McMillan, Hennenfent, DeJoode, & Humbert

If you are considering a gift to Wesley Village or other charity you may be able to receive income from an asset, gain tax advantages and accomplish your intended gift using a charitable remainder trust. As the name implies, a charitable remainder trust is a transfer of assets to a trust which makes payments to an individual or individuals during their lifetime or for a period of time up to 20 years. The donor’s selected charity then receives the assets at the expiration of the trust period. This type of trust not only benefits the charity but also provides tax savings for the individual who creates the trust.

There are two types of charitable trusts: (1) charitable remainder unitrusts and (2) charitable remainder annuity trusts. In a unitrust, the beneficiary receives a fixed percentage (not less than five percent) of the value of the trust property each year. This serves as a hedge against inflation because as the trust property goes up in value, the income paid out increases. In a charitable remainder annuity trust, the beneficiary receives a fixed amount of income each year. This type of trust provides certainty because the beneficiary receives the same dollar amount each year regardless of changing interest rates and stock market fluctuations.

If a trust is created during a person’s life, the person is entitled to a charitable income tax deduction equal to the value of the charity’s remainder interest. In addition, the transferred property will not be subject to federal estate tax. If the trust is established in a Will, the charitable deduction will remove the property from the taxable estate.

There is a further income tax advantage if the assets transferred to the trust have gone up in value. If, for example you bought $10,000.00 of stock 10 years ago and the stock is now worth $100,000.00, a capital gain tax of $13,500.00 would be paid if the shares are sold. If, instead, the stock is transferred to a charitable remainder trust, the trust can sell the stock tax free because it is a tax exempt entity. The capital gains tax that would have been paid by the individual is permanently saved. The fact that the trust is able sell the property tax free maximizes the money available for distributions to the persons who receive income distributions before the charity receives the property.

The unitrust arrangement can also be used as a retirement plan. Although it pays a percentage of the trust’s annual value, it can provide that income distributions may not exceed the amount of income actually earned in a given year. Any shortfall in income can then be made up when there is sufficient income. During the property owner’s pre-retirement years, the trust can be invested in growth stock that produces little or no income. Upon retirement, those assets can be sold with the proceeds invested in income producing assets that will yield the agreed upon income percentage plus a “make-up” portion to compensate for the earlier short falls. Thus, income distributions from a unitrust can be minimized during the pre-retirement years and then maximized for the retirement years.

It is important to remember that a charitable remainder trust must meet a series of technical requirements and should be prepared only by an experienced professional. Charitable trusts may be the right vehicle to provide benefits to persons seeking to make a gift and to the intended charity, such as Wesley Village.

The Illinois Legislature has made drafting powers of attorney a seemingly simple matter by providing standardized forms for property and healthcare. These forms however, may not always be the best for you. When using these forms, please remember that they are but a starting place, to be adapted to your particular circumstances.

The Illinois durable powers of attorney allow you to appoint an agent to act on your behalf, even during disability. The agent is not required to exercise the power but, if they do, they must use due care. Thus, the agent is prohibited from wasting your assets or using them for their own benefit.

The property power of attorney usually authorizes the agent “to perform every act of every kind and nature which may be deemed desirable or advisable to be performed..” This power is not unlimited, however. It specifically excludes certain powers. Excluded powers include the power to make gifts, and the power to change any beneficiary under any will, trust, joint tenancy, retirement plan or life insurance contract. Neither can an agent name themselves as a trust beneficiary. You may wish the agent to have some or all of these powers. Your attorney, in preparing a power of attorney, should carefully inquire into your wishes and needs. If the power to make gifts, for example, is desired, it will need to be specifically included in the power of attorney document. The power to make gifts includes charitable gifts, gifts to family members or to third parties. Thus, even though a person has a long history of making gifts to family or to charity, if they become disabled and are unable to act on their own behalf, the agent, without specific language granting the power, will not be able to continue such gifts.

The healthcare power of attorney is another document that names an agent to act on your behalf but for healthcare decisions. Again, this includes very broad powers and operates during periods of disability. The power of attorney for healthcare form enables you to grant to the agent full power to make an anatomical gift of organs upon death. The document can be customized to limit the powers of the agent if you have a specific religious or personal belief about any type of treatment. Again, great care must be taken in drafting a power of attorney to be certain that it meets your wishes and needs.

The healthcare power of attorney also provides statements about life-sustaining treatment similar to a living will. While there is an Illinois Living Will Act, a separate living will is not effective as long as an agent is available and is authorized to act pursuant to a properly executed power of attorney for healthcare.

By properly considering and executing healthcare and a property powers of attorney, a court appointed guardian will be unnecessary. A properly tailored healthcare power of attorney and property power of attorney is advisable to any person, regardless of age or medical condition. Your attorney should be used when drafting the power of attorney that is right for you.

Earlier this year Terry Schiavo’s excruciating story found its way into our hearts. Every day there are family members of sick or injured people who quietly make decisions about a loved one’s care. To make decisions easier each of us can state our wishes in an advance before a disabling injury or illness. A Living Will is almost universally referred to as the answer to Ms. Schiavo’s problem. However, a Living Will may not be the answer for everyone.

In Illinois a Living Will Act enables a person to make a written declaration to withhold or withdraw death delaying procedures in the event of a terminal condition. A terminal condition is one that is irreversible and death is imminent. Death delaying procedures are ones that only prolong the dying process. A Living Will is appropriate for a person who wishes not to be kept alive under the limited circumstances dealing with a terminal condition. If procedures are needed to help a patient recover from illness or injury, then a Living Will will have no effect. A Living Will cannot be used to withdraw nutrition and hydration if doing so would result in death solely from dehydration or starvation rather than an existing terminal condition. If Ms. Schiavo lived in Illinois, a Living Will would not have allowed the steps that were taken.

A durable Health Care Power of Attorney is much more flexible than a Living Will. The Health Care Power of Attorney is durable because it is effective even during periods of disability, not just in the case of a terminal condition.

A Health Care Power of Attorney appoints an agent to make personal and health care decisions throughout a person’s lifetime and requires health care personnel and other third parties to honor that agent’s authority. The Health Care Power of Attorney can be drafted to include the right to decline medical treatment or a direction that it be withdrawn even if death ensues. The Health Care Power of Attorney can include specific instructions including donating organs, the type of treatment that can be administered or withheld and cremation of one’s body. If there is a conflict between a Living Will and the Health Care Power of Attorney the Health Care Power of Attorney prevails.

The proposed agent should be asked if they are willing to take on the responsibility. The agent should understand your wishes for your care in the event of a disability or terminal illness. Copies of advance directives, a Living Will or Health Care Power of Attorney, should go to the proposed agent, the physician and all medical care providers. All of these directives are amendable and revocable. You can change your mind at any time. If an agent is unavailable or does not wish to act, it is possible to name a successor under the Health Care Power of Attorney. Many people believe a Living Will or Health Care Power of Attorney are simple fill in the blank documents. Most often it is not so simple and it is necessary to review your wishes with a qualified attorney as well as your agent and family. Failure to do so may result in unneeded expense and heartache to the people who love you. Please consult your attorney when preparing any of these directives.

Remember Wesley Village in your Will or Trust. Nearing death? Leave Wesley Village a bequest.