Estate planning can be extremely simple or extraordinarily complex. For the average person, their initial estate plan includes nothing more than a Last Will and Testament; however, as their estate grows and their family expands, additional strategies and tools are added to the plan as needed to accomplish increasingly complex estate planning needs and goals. One of the most common additions to an estate plan is a trust. A trust can help accomplish a wide range of estate planning goals and can be tailored to the Settlorâs needs. If you have never created a trust, served as a Trustee, or been named as a beneficiary of a trust, you likely know very little about trusts. Given the strong likelihood, however, that you will one day be a Settlor, Trustee or beneficiary of a trust, you really do need to learn more about Illinois trust law.
What Is a Trust?
A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. The beneficiaries of a trust can be individuals, companies, charities, or even pets. The trust may have an unlimited number of beneficiaries but may never have less than one.
Trusts are first divided into two broad categoriesâtestamentary trusts and living (inter vivos) trusts. A testamentary trust does not activate until the death of the Settlor and is usually triggered by a provision in the Settlorâs Last Will and Testament. A living trust, as the name implies, takes effect during the lifetime of the Settlor.
Living trusts can be further divided into revocable and irrevocable living trusts. A revocable living trust can be modified or revoked by the Settlor after the trust is activated for any reason and at any time. An irrevocable living trust cannot be modified or revoked by the Settlor once the trust becomes active. Because a testamentary trust does not activate until the death of the Settlor pursuant to a term in the Settlorâs Will, a testamentary trust is always revocable because a Will can always be revoked during the Testatorâs lifetime.
Illinois Trust Law and the âVirtual Representativeâ
One aspect of Illinois trust law that it is important to understand is how Illinois handles irrevocable trusts. Although we routinely refer to certain trusts as âirrevocable,â that is not always accurate. Individual states govern irrevocable trusts; however, in most states an irrevocable trust can actually be modified or revoked, just not by the Settlor. In fact, it is almost a universal rule that a court has the authority to modify or revoke an irrevocable trust. Trustees and beneficiaries of an irrevocable trust can often petition to have the trust modified or terminated as well. The problem has long been that for Trustees and/or beneficiaries to modify or revoke an irrevocable trust they must petition a court and secure a judgeâs approval. As you may well imagine, this is often a lengthy and costly endeavor. Illinois, however, enacted the Illinois Virtual Representation Statute not long ago which allows a Trustee and certain beneficiaries to modify an irrevocable trust without having to petition a court. Instead, the parties are able to enter into a legally binding non-judicial settlement agreement. The original statute, though well intentioned, was difficult to use. Fortunately, the legislature revised the statute in 2015, making it more âuser friendly.â If you are the Trustee or beneficiary of an irrevocable living trust in Illinois and you need a term clarified or modified, wish to provide the Trustee with additional powers or remove the Trustee, or modify another term of the trust, you may be able to do so without the need for judicial approval. The best way to find out if your circumstances and objectives fit into the statuteâs intended use is to consult with your Illinois estate planning attorney.
If you have additional questions or concerns regarding Illinois trust law, contact the experienced Illinois estate planning attorneys at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.