Welcome to the Stepnowski Law Offices

The Law Office of Edward L. Stepnowski
The Law Office of Frank E. Stepnowski

1515 N. Harlem Ave., suite 205-2
Oak Park, Illinois 60302 
telephone: (708) 848-3663, 848-3662 
fax: (708)  848-0219

Living Trust - Frequently Asked Questions (F.A.Q.)

pen logoWhat is a trust?

A trust is an estate of property in which title to property is held by one person or institution, but the benefit or use of the property is for other designated people.  The person establishing the trust is called the Grantor.  The person holding title to the property and overseeing the proper disposition of the property is called the Trustee.  The person who has the use of the property, which can be current or in the future, is called the Beneficiary.  The property held by the trust is often called the res.  In many cases, especially a living trust, the same person can be Grantor, Trustee, and Beneficiary at the same time.  The trustee is under the highest standard of legal duty, called fiduciary duty, to operate the trust solely for the benefit of the beneficiaries as directed by the written terms of the trust document.  In complicated cases, sometimes we use a Trust Protector.

pen logoWhat is a living trust?

A “living” or “inter vivos” trust is one that is set up and funded while the grantor (the person funding or establishing the trust) is still alive. In most cases, the grantor names his or her self as both trustee and beneficiary. In a joint trust scenario, both husband and wife are co-trustees as well as co-beneficiaries while both remain living. A living trust can be modified or revoked as long as the settlor (or settlors in the case of a joint trust) are living. Another kind of trust is the “testamentary trust,” which is established by a will, typically for the care of a minor child, and it operates only after the grantor’s death.

pen logoWhat is a joint living trust?

A joint trust is made between spouses. They act as co-settlors and co-trustees, and all of their assets are pooled together in the trust. While this can make for easier administration, it is important to know that all property held in this manner becomes marital property, and that the trust becomes irrevocable upon the death of the first spouse. Living trusts set up by spouses may also take advantage of the Federal tax marital deduction.   These are important distinctions that must be taken into consideration by a couple thinking about utilizing a joint trust.

pen logoWhat is the “funding” of a living trust?

Funding is the process of transferring your assets from your individual ownership to the trust.  The trustee becomes the title holder, while you or the others you specify in the declaration of trust, become the beneficiaries having the use of the property.

pen logoHow do I fund my trust?

How a property is transferred to the trust depends on the type of property

  • Property that has written a title (e.g., real estate) is transferred to the trust by changing the title.
  • Personal property is transferred to the trust using a written document commemorating the transfer.
  • Assets held in accounts (e.g., bank accounts, brokerage accounts etc.) are transferred by changing beneficiary designation with the institution managing the account, such as the bank.Often this means opening new accounts at banks in the name of the trust.

These types of property are described below.

pen logoCan you still control the property while it is in the trust?

Yes. The person you name as trustee has the full power over the assets in the trust.  Since you can name yourself trustee, you have control.  In the most common type of trust, a living or inter vivos trust, you or your spouse still have complete control.

pen logoWhy do I need to fund the trust?

You will not avoid probate if you fail to properly fund the trust. If you do not transfer your assets into the trust you will not get any of the benefits of it.  Your assets will go through the probate process you were trying to avoid.

pen logoWho is responsible for funding the trust?

Your attorney will help with the major assets, but you are ultimately responsible for ensuring all of your assets are transferred and all your accounts with institutions are transferred.

pen logoIs the funding process difficult?

No, but it does take effort which should not be skipped. Much of the work can be done online or through the mail. Living trusts are now so widely used that institutions are familiar with them and have streamlined procedures in place to facilitate the funding process. There is some work to accomplish the transfer, but it is necessary for the trust to work as intended.

pen logoIf someone sees my trust, will he see my assets?

Your attorney can draft the trust describing the terms and conditions directing how the trust will operate.  Since you will convey the trust property, or res, separately, disclosure of the trust will not ordinarily disclose the assets.  That is not to say that the IRS or a court order cannot demand disclosure, but ordinarily there is no disclosure to the public.

pen logoWhat assets should I put into my trust?

You should try to get as much of your estate into the trust as possible.  In the case of dual trusts for spouses, it is also desirable to maintain as close to a 50-50 distribution of assets as possible between the two trusts.

pen logoHow is real estate placed into my trust?

The process of transferring real estate into your trust must comply with legal process.  The steps are as follows:

  • Your lawyer prepares a Deed in Trust, in which you convey a specific parcel to the Trustee.
  • A form is prepared confirming that the transfer is exempt from State of Illinois and County transfer taxes.
  • You verify whether your town or village requires a transfer stamp tax.
  • The Deed in Trust is recorded in the County where the land sits.  This places the world on notice that the property is in trust.
  • You should notify your property insurance agent that the property is in trust so the policy can be conformed to the new ownership. 
  • If there is a mortgage, you should notify the mortgage company.
  • Have your attorney contact your title insurer to transfer the benefits.

You may be aware that a mortgage includes a clause which accelerates or terminates a mortgage with a "due on sale" clause.  The Garn St. Germain Act is Federal law which prevents this clause from taking effect when a property is placed in trust.

pen logoAre there some assets which should not be placed in the trust?

One example could be an automobile.  While you could make your car trust property, because cars depreciate so rapidly and are bought and sold frequently, most grantors do not transfer them to the trust. The placement of the trust on the car's certificate of title complicates the sale of the car.  On the other hand, antique or other valuable automobiles may increase in value or hold a great deal of value, and are thus more appropriate trust assets. If you do choose to transfer title, you should  contact the Illinois the Secretary of State.

Cyberassets, your assets on internet sites, are still too new for the law to adapt.  Most web sites have terms of use or User agreements which dictate the terms of use, and these are not well adapted to a trust.  The value of such assets are also not well established.  

pen logoShould I transfer my IRA or 401(k) assets to the trust?

The ownership of a retirement account such as an IRA or other tax-deferred plan should not be transferred to a trust because that so can result in serious tax penalties and loss of flexibility in the future. Ordinarily the beneficiary of a retirement account, which itself may be a trust, is designated in the that account's paperwork.  You may want to name the trust as a contingent beneficiary of such plans. Spouses are treated as a special class under the law for these assets, and they should be kept as the primary beneficiary in order to ensure that they are able to exercise all of their rights. For example, a spouse can roll-over an account into their own IRA or tax-deferred account. Naming the trust as a contingent beneficiary gives you some control over the distribution of these assets should something happen to you and your spouse, while preserving your spouse’s rights. 

While you do not transfer the account to the trust, thinking of your Trust and Will as part of estate plan gives a good reminder to check the account paperwork designating your choice of beneficiaries in your retirement accounts.  Often these accounts are opened as much as 50 years in the past, and you may have forgotten who you chose to be your beneficiary, or the choice is no longer appropriate with your current estate plans and needs.  Now you have the opportunity to review your choices and make them consistent with your total estate plan.

pen logoHow do I transfer personal property, heirlooms and the like to my trust?

Your lawyer can prepare a form for you conveying your personal property to the trust.

pen logoShould I put my life insurance into the trust?

Life insurance may be owned by a specialized type of trust called an irrevocable life insurance trust. Living trusts do not typically own policies, but they can be named as the beneficiary in some plans.  First, you notify the insurance company and their specific change in beneficiary designation form executed. Then, the insurance policy information should be added to the schedule of assets kept with the living trust.

pen logoCan I avoid using a Will?

No.  You should still execute a will because some assets may not be covered by the trust.  You may later acquire assets by inheritance or otherwise.  The will can make sure these assets be transferred as you intend.  However, a living trust will reduce the costs and time of the remaining assets in probate.  Also, the balance of these assets may be transferred using the Small Estate procedure of the Illinois Probate Code.
For more information on Wills, see the Wills FAQ.

pen logoHow will a living trust affect my taxes?

In most cases a living trust qualifies as a "Grantor Trust," in which case, any income will pass through to your personal estate and be taxed at your own tax rates.  Living trusts established between spouses can also take advantage of the spousal exemption of the estate tax or "death tax."  Using this exemption can preserve much more of your estate for your children.

pen logoWho should prepare a living trust for me?

A lawyer.  In the hands of a competent attorney, a custom-drafted living trust can be an indispensable estate-planning tool, helping save an older person's survivors the costs, delays and complications of the probate process after his or her death.

Unfortunately, many of the living trusts purchased in this country in recent years have been sold not by attorneys, but by fly-by-night companies using scare tactics and high-pressure sales pitches to peddle one-size-fits-all products. Many of the people purchasing these living trusts don't even have assets substantial enough to make living trusts beneficial.

For some of these unscrupulous companies, the marketing of boilerplate living trusts is simply a means to obtain detailed financial information about senior citizens. That information is later used to sell the older people costly and unnecessary insurance products.

This information comes from a Chicago Tribune article.  To see the article, click this link:

A trusted attorney should guide you through the analysis whether a living trust is appropriate for you.

This FAQ, based on Illinois law, was issued to give you some general advice about the law. It is not intended as legal advice about any particular problem. If you have a question about the law, you should consult a lawyer.

copyright by Frank Stepnowski 2013.

IRS Circular 230 Disclosure
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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1515 N. Harlem Ave., suite 205 
Oak Park, Illinois 60302 
telephone: (708) 848-3663, 848-3662 
fax: (708)  848-0219

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