Goals of Estate Planning and Asset Protection Merge with New Law
By: Edward P. Graham

For years, individuals desiring to plan their estate using a trust to avoid probate and accomplish other financially driven goals were left with a “Hobson’s choice”. The Illinois legislature has now acted to allow Illinois residents “to have their cake and eat it too”.

Effective January 1, 2011, Illinois residents will have the benefit of protecting their home ownership from creditors while accomplishing their estate planning goals simultaneously. Consider the following illustration: Wolfgang B. Flywheel and his wife, Gertrude create an estate plan that includes the use of a revocable trust to transfer property to their children in order to avoid the probate process. The Smiths have learned that the probate process costs several thousand dollars, that their personal assets and liabilities will be disclosed to the public and that it will take a minimum of 8-12 months to transfer assets and close the probate estate. Sounds like a good idea, right?

Well not so fast! What if Gertrude, who owns a small, but profitable business as a sole proprietor, gets sued, and a judgment is entered against her. The law provides the right to collect the judgment against Ms. Flywheel from any assets she owns, including the valuable house in which she and Wolfgang live! Well, what could Gertrude and Wolfgang have done to protect their ownership interest in the house so that she and Mr. Flywheel could live in it, and eventually leave it to their children?

Since 1990 Illinois has recognized a form of home ownership known as “tenancy-by-the-entirety” that protects married couples from problems like the example above. In other words, the Flywheels could have comfort knowing that Gertrude’s business activities would not lead to the loss of their home, and the “innocent spouse” would be protected. But that protection was limited if the Flywheels wished to have an estate plan using a living or revocable trust since this unique form of ownership was not available if married homeowners wished to hold their property in a trust owned by them.

The solution has arrived in 2011 with the adoption of the changes to the Joint Tenancy Act (765 ILCS 1005/1c). Individuals can now accomplish both estate planning objectives using a revocable trust, and creditor protection goals using the “tenancy-by-the-entirety” form of ownership so long as the revocable trust is owned by a married couple, and it is also their primary residence. This major change warrants serious consideration, and in all likelihood, a call or visit to your lawyer. Why not obtain the best of both worlds!