Estate Planning

Helping Loved Ones Without Triggering Gift Tax

June 9, 2025 by Paul Palley Leave a Comment

Many people want to support family members or friends by helping with college tuition or covering medical bills. But generous gifts like these can raise questions about the federal gift tax. The good news? There’s a way to help without triggering tax consequences—by paying tuition and medical expenses without gift tax, using a special IRS exception that doesn’t count against your annual or lifetime gift exemptions.

In this article, I’ll walk you through how the gift tax works, what the key exemptions are, and how to take advantage of this powerful strategy. This information, like all content on this website is educational in nature, and is not to be relied upon as legal advice.

Understanding the Gift Tax Rules Behind Paying Tuition and Medical Expenses Without Gift Tax

The federal gift tax applies to transfers of money or property made during your lifetime without receiving something of equal value in return. However, the law provides exclusions and exemptions that allow you to make many gifts without any tax consequences.

Annual Exclusion

You can give up to $18,000 per person per year (as of 2025) without needing to report the gift or pay any tax. This is known as the annual exclusion and it resets each calendar year.

Lifetime Exemption

If you exceed the annual exclusion, the excess reduces your lifetime gift and estate tax exemption, which is $13.61 million in 2025. Only when you exceed that lifetime limit would you owe federal gift tax.

Gift Tax Return Requirements

If you give more than $18,000 to someone in one year, you generally need to file IRS Form 709—even if no tax is owed. This allows the IRS to track your use of the lifetime exemption.

What Counts When Paying Tuition and Medical Expenses Without Gift Tax

The IRS allows an unlimited gift tax exception for payments made directly to educational or medical institutions on someone else’s behalf. These payments don’t count against your annual exclusion, and they don’t reduce your lifetime exemption.

This means that paying tuition and medical expenses without gift tax is possible if the payments meet certain criteria and are made correctly.

Key Requirements for Paying Tuition and Medical Expenses Without Gift Tax

To qualify for this exception, the IRS requires you to follow a few key rules:

1. Payment Must Be Made Directly

The most important rule is that the payment must be made directly to the institution or provider. If you give money to the person receiving the benefit and they make the payment, the IRS considers it a taxable gift.

✅ Paying a university directly = not a gift
❌ Giving a student cash for tuition = taxable gift

The same rule applies to medical expenses—payments must be made directly to the doctor, hospital, or insurance provider.

2. What Qualifies as Tuition?

To fall under the exception, tuition payments must be made to an eligible educational institution. These include:

Elementary, middle, and high schools (public or private)
Accredited colleges and universities
Vocational and trade schools that meet IRS criteria

Importantly, only tuition qualifies. Payments for books, housing, transportation, or meals do not qualify under this exception, although you can still give money for those items under the annual exclusion.

3. What Qualifies as Medical Expenses?

Qualified medical expenses include:

Costs for diagnosis, treatment, and prevention of disease
Doctor and dentist visits
Hospital services and surgeries
Prescription drugs
Medical insurance premiums

To qualify, the expenses must be deductible under IRS guidelines—even if the recipient wouldn’t normally itemize deductions on their taxes. Cosmetic procedures generally don’t qualify.

Older man and younger woman reviewing a health insurance premium statement together, with a checkbook and laptop on the table.

Do You Need to File a Gift Tax Return When Paying Tuition or Medical Expenses?

Another advantage of paying tuition and medical expenses without gift tax is that you don’t need to file a gift tax return—no matter how large the payment is—so long as it meets the requirements.

However, if you also give the recipient additional funds (such as for rent or supplies), and the total exceeds $18,000, you may need to file a gift tax return for the excess portion not covered by the exception.

Keeping good records of direct payments is important, especially if you make several large gifts in one year.

Using This Gift Tax Strategy in Illinois Estate Planning

The rules for paying tuition and medical expenses without gift tax apply nationwide, including in Illinois. Illinois does not have its own gift tax, so residents only need to follow federal gift tax rules.

That said, Illinois has a separate estate tax with a much lower exemption—currently $4 million. If you’re engaging in large-scale gifting to reduce your taxable estate, it’s smart to coordinate these efforts with your Illinois estate planning attorney. Taking advantage of the tuition and medical exception can be an effective part of that strategy.

Final Thoughts: Helping While Avoiding Tax Pitfalls

The gift tax exception for direct payments is one of the most powerful—and underutilized—tools in estate and family financial planning. Whether you’re covering a grandchild’s college tuition or helping a loved one with hospital bills, you can do so generously and wisely by following a few simple rules.

Here’s a quick recap:

✅ Make payments directly to the school or medical provider

✅ Limit payments to qualified tuition and medical expenses

✅ No limit on the amount paid under this exception

✅ No gift tax return required

✅ Strategy works under both U.S. and Illinois law

Have Questions? Let’s Talk.

At Palley Law Office, I help individuals and families create estate plans that reflect their values and priorities. If you’re considering large gifts or want to make the most of your options under federal and Illinois law, I’m here to guide you. Schedule a free call here.

Trusts Demystified: A Bold Step Toward Better Planning

June 2, 2025 by Paul Palley Leave a Comment

Planning your estate in Illinois often involves deciding whether trusts should be part of your plan. Trusts are a powerful estate planning tool that can help you manage and distribute your assets, avoid probate, and even save on taxes. In this primer, I’ll explain when you should consider a trust and break down common types of trusts – including testamentary trusts, revocable trusts, marital trusts, QTIP trusts, credit shelter trusts, generation-skipping trusts, and irrevocable trusts – in clear, everyday language. The goal of this article is to give Illinois residents an overview of how trusts work and when they might be useful. As with all content on this website, this post is educational in nature, and is not to be relied upon as legal advice. Want to know how these concepts apply to your own estate? Contact the Palley Law Office for advice tailored to your life and legacy.

When Should You Consider a Trust?

Not everyone needs a trust, but certain situations make trusts especially useful. You might consider incorporating trusts into your Illinois estate plan if any of the following apply:

Avoiding Probate: If you want to avoid the time and expense of Illinois probate, a trust can help. Assets held in a properly funded living trust bypass probate, allowing your beneficiaries to receive assets without court proceedings . This can save your family time, legal costs, and keep your affairs private.
Minor Children or Special Heirs: If you have minor children or beneficiaries who shouldn’t receive a large inheritance all at once, a trust allows you to manage when and how they receive assets. For example, you could direct that funds be used for a child’s education and only distribute the rest when the child reaches a certain age.
Incapacity Planning: If you worry about becoming incapacitated, a revocable living trust lets your chosen successor trustee step in to manage your assets without a court-appointed guardian. This ensures continuous management of your affairs if you’re unable to do so yourself.
Estate Tax Planning: If your estate is large enough to potentially owe estate taxes, trusts can help minimize tax exposure. Illinois has its own estate tax with a $4 million exemption and no portability between spouses (meaning each spouse’s exemption is “use-it or lose-it”) . Married couples with combined estates over that amount often use trusts to fully utilize both spouses’ exemptions and reduce or delay estate taxes.
Second Marriages or Blended Families: If you’re in a second marriage or have a blended family, a trust can ensure your current spouse is taken care of while ultimately protecting inheritances for children from a prior relationship. Trusts provide control from the grave – you can set rules on who gets what and when, even after you’re gone.
Generation Planning: Those who wish to provide for grandchildren or future generations may use trusts to skip a generation for tax purposes and preserve family wealth. Trusts can stretch the benefit of your assets over a longer time and offer protection from beneficiaries’ creditors or spending habits.

Person organizing a living trust document as part of estate planning

Common Types of Trusts in Estate Planning

Illinois law recognizes many kinds of trusts, each suited for different goals. Below is a primer on several common trust types and how they might fit into your estate plan.

Testamentary Trusts (Trusts in Your Will)

A testamentary trust is a trust that you create within your will, and it only takes effect upon your death. In other words, the trust is written into your will and gets established when the will is probated. For example, your will might say that if both parents pass away, assets should be held in trust for any minor children until they reach adulthood. Testamentary trusts are useful when you don’t need a separate trust during your lifetime, but you want to provide structured management of assets for beneficiaries after you’re gone. Important to know: because a testamentary trust comes from a will, it does not avoid probate – the will still must go through the Illinois probate process before the trust begins.

Revocable Living Trusts

A revocable trust (often called a living trust) is one of the most popular estate planning tools in Illinois. “Revocable” means you, as the grantor (creator of the trust), can change the trust terms or even cancel the trust at any time during your life. You typically name yourself as the initial trustee, so you retain full control of your assets while you’re alive. Upon your death (or if you become unable to manage your affairs), a successor trustee takes over management.

Key benefits of a revocable living trust include probate avoidance and continuity. Assets you transfer into the trust are not subject to probate in Illinois – your successor trustee can distribute them directly to your beneficiaries according to your instructions. This makes the settlement of your estate faster and more private. Additionally, if you become incapacitated, the trustee can manage the trust assets for your benefit without a court intervention. Keep in mind that a revocable trust does not provide tax savings during your life (the assets are still considered yours for tax purposes) and it becomes irrevocable at your death (meaning it can no longer be changed at that point).

Planning for a Surviving Spouse

A marital trust is a trust set up to benefit your surviving spouse when you pass away, while also ultimately benefiting other heirs (like your children) after your spouse’s death. Often called an “A Trust” in classic estate planning, a marital trust takes advantage of the unlimited marital deduction in the estate tax law – assets left to a spouse are not subject to estate tax at the first death. In practical terms, when the first spouse dies, assets are placed into the marital trust instead of being given outright. The surviving spouse typically receives all income from the trust (and can often use the principal under certain conditions) for the rest of their life . When the surviving spouse later dies, any remaining trust assets go to the final beneficiaries named (for example, the couple’s children).

Marital trusts are especially useful in Illinois for married couples with sizable estates or blended families. They ensure the surviving spouse is financially supported while also preserving the remainder for chosen heirs (which can be very important in a second marriage situation) . However, note that assets in a marital trust will be included in the surviving spouse’s estate for tax purposes when they die. For this reason, marital trusts are often paired with credit shelter trusts as part of an overall plan to minimize taxes.

QTIP Planning for Blended Families

A Qualified Terminable Interest Property trust, or QTIP trust, is a specific type of marital trust with special rules that qualify it for the estate tax marital deduction while still giving the first spouse to die a lot of control over the assets. In a QTIP trust, the surviving spouse must receive all the trust’s income for life, and typically the trust can only benefit that spouse during their lifetime. The term “terminable interest property” refers to the fact that the surviving spouse’s interest in the trust ends (“terminates”) at their death, at which point the remaining assets go to the beneficiaries the first spouse designated (often the children). The key benefit is that you (the first spouse) get to control the ultimate disposition of the trust assets, yet for tax purposes those assets are treated as passing to your spouse and qualify for the marital deduction.

QTIP trusts are frequently used in Illinois estate plans for two main reasons. First, they are great for blended families: you ensure your spouse is taken care of, but you also ensure that, say, your kids from a prior marriage will inherit what’s left, rather than any new spouse or other beneficiaries your spouse might choose. Second, Illinois estate tax planning can involve QTIP trusts. Illinois allows a state-level QTIP election, which means if your estate exceeds the $4 million Illinois exemption, you can put the excess into a QTIP trust for your spouse to defer Illinois estate tax at the first death. In short, a QTIP trust lets you delay taxes and dictate where the assets go after your spouse, combining financial security for the spouse with control for the grantor.

Using a Credit Shelter in Your Estate Plan

A credit shelter trust (also known as a bypass trust or family trust) is typically used by married couples to maximize estate tax savings. The idea is to “shelter” one spouse’s estate tax exemption by placing up to that amount in a trust when they die, instead of leaving everything to the surviving spouse outright. Assets in a credit shelter trust benefit the surviving spouse (and often children) during the spouse’s lifetime, but those assets won’t be counted in the surviving spouse’s estate when they die. This way, that portion of the estate bypasses the second estate tax event.

Here’s how it works in practice: suppose an Illinois couple has a combined estate large enough to face estate tax. Because Illinois’ estate tax exemption is $4 million per person with no portability, if the first spouse leaves everything outright to the survivor, the first $4 million exemption is wasted. A credit shelter trust fixes this by funding a trust (up to $4 million in Illinois, or up to the federal exemption amount federally) upon the first spouse’s death for the benefit of the surviving spouse. The surviving spouse can often receive income and limited principal from this trust, but since they don’t own the assets outright, those assets won’t incur estate tax when the survivor dies. The trust assets then pass to the final beneficiaries (e.g. children) free of any additional estate tax. In essence, the credit shelter trust uses the first decedent’s tax exemption to “lock in” a tax-free amount for the heirs, while still providing for the spouse. This type of trust is usually irrevocable at the death of the first spouse and is a cornerstone of “A/B trust” planning (where the credit shelter is the “B” trust). If you and your spouse have a large estate, your attorney may well recommend a credit shelter trust to save potentially significant Illinois and federal estate taxes.

Generation-Skipping Trusts (GST Trusts)

A generation-skipping trust is designed to transfer assets to your grandchildren or beyond, essentially skipping over the immediate next generation (your children). The primary motivation for a GST trust is to avoid double taxation and preserve wealth for later generations. Normally, if you left assets to your children outright and they later left those assets to their children, the assets could be subject to estate tax at each generational transfer. With a generation-skipping trust, the assets are held for the grandchildren (or any beneficiaries at least 37½ years younger than you, per tax law definitions) and skip being included in your children’s estates. Your children might still benefit from the trust in some way (for example, they could receive income or have it available for their needs), but they typically do not have direct ownership that would trigger estate tax when they die. Instead, when the grandchildren eventually receive the assets, that transfer can use your Generation-Skipping Transfer (GST) tax exemption to avoid or minimize taxes.

GST trusts are irrevocable and often longer-term trusts. They are mainly used by people with significant assets who wish to provide for multiple generations and reduce the overall tax burden on the family’s wealth. If you have a large estate and legacy planning is important to you (say you want to set up a fund for your grandchildren’s education or other needs far into the future), a generation-skipping trust could be worth discussing with your estate planner.

Irrevocable Trusts

An irrevocable trust is any trust that cannot be easily changed or revoked once it’s been created and funded. Unlike a revocable trust, where you retain control, an irrevocable trust involves giving up some control and ownership of the assets – which sounds scary, but it comes with certain benefits. Because the assets in an irrevocable trust are no longer considered yours, they are generally not counted as part of your estate for estate tax purposes. This can help larger estates save on estate taxes. Additionally, assets in an irrevocable trust may be better protected from creditors or lawsuits, since they’re held outside your personal ownership.

There are many types of irrevocable trusts, each for specific goals. For example, an irrevocable life insurance trust (ILIT) can own a life insurance policy on your life so that the insurance payout isn’t taxed in your estate. Charitable trusts (like a charitable remainder trust) are also usually irrevocable. Some people create irrevocable gifting trusts to gradually gift assets to children or grandchildren in a controlled way. In Illinois, as elsewhere, once you create an irrevocable trust, you are generally stuck with the terms, so it’s crucial to set it up correctly with professional guidance. While you lose direct control, you gain potential tax savings, asset protection, and peace of mind that the assets will be used as you intended for the beneficiaries.

Illinois-Specific Considerations for Trusts

Every state has its own laws and nuances when it comes to estate planning, and Illinois is no exception. Here are a few Illinois-specific points to keep in mind regarding trusts:

Illinois Estate Tax Planning: As noted, Illinois imposes a state estate tax on estates above $4 million. Trust strategies (like credit shelter and QTIP trusts) are commonly used here to ensure each spouse’s $4M exemption is used and to defer or reduce taxes for larger estates. Even if federal estate tax isn’t a concern for you (given the much higher federal exemption), Illinois tax might be – so trusts can be especially important for Illinois families with moderately high net worth.
Probate Avoidance: Illinois probate can be time-consuming, often taking many months to a year or more to conclude. By using a living trust to avoid probate, your family can gain a smoother transition. (Illinois does allow simplified procedures for very small estates under $100,000 with no real estate, but most homeowners or those with substantial assets won’t qualify for that shortcut.) In short, trusts can spare your Illinois loved ones the hassle of court supervision in settling your estate.
Trust Law in Illinois: Illinois has adopted a version of the Illinois Trust Code (effective since 2020) which modernized trust law in the state. This means Illinois trusts follow many common-sense rules like those in other states, and the courts here are quite familiar with administering trusts. For you, the practical effect is that well-drafted trusts should operate smoothly, and Illinois law will govern trust matters like trustee duties, beneficiaries’ rights, and modification of trusts if needed. Always ensure your trust documents are drafted or reviewed by an Illinois estate planning attorney so they comply with state requirements.

Conclusion

Trusts can seem complex, but they are simply tools to help you shape your estate plan to fit your needs. Whether your goal is to avoid probate, provide for a loved one, save on Illinois estate taxes, or protect assets for future generations, there’s likely a trust (or combination of trusts) that can achieve your aims. Illinois residents should consider trusts particularly when they have minor children, significant assets, or unique family situations. Always consult with a qualified estate planning attorney in Illinois to decide which trusts make sense for you and to ensure your trusts are set up correctly under Illinois law. With the right planning, trusts offer flexibility and peace of mind, allowing you to leave your legacy on your own terms.

Let’s Make a Plan That Fits Your Life

Every family and estate is unique. Reach out to the Palley Law Office for thoughtful, personalized guidance on trusts and estate planning in Illinois.

Schedule a free call >

If you’re just starting to explore estate planning, the Illinois State Bar Association has an excellent resource and overview of estate planning here.

What Is a Living Trust and Should You Have One?

May 22, 2025 by Paul Palley Leave a Comment

A trust is a legal arrangement that allows someone (the trustee) to hold and manage property for the benefit of another person (the beneficiary). While there are many types of trusts, one of the most used in estate planning is the revocable living trust.

This tool offers flexibility, privacy, and the potential to simplify the management and distribution of your assets — but it’s not the right fit for everyone.

What Is a Revocable Living Trust?

A revocable living trust is created during your lifetime and can be changed or revoked at any time while you’re still alive and mentally competent. You typically serve as your own trustee and beneficiary during your life, which means you maintain full control over the assets you place in the trust.

What Is a Living Trust Used For?

Living trusts are primarily used to:

Avoid probate at death
Plan for incapacity by naming a successor trustee
Maintain privacy, since trusts are not public like wills
Provide for minor or dependent beneficiaries
Simplify management of assets, especially if they are held in multiple states

How Is a Living Trust Set Up?

To create a revocable living trust in Illinois:

An attorney drafts the trust document, naming you as trustee and setting out your instructions.
You name a successor trustee to manage or distribute your assets if you become incapacitated or die.
You fund the trust by retitling your assets (e.g., real estate, bank accounts, investment accounts) in the name of the trust.

This last step — funding the trust — is crucial. A trust that isn’t properly funded won’t avoid probate.

What Happens to Trust Assets During Life and at Death?

During your lifetime, you can buy, sell, and use the assets in the trust just as you normally would. You continue to file taxes under your own Social Security number.

At your death, the successor trustee takes over and follows the instructions in the trust. Unlike a will, there’s no court involvement (probate) for trust assets. The trustee can distribute assets quickly and privately.

Pros and Cons of a Living Trust

✅ Pros

Avoids probate, saving time and costs
Maintains privacy, since it’s not a public court record
Provides continuity if you become incapacitated
Flexible — can be changed or revoked any time
Can reduce the risk of family disputes or delays in asset distribution

⚠️ Cons

Upfront cost is higher than a simple will
Requires ongoing attention to ensure assets are properly titled
Doesn’t protect assets from creditors or nursing home costs (unlike certain irrevocable trusts)
Still requires a pour-over will to catch any unfunded assets

Is a Living Trust Right for You?

A revocable living trust can be a powerful tool in an estate plan, especially for those who want to avoid probate, keep their affairs private, or plan for incapacity. However, it’s not a one-size-fits-all solution.

📞 Schedule a Consultation

If you’re wondering whether a living trust makes sense for your situation, I’d be happy to help. Schedule a free call to review your estate planning goals and find the tools that fit your needs best.

Ways to Title Your Home in Illinois: Estate Planning Implications

May 13, 2025 by Paul Palley Leave a Comment

Choosing how to title your home is an important decision that can affect your family’s future. Each form of ownership comes with trade-offs between control, convenience, and how the property passes upon death. Illinois homeowners should consider their personal situation: Are you single or married? Do you want the property to go directly to a co-owner at your death, or do you need the flexibility to leave your share to someone else? Do you have concerns about creditors or probate? By understanding these four common title options, you can make an informed decision that aligns with your estate planning goals. If you’re unsure which ownership type is best for your needs, it may be wise to consult with a real estate or estate planning professional for guidance.

Sole Ownership

Definition: Sole ownership means one person alone holds full title to the property. The owner has exclusive rights to control and use the home. This method is most straightforward – commonly used by a single individual buyer. (Even a married person can hold title in their name alone, with the spouse relinquishing any ownership claim.)

How it’s created: The deed will list only one grantee (owner). No special wording is needed beyond the single owner’s name. If the owner is married but wants sole title, the non-owner spouse typically must sign a spousal waiver (for example, releasing homestead rights) to confirm they have no interest in the property.

Estate planning considerations: In the context of estate planning, sole ownership has some clear pros and cons:

Advantage: Full control – as the sole owner, you don’t need anyone else’s consent to sell or refinance, and you can decide entirely what happens to the home. This simplicity can make management of the property easier during your lifetime.
Disadvantage: No automatic transfer on death – when a sole owner dies, the home becomes part of that person’s estate. It must go through probate (unless other planning like a trust is in place) to pass to heirs. There is no built-in survivorship feature, so without a will or trust, the property will be distributed according to Illinois intestacy law. In short, if you hold a home in your name alone, you should have an estate plan (such as a will or trust) to direct who inherits it.

Tenancy in Common

Definition: Tenancy in common (TIC) is a form of co-ownership where two or more people each own a share of the property. These shares can be equal or unequal. Every tenant in common has an undivided right to use and enjoy the entire property, even if one person’s percentage is larger or smaller. For example, one co-owner could own 75% and another 25%, but neither is restricted to only a part of the home – both can use all of it. All co-owners must generally agree to major decisions like selling the whole property, but each can independently transfer their own interest.

How it’s created: A tenancy in common is the default form of co-ownership in Illinois when a deed names multiple people without specifying another form. The deed may explicitly say “Alice and Bob, as tenants in common,” but even if it just lists “Alice and Bob” with no further wording, Illinois law will presume a tenancy in common (and will also presume equal shares unless percentages are stated). In practice, if buyers want this arrangement, the deed can simply name both (or all) owners or include a phrase like “as tenants in common” for clarity. It’s also possible for the deed to list each owner’s fractional share if it’s not equal.

Estate planning considerations: Here are key advantages and disadvantages of tenancy in common for estate planning:

Advantage: Each owner can leave their share to someone of their choosing. There is no automatic survivorship to the other co-owners, so a tenant in common can use a will or trust to pass their interest to a spouse, child, or anyone else. This is useful if co-owners are, say, siblings or business partners who want their respective families to inherit their portions. It also allows flexibility in ownership shares (helpful if contributors invest different amounts).
Disadvantage: Because there’s no automatic transfer to the other owners at death, the deceased owner’s share will likely go through probate as part of their estate (unless other planning is in place). The surviving co-owner(s) do not automatically get full ownership of the home – they will now co-own with whoever inherits the deceased’s portion. This can sometimes lead to complications: for instance, you might end up co-owning the property with your late co-owner’s heirs, which could be awkward or lead to disagreements. Additionally, decisions about the property (selling, refinancing, etc.) require cooperation among all tenants in common, and any owner’s financial troubles (like creditors or bankruptcy) could affect the property since that owner’s share is an individual asset.

Joint Tenancy (with Right of Survivorship)

Definition: Joint tenancy is another way for multiple people to own a property together. In a joint tenancy, all owners hold equal shares and have an equal, undivided right to enjoy the property. The defining feature is the right of survivorship: when one joint tenant dies, that owner’s share automatically passes to the surviving owner(s) outside of probate. Ultimately, the last surviving joint tenant becomes the sole owner of the property. Joint tenancy is common among spouses or family members who want the property to seamlessly go to the other co-owner when one dies.

How it’s created: Explicit wording on the deed is required to create a joint tenancy in Illinois. Simply naming two or more people isn’t enough (that would default to a tenancy in common). The deed must clearly state the intent to hold as joint tenants. For example, the deed might read “to John Doe and Jane Doe, as joint tenants with right of survivorship, and not as tenants in common.” All joint tenants generally must take title at the same time and in the same deed. Illinois law will not assume a joint tenancy without that survivorship language, so it’s important that the deed be drafted correctly if this is the desired form.

Estate planning considerations: Joint tenancy offers distinct benefits and drawbacks for estate planning:

Advantage: Avoids probate for the first to die. The right of survivorship means that when one owner passes away, their interest in the home immediately belongs to the surviving co-owner(s). The property doesn’t get tied up in the deceased’s estate or require court administration for that transfer. This can simplify matters greatly for, say, a surviving spouse who automatically continues as the owner. It provides a quick, automatic succession of ownership, which is often the primary reason people choose joint tenancy.
Disadvantage: Less flexibility in leaving an inheritance. An individual joint tenant cannot will their share to someone else – regardless of what a will might say, the survivorship clause means their share goes to the other joint owner(s) by law at death. So if you wanted your portion of the house to go to your children or someone other than your co-owner, joint tenancy would not allow that. Additionally, once all but one joint tenant have died, the last survivor ends up with sole ownership (at which point the property would go through that person’s estate upon their death). In other words, joint tenancy delays when the property hits probate (until the last owner’s death), but doesn’t eliminate the need for an estate plan for the last owner. Another potential downside is that changing a joint tenancy arrangement later can require cooperation: one joint owner can technically sever the joint tenancy by transferring their interest (turning it into a tenancy in common), but doing so might be against the original intent and could create tension. Therefore, you should enter a joint tenancy only with someone you fully trust and when you’re sure you want the survivor(s) to inherit the property outright.

Tenancy by the Entirety

Definition: Tenancy by the entirety is a special form of joint ownership exclusively for married couples (in Illinois) who own a primary residence together. It is essentially a form of joint tenancy with right of survivorship plus additional protections. In a tenancy by the entirety, each spouse owns the property together as one legal entity (the marriage) rather than as two separate shares. The survivorship works the same way as joint tenancy: if one spouse dies, the surviving spouse automatically becomes the sole owner. However, tenancy by the entirety also provides certain creditor protections and restrictions that are unique to this form.

How it’s created: In Illinois, a married couple must explicitly declare this form of ownership in the deed. The deed language typically must note that the owners are husband and wife (or a married couple) and that they are taking title “as tenants by the entirety.” It often will clarify by saying they are not taking title as joint tenants or tenants in common, to avoid any confusion. Simply being married does not automatically create a tenancy by the entirety – the proper wording needs to be in the deed (unlike some other states where a deed to spouses might default to entirety ownership). Also, tenancy by the entirety is only available for a property that is the couple’s homestead (primary residence), not for investment or vacation properties.

Estate planning considerations: For married homeowners in Illinois, tenancy by the entirety offers notable advantages along with some limitations:

Advantage: Survivorship and peace of mind. Like joint tenancy, it ensures that when one spouse dies, the other immediately owns the home outright without probate. This can be very reassuring in estate planning for spouses – the surviving spouse won’t have to worry about legal proceedings to keep their home.
Advantage: Protection from individual debts. A major benefit is that the home is generally shielded from creditors of one spouse alone. A creditor who has a judgment against just one spouse cannot force the sale of a home held in tenancy by the entirety (only creditors to whom both spouses owe money – joint debts – can make a claim against an entirety property). This means if, for example, one spouse has significant debts or liability, the primary residence is safer from being taken to satisfy those debts as long as it’s held by the entirety. This form can thus protect a family home from certain financial risks, an important estate-preservation consideration.
Disadvantage: Restricted to married couples’ residence. Tenancy by the entirety isn’t an option for unmarried co-owners, and even married couples can only use it for their principal home. If you divorce, the ownership automatically converts (usually to a tenancy in common), which could affect your estate plan going forward. Likewise, you can’t leave your half of the property to someone other than your spouse while the entirety exists – but that’s usually expected, since this form is designed for a 100% to surviving spouse outcome. Another limitation is that neither spouse can individually sell or mortgage the property; both must sign off on any transfer. While this isn’t exactly a disadvantage (it’s intended to protect both parties’ interests), it does mean you give up the ability to act alone with the property. Finally, couples who might otherwise want to put their home into a living trust for estate planning might need to terminate the tenancy by the entirety to do so, since you generally can’t hold a property in trust and as tenants by the entirety at the same time. This adds an extra step if your estate plan later calls for moving the home into a trust or other vehicle.

Making the Right Choice

Ultimately, the way you hold title to your Illinois home can offer peace of mind and ensure your property is handled according to your wishes – both during your life and for your loved ones after you’re gone.

Need to Find Out How Your Home is Titled?

Most counties in Illinois, including Cook County, maintain online access to property deeds, usually in the local recorder of deeds office.

For most people their home is their most valuable asset. If you’re unsure about the best way to pass it on to your loved ones, contact the Palley Law Office here.

Estate Plans for Illinois Sole Proprietors: What to Know

May 8, 2025 by Paul Palley Leave a Comment

Sole proprietors of professional or service businesses in Illinois face unique estate planning challenges. Much of a sole proprietorship’s value is personal goodwill – your reputation, relationships, and expertise. This means the business is tightly tied to you, making it vulnerable to closure if something happens. A solid estate plan ensures your business and family are protected. Below are key areas to consider:

Creating a Will

A will is the cornerstone of any estate plan. It lets you specify who should inherit your business assets and how the business should be handled after your death. Without a will (or trust), Illinois law dictates what happens – your business assets would be distributed to relatives under the intestate succession rules. By creating a will, you can name an executor (personal representative) and leave instructions. For example, you might direct your executor to sell the business or transfer client files to a colleague. This clarity spares your loved ones from guesswork and ensures your wishes are followed.

Planning for Business Transition at Death

Decide early how your business should transition or wind down if you pass away. Generally, a sole proprietorship has two paths at the owner’s death: continue the business or close it. If you want the practice to continue, identify a successor – perhaps a family member or a trusted employee – and outline how they take over (since a sole proprietorship legally ends when the owner dies).

If continuation isn’t feasible, plan for an orderly closure: instruct your executor to finish pending work, notify clients, pay off debts, and shut down accounts. Because the business’s goodwill is personal to you, having a plan can help preserve any remaining value (for instance, selling your client list or work-in-progress to a competitor) instead of losing it overnight.

Tax Planning Considerations

Illinois business owners should be aware of estate tax implications. Illinois imposes a state estate tax on estates worth over $4 million, which includes your business’s value (and even life insurance payouts). If your combined personal and business assets might exceed this, proactive tax planning is crucial. Strategies like lifetime gifting, insurance trusts, or other irrevocable trusts can reduce taxable estate value.

Additionally, ensure there’s liquidity available (such as a life insurance policy) to pay any estate taxes or business debts. This prevents a forced sale of the business or other assets to cover tax bills and provides financial support to your family.

Asset Management and Protection

Proper asset management can make the difference between a smooth transition and a complicated probate process. Consider setting up a revocable living trust to hold your business and personal assets. With a living trust, you can name yourself as trustee during life and a successor trustee to manage or transfer the business upon your death, avoiding probate delays. Trust-owned assets pass directly to your chosen beneficiaries or caretakers of the business. This is especially useful in Illinois, where probate can be time-consuming for estates over a certain size.

Separating and organizing your assets is also part of good planning: maintain clear records of business assets, accounts, and contracts. You might even consider forming an LLC or corporation for your business for liability protection – while that changes your sole proprietorship status, it can shield personal assets from business creditors. In any case, having your assets titled properly and legal tools in place will protect your wealth and make administration easier for your heirs.

Planning for Incapacity

Estate planning isn’t only about death – it also addresses what happens if you’re alive but unable to run your business. Illness or injury could leave you incapacitated and temporarily halt operations. To prepare for this, establish an Illinois Durable Power of Attorney for Property, which designates a trusted agent to manage your finances and business affairs if you cannot. This agent can pay bills, make payroll, communicate with clients, and even make critical decisions to keep the business stable during your incapacity. Without a power of attorney, your family might have to go to court to get a guardian appointed, causing delays and uncertainty for the business.

Alongside a financial power of attorney, have a healthcare power of attorney and living will for medical decisions. By planning for incapacity, you ensure that both your personal and business matters will be handled according to your instructions, maintaining continuity and value in your enterprise.

In Conclusion

Estate planning is vital for Illinois sole proprietors who have poured their life into their businesses. By addressing wills, business succession, taxes, asset management, and incapacity planning, you protect the legacy you’ve built. Proper planning offers peace of mind that your personal goodwill and hard-earned business will be preserved and passed on in line with your wishes, providing for your loved ones and possibly allowing your business’s mission to continue beyond your involvement.

The author is an estate planning attorney serving clients across the Chicago area. Please visit the website at palleylawoffice.com. You can contact Palley Law Office here.

How to Prepare for an Estate Planning Consultation with an Attorney

April 25, 2025 by Paul Palley Leave a Comment

How to prepare for an estate planning consultation? Meeting with an estate planning attorney for the first time can feel overwhelming, but a little preparation can go a long way. Whether you’re creating a will, setting up a trust, or just getting a clearer picture of what you need, coming to the consultation with the right information and knowing what questions to ask helps make the most of your time — and helps your attorney give you the best guidance possible.

What to Bring

Gathering a few key pieces of information ahead of time will help the conversation flow smoothly. Here’s what to bring:

A list of your assets: Include real estate, bank accounts, retirement accounts, life insurance, investments, and any valuable personal property. Ballpark figures are fine — this doesn’t need to be exact.
Basic family information: Names and relationships of your spouse, children, and anyone else you might name in your plan — as a beneficiary, guardian, trustee, or executor.
Existing estate planning documents: If you already have a will, trust, or powers of attorney, bring those along. Your attorney can review what’s in place and whether it still fits your goals.
Your questions and goals: Think about what you want to accomplish. Do you want to avoid probate? Provide for a loved one with special needs? Minimize taxes or simplify things for your family? Jot down your priorities so you don’t forget to discuss them.

What to Expect

During your first meeting, your attorney will ask about your family, finances, and goals. If you’re not sure what you need — that’s perfectly okay. The purpose of the consultation is to figure that out together.

You might discuss:

Who should make decisions if you become incapacitated
How and when your assets should be distributed
Whether you have minor children or dependents
If you own property in more than one state
Any family dynamics that could affect your plan

Your attorney is there to listen, answer your questions, and help you build a plan tailored to your life.

Final Tips

No need to have everything figured out. Your attorney will help you think through the options.
If you’re married or planning jointly, attend together.
Be open about your concerns. Honest conversations lead to stronger plans.

Estate planning is about more than documents — it’s about protecting the people and causes you care about. With a little preparation, your first meeting can be the start of real peace of mind.

Ready to Get Started?

If you’re thinking about your next steps in estate planning, I’m here to help. At Palley Law Office, I make the process approachable, personalized, and clear.

Schedule your consultation today and let’s create a plan that fits your life.