What is the difference between testate and intestate?

A person who dies without a will is known as dying intestate. But, if someone passes away with a will is known as dying testate.

The most significant difference between testate and intestate is that if someone dies testate, then the decedent’s assets can be transferred according to the last will and testament terms. But if someone dies intestate, then the assets are transferred to the distributees.

What does it mean when a person dies testate?

This means that when a person died, he or she had a valid will, i.e., he or she “died testate.”

What does it mean when a person dies intestate?

This means that when a person died, he or she did not have a will, i.e., “died “died intestate.”

What does Testator mean?

A testator is someone who makes a will – which is sometimes called a testament.

Is it worth having a trust?

There are many kinds of trusts. The central feature is that property is given to one person to hold and manage and invest for the benefit of another. The person who holds the property is called a trustee. The trustee may be an individual or a bank trust department or trust company. The banks and trust companies usually get paid for their services. There can be one or several trustees. The person or persons for whom the property is held are called the trust’s beneficiary or beneficiaries. (The word beneficiary is also used in many other contexts, i.e., the beneficiary of an estate or beneficiary of a life insurance policy or a pension plan.)

The terms of the trust can give trustees wide powers. If not, their powers are more restricted by statute. For example, they do not ordinarily hold speculative assets or make risky investments. Without specific directions, they are not allowed to conduct active businesses. But the trust can allow or direct them to do so. In this way, family businesses can be held in trust for family members who may not be capable of running them. The trust can also delegate management authority to persons who may be more capable of exercising it than the trustee.

A trust commonly contains directions as to who gets the income, whether that person can get principal, and when. After a fixed or measurable period of time or on that person’s death, the trust usually provides that someone else then gets the income interest or that the trust is to terminate. On termination, the trust specifies who gets the trust assets.

Any type of property can be held in trust, but most trust assets consist of income-producing property such as stocks, bonds, CDs and rental real estate. The trustee’s duty and objective usually is to hold property producing income and preserve that property’s value.

A person can create a trust while he or she is living or in his or her will. A person can also be the trustee of a trust he or she creates. The person who creates a trust can also be a beneficiary of the trust and the trustee. All trusts are irrevocable and cannot be changed unless the person who creates them explicitly retains that right or gives it to someone else.

What is a total return trust?

Trusts usually provide that someone gets the income from the trust assets for a defined term, and after that, someone else gets the trust assets. The person getting the income is called the income beneficiary, and the other person is called the remainderman. The trustee is obligated to act in the interests of both. Traditionally interest and dividends were the types of income distributable to the income beneficiary. Capital appreciation was not. Stocks these days do not pay very high dividends. Most of the return on stocks has been coming from appreciation in value. To achieve a significant rate of return for the income beneficiary, the trustee usually has to invest in bonds. The bonds do not grow in value significantly, and this creates tension with the remaindermen. To deal with this dilemma, total return trusts have been created. In a total return trust, the trustee is told to pay a percentage of the trust assets each year to the income beneficiary – usually 3 – 5%. Sometimes the direction is to pay the greater of the trust accounting income (dividends and interest) or the specific percentage. This allows the trustee to invest for growth to protect the remainder but still pay an adequate return rate to the income beneficiary.

This type of trust was not used until recent state and federal enabling legislation because the tax consequences often hinged on the payment of all income from a trust. For instance, there is a marital deduction from the estate tax for trusts in which all the income is payable to the surviving spouse. As a result, a percentage of the value of trust assets could be less than all the accounting income (dividends and interest) of the trust.

Originally the total return trusts provided for payment of the greater of the percentage of actual income to qualify under the “all income” definitions. Now, federal law says that if state law provides for a reasonable definition of income, that will quality under federal law as all income.

Illinois’ Principal and Income Act is what originally said principal and interest, but not capital gains, are income. Now it has been amended to allow payment of the percentage amount alone, rather than the greater of the percentage of accounting income.

What is a Remainder Purchase Marital (RPM) Trust?

An RPM or Remainder Purchase Marital trust is a remainder purchase marital trust. The object of this trust is to make a transfer to a spouse that qualifies for the marital deduction under the gift tax but which will not be in the spouse’s taxable estate when the spouse dies. Ordinarily, a transfer to a spouse that qualifies for the gift tax marital deduction will be an outright transfer. Therefore, it will belong outright to the spouse and be in the spouse’s taxable estate. If the transfer can be kept out of the spouse’s estate, then you can transfer more to the kids tax-free then the tax-free amount if your spouse survives you.

The gift tax marital deduction ordinarily is not available for life interests – a gift to the spouse for life and after the spouse’s death to someone else. There are exceptions for specific devices which have the consequence of putting the assets in the spouse’s taxable estate when he or she dies, such as a power of appointment in his or her death. However, the disallowance of the marital deduction does not occur with a life interest if the takers of the remainder interest pay total value for it. The terms of the RPM trust are: to the spouse for life, remainder to the kids. This is the same scheme as most other trusts. However, the kids do not receive a gift interest. Instead, they pay the grantor for it. They pay the total present value of this remainder interest. Note that this puts the property back in the grantor’s estate. The effect of this device is to transfer any appreciation in value to the children free of estate tax.

The kids get the money to purchase from a prior gift and installment notes.

Trusts and Virtual Representation

Sometimes disputes arise amongst those involved in a trust. Ordinarily, those involved in disputes can resolve them without court involvement by agreement. However, sometimes the people involved are minors or disabled and cannot enter binding contracts. A guardian could be appointed for them, but that would affect a court proceeding. There are also often unidentified persons who may have an interest, i.e., people who might or might not be beneficiaries in the future, depending on whether or not something happens. Or people who are not yet born may be possible beneficiaries. For instance, the assets of a trust on the current beneficiary’s death could go to his or her children or, if there are none, to someone else’s children. There may not be any children yet, so no one can tell who will get the assets or their share.

The Illinois virtual representation statute allows certain people to represent the minor, disabled or contingent beneficiaries if certain conditions are met. Court approval of any settlement agreement reached is not necessary. Once again, if the conditions of the statute are met.

The agreement must be enforceable if entered by competent and ascertained parties.

A minor or disabled primary beneficiary can be represented by a competent adult beneficiary so long as the adult beneficiary has an interest in the trust substantially identical to that of the minor or disabled beneficiary and has no conflict of interest with the minor or disabled beneficiary with respect to the question at issue. A primary beneficiary is currently eligible to receive income or principal from the trust or, if no powers of appointment are exercised, will be eligible to receive a principal distribution if the beneficiary survives to the distribution date. This category does not include unborn children.

The act also allows class representation where certain classes of beneficiaries can represent other classes of beneficiaries. For instance, all primary beneficiaries (or their representatives) can bind all other persons who have successor, contingent or future interests.

Presumptive remainder beneficiaries are persons who would be eligible to receive a distribution of trust income or principal if the trust terminated or who would be eligible to receive a distribution of income or principal if the interests of the current income and principal beneficiaries terminated while the trust continued in existence. All of the presumptive remainder beneficiaries or representatives can represent all other beneficiaries who have a successor, contingent or other future interest.

Naturally, the agreement cannot change or contradict the express terms of the trust, and the trustee must be a party. The act only applies to trusts governed by Illinois law.

What is a Simple Will?

This is a will that does not create a trust and has a simple scheme of distribution without many beneficiaries or separate gifts of a lot of different assets.

What happens after you file a small estate affidavit?

What if you forget minor items of property or it is not convenient to transfer all your property, such as your checking account or car? $100,000 or less of personal property can be transferred to your heirs or the beneficiaries of your will without probate by means of a small estate affidavit. An affidavit by a survivor states what property is in your estate (outside the trust or without beneficiary designation), what debts must be paid, and who is entitled to the property. This authorizes banks and others to release the property to the persons indicated in the affidavit without court intervention.

What is the Other Lifetime Trust?

People often set up other types of trusts during their life, and the object is usually tax savings of some kind. They usually involve giving property away to get it out of the creator’s taxable estate or to get the income from it off the creator’s income tax return. Neither of these objectives can be achieved if the person creating the trust retains rights in the trust. For that reason, these trusts are usually irrevocable, and the creator is not the trustee. An irrevocable life insurance trust to which a life insurance policy is given is an example.

Are pay on death accounts taxable?

The value of a pay on death account will normally be excluded from your taxable income because bequests are not taxable income.

There are a variety of bank accounts that pass on death to a named survivor. During the life of the owner of the account, the survivor has no rights. That is, the survivor cannot withdraw funds from the account as a joint tenant could. A will does not affect these accounts. They pass to the person designated in the bank records regardless of any will or probate court action. Whether or not such an account has been created depends on the agreement with the bank. Sometimes these accounts are called “Pay on death” accounts. Sometimes they are called “Totten Trusts.” Sometimes the account ownership designation merely says “X in trust for Y,” although there is no trust agreement.

How do transfer on death accounts work?

Bank accounts and stock brokerage accounts can have beneficiaries named on them to get the account on the owner’s death. On the owner’s death, the named beneficiary receives the account regardless of what a will or the statutes of descent and distribution say. The account is not part of a probate estate. During the owner’s life, the named beneficiary has no rights in the account, and the owner can terminate the designation or terminate the account.

Can you do a Transfer on Death (TOD) Instrument on Real Estate?

Illinois law now provides for a Transfer On Death Instrument (“TODI”), which can transfer title to real estate to someone outside of probate. The instrument is effective only on the transferor’s death and is revocable at any time before the maker’s death. It is a deed that states that the transfer occurs on the maker’s death. It must be recorded and has to be executed with the same formalities as a will. In addition, two witnesses and a notary are required, and they must attest that they witnessed the owner’s signature and believed the owner to be of sound mind and acting voluntarily.

The beneficiary or beneficiaries named in the TODI have no interest in the real estate until the transferor dies. After the death, they must record a Notice of Death Affidavit within two years or else the transfer is not effective. The transferor’s creditors who could file a claim against his or her probate estate have no claim to the real estate passing this way.

The beneficiary can disclaim the transfer, in which case the property passes as if the beneficiary predeceased the owner. If the beneficiary predeceases the owner, the real estate is in the owner’s estate if the beneficiary is not the owner’s descendant. If the beneficiary is a descendant, the real estate will pass to the beneficiary’s descendants per stirpes.

What should you look for when reviewing an estate plan?

Persons with larger estates should review their estate plans at a set time each year. Estate plans are prepared based on certain things. As these things change, so should the plan. For example, births, deaths, changes in marital status, changes in law, changes in residence, changes in wealth, changes in the composition and titling of one’s assets are all things that can require estate plan changes.

Disclaimer: The site is for educational purposes only, as well as to give general information. This blog is not intended to provide specific legal advice. The site should not be used as a substitute for legal advice from a licensed professional attorney in your state.