Estate Planning

New Small Estate, Anti-Lapse, Health POA Provisions

By David Berek

A summary of three new estate-planning bills signed into law last summer.

Last spring, the legislature passed a number of laws relevant to Illinois estate planners. Here are three important changes, all of which were signed into law by the Governor last summer.

Small estate affidavit at $100,000

One important change is the increase in the gross value allowed under a small estate affidavit, found at 755 ILCS 5/25-1, from $50,000 to $100,000. PA 93-877, effective August 6, 2004. This means that regardless of whether an individual dies with a will or intestate, if the probate assets in the estate are no greater than $100,000, a small estate affidavit may be used to collect and transfer the assets, thereby avoiding the necessity of opening a probate estate. For example, although there may be a sophisticated revocable trust estate plan in place, a new car along with perhaps a checking account may cause the value of your client's probate estate (that is, assets titled in the client's individual name) to exceed $50,000.

Under the new law, a small estate affidavit can be used to collect and transfer up to $100,000, which arguably could include a client's entire estate, or merely a fraction of a wealthy estate where the balance of the assets are held in trust. Note, however, that because notice to creditors is not provided under this procedure (as it is in the probate of an estate), creditors may claim against the probate estate for two years (after the decedent's death) as provided under 755 ILCS 5/18-12(b).

Anti-lapse statute for gifts from trusts

Another legislative change addresses anti-lapse provisions under a revocable trust. Anti-lapse provisions generally are intended to save a gift to a beneficiary who predeceases the decedent, where the predeceasing beneficiary (i) is a relative of the decedent and (ii) is survived by descendants. Likewise, the new law under 760 ILCS 5/5.5 provides that if the settlor of an inter vivos trust creates a gift (of a present or future interest) to a beneficiary who dies before or after the settlor, and that deceased beneficiary is also a descendant of the settlor, such gift will be satisfied in favor of the descendants per stirpes of the deceased beneficiary. PA 93-991, effective August 23, 2004.

There is a similar provision for a class gift, where the gift will be satisfied in favor of the descendants per stirpes of the class member beneficiary if such class member beneficiary is a descendant of the settlor. However, if the deceased beneficiary dies before he or she takes possession of the gift and the deceased beneficiary is not a descendant of the settlor, then the gift shall lapse and the share shall pass as part of the residue of the trust.

Trusts and Estates Section Council member Lyman Welch and Susan Bart, his partner at Sidley Austin Brown & Wood, note that the focus of the new law is to provide statutory uniformity with the anti-lapse statute for a will provided under 755 ILCS 5/4-11, which statute is substantially similar to the newly enacted statute for trusts. Prior to the enactment of this new anti-lapse statute, Illinois common law followed a vested remainder approach in the deceased beneficiary.

The vested remainder rule as articulated in First Galesburg National Bank and Trust Co v Robinson, 149 Ill App 3d 584, 586, 500 NE2d 995, 996 (3d D 1986) provides that where a gift is made under an inter vivos trust in favor of a beneficiary who was living when the trust was executed but who predeceases the settlor, that interest is immediately vested although the enjoyment is postponed until the settlor's life estate expires.

In a similar case, In re Capocy's Estate, 102 Ill App 3d 609, 430 NE2d 1131 (1st D 1981), a decedent created what was described in the case as a revocable inter vivos savings account trust (not a Totten trust), naming beneficiaries under the agreement. Again, the court held that a beneficiary who predeceased the settlor, but was alive at the creation of the trust, was a vested remainderman, and the deceased beneficiary's estate was entitled to the gift, provided the settlor did not revoke or amend the terms of the trust prior to the settlor's death. This vested remainder rule still applies to settlors dying prior to January 1, 2005.

Unless the settlor expressly provides otherwise in his or her trust agreement, the new anti-lapse provisions become effective on and after January 1, 2005, for any gifts to a deceased beneficiary under an inter vivos trust where the deceased beneficiary dies after January 1, 2005, and before the gift is to take effect in possession or enjoyment.

Statutory health care POA

Finally, note that the statutory health care power of attorney has been modified regarding organ donation. PA 93-794, effective July 22, 2004. To be current with the statute under 755 ILCS 45/4-10 as recently amended, the line on your form regarding organ donation should read: "Any organs, tissues, or eyes suitable for transplantation or used for research or education."

David A. Berek <dberek@mcguirewoods.com> practices with McGuireWoods LLP in Chicago. He is also a CPA and a member of the ISBA Trusts and Estates Section Council.