Estate Planning, Probate & Elder Law Attorneys

» Wall Street Journal on Will/Trust Programs

People often ask me things like, "Can't I do my Will on my own, using a computer program? Isn't it just a form?"

The answer to the second part of that is easy -- not, it's not just a form. As for the answer to the first part, I don't know. There's no reason for me to spend money buying one of these programs just so I can review it.

Today's Wall Street Journal features a comparison of a few Will/Trust computer programs (here), as part of its "Cranky Consumer" series. The biggest program with the article is that it leaves out the most important question: did the documents accomplish what they were supposed to? By "supposed to," I mean "do the documents leave property to desired beneficiaries in the most efficient manner, with no ambiguities and the fewest tax consequences, and are documents valid under the relevant state law." And yet the article completely ignores this -- here's how it ends:

Each site purports to yield documents that clearly outline our intentions in the event of our demise or death, although we didn't hire a lawyer to review them. We're hoping that we—and our heirs—won't have to worry about it any time soon.

There you go -- the author has spent $X on these programs, and has no idea whether they do what she wants them to do.

» The QTIP, Part 2

Let me add a little bit of a wrinkle to the discussion in my last post, by introducing the concept of the state estate tax. This is extremely relevant to the new Illinois QTIP statute.

Yes, most states (including Illinois) have an estate tax. But, in the past, this tax was hard to spot. Why? Because, on the federal estate tax return, you would get something called a "state death tax credit" (essentially, a credit for state estate taxes paid). And most states (again, including Illinois) had what was known as a "pick-up tax" or "sponge tax," meaning that their estate tax was equal to the state death tax credit. That made the state estate tax look almost invisible. If you owe a federal estate tax of $6 million, that's what you pay in total, but instead of all $6 million going to the federal government, a portion (equal to the state death tax credit) goes to Illinois.

Then things got even trickier. In 2001, legislation was passed raising the (federal) exemption amount over time. (Allow me to sound old: when I started practicing law, in 1996, the exemption amount was $600,000. In 2001 it was $675,000. Now it's $3.5 million.) That meant less estate tax revenue for the states with a sponge tax. To makes matters even worse, the state death tax credit was phased out. These two changes meant much less estate tax revenue for most states, so most of them hit upon a solution: change their estate tax from a pick-up tax to a real, bona fide estate tax.

That's what Illinois did, but the state set its exemption amount (also called the "exclusion amount") at $2 million instead of $3.5 million. You can imagine the problem that that causes -- most estate plans are drafted to minimize the federal estate tax. So, as I explained previously, if you are married and have a $5 million estate, it's easy to pay no estate tax upon your death:

$3.5 million to family trust (no estate tax on this, ever, because it equals the exemption amount)
$1.5 million to marital trust (no estate tax on this because of marital deduction; will be taxable in surviving spouse's estate)

But if you set up your trusts like this, then you will owe Illinois estate tax, since $3.5 million exceeds the Illinois exclusion amount.

Next time: the Illinois QTIP.

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Wealthy individuals who would rather give money to their children than the U.S. government may have a limited opportunity to put some assets in trusts that let them transfer wealth tax-free. Grantor-retained annuity trusts, known as GRATs, or irrevocable, intentionally defective grantor trusts allow the appreciation of certain assets to pass to ...