may not attach and sell the interest of
the debtor spouse
 Tenants cannot sell or give away any interest without
the consent of the owner tenant

4. Payable on Death Accounts
 Bank accounts held as payable on death provides
remaining assets to be paid designated beneficiary/s
 Account owner can change beneficiaries and/or
withdraw funds without notifying the beneficiaries
 Careful attention to updating beneficiaries is
necessary as proceeds will be paid to the estate of a
deceased beneficiary which may require probate

5. Payable on Death Instruments
 Owners of life insurance, annuities, and retirement benefits
may designate beneficiaries who will receive benefits upon
the owner’s death
 Beneficiaries may be natural persons or a trust
 As with Payable on Death accounts, updating beneficiaries
is necessary as proceeds are paid to the estate of a deceased
beneficiary and may require probate
 Illinois law authorizes owners of residential real estate to
transfer their real estate outside of probate using a Transfer
on Death Instrument
 The Transfer on Death Instrument must be a properly
executed and recorded deed stating that a transfer to the
named beneficiary will occur at the owner’s death
 To be valid, the deed must be recorded prior to the owner’s death

6. IRA Creditor Protection
 IRAs are generally protected from the claims of creditors and
exempt in a bankruptcy case
 The beneficiary may choose to maintain the IRA assets in an
inherited IRA for tax savings; however, inherited IRAs no longer
enjoy the asset protection of participant-owned IRAs
 Inherited IRAs are not considered “retirement funds” and are not
entitled to the bankruptcy and creditor protections afforded to
participant-owned IRAs
 The beneficiary IRA cannot make additional contributions to the account
 The beneficiary must take required minimum distributions regardless of
age
 The beneficiary can withdraw all of the funds at any time and for any
purpose without penalty
 Other types of retirement benefits may be subject to the above
restrictions

7. IRA Creditor Protection, Cont.
 Creating a Standalone Retirement Trust as beneficiary can
protect IRAs for beneficiaries
 Protects the inherited IRA from beneficiaries’ creditors and ex-spouses.
 Allows the assets to be distributed over a longer time potentially
decreasing annual income taxes while allowing the IRA time to grow
 Allows for experienced investment management and oversight of the
IRA assets
 Prevents the beneficiary from using all of the IRA proceeds immediately
 Enables proper planning for special needs beneficiaries
 Permits minor beneficiaries to be immediate beneficiaries without court-
supervised guardianship
 Spouse beneficiaries are generally able to take advantage of
traditional IRA creditor protection by rolling over a spouse’s IRA
into his/her IRA; in this case, a Standalone Retirement Trust can
be named as the contingent beneficiary

8. Portability
 Current federal estate tax exemption is $5.43 million per person;
$10.86 million per couple
 The maximum federal estate tax rate for estates valued over this amount is 40%.
 If the first spouse dies and does not use up all of the exemption, the
surviving spouse may use the unused exemption upon his/her
subsequent death (“DSUE”)
 Example: Spouse A dies with $3.43 million of assets in his/her estate. Spouse B,
the survivor, has $6 million of assets, greater than current federal estate tax
exemption. Spouse B may claim the unused $2 million from Spouse A and avoid
federal estate taxation upon death
 The portability election must be made for the DSUE claim by the Executor of the
surviving spouse’s estate on a timely, properly-prepared estate tax return
 Current Illinois estate tax exemption is $4 million per person and
spouses may NOT claim a spouse’s DSUE.
 The maximum Illinois estate tax rate for estates valued over this amount is 16%.

9. Joint Exempt Step-Up Trusts
 Each spouse has a separate revocable trust; upon the death of the
first spouse, assets may be held in a “Family Trust” or “Credit
Shelter Trust” for the benefit of the surviving spouse
 Step-Up trusts maximize estate tax savings and serve as an
irrevocable, creditor protected trust for the surviving spouse
 The surviving spouse may also have assets in a separate trust;
these assets are not protected from creditors or from the
surviving spouse’s inability to manage his/her own assets
 This could be a concern in later years if physical or mental health is
comprised nor protection from undue influences on the surviving spouse
 The surviving spouse’s assets may be subject to federal estate tax
exemption if the surviving spouse has a large enough estate
 Capital gains taxes may apply if assets have appreciated significantly
since acquisition

10. Joint Exempt Step-Up Trusts, Cont.
 Joint trusts are used frequently in community property
states; common law property states, like Illinois, typically
use individual trusts
 Joint Exempt Step-Up Trust option may provide certain tax
benefits
 A married couple titles assets into one single trust; trust assets are
considered to be held one-half for the husband and one-half for the
wife
 If there is a “step-up” in the value of the assets owned by the trust at
the death of the first spouse, the assets reset to a current fair market
value tax basis, minimizing capital gains taxes upon their sale
 Joint Exempt Step-Up Trust option maximizes the assets
that can be placed in the Family Trust or Credit Shelter
Trust for the benefit of the surviving spouse taking full
advantage of estate tax savings and creditor protection