A trust can provide a structured way to own, manage, and ultimately distribute property. Depending on how it is designed, a trust may operate during your lifetime, continue after your death, provide instructions for beneficiaries, and keep certain assets outside the probate estate.
That flexibility is also why creating a trust should begin with a purpose rather than simply choosing a document. Different trusts accomplish different things, and the terms of the trust need to work with the property placed into it and the rest of your estate plan.
Keller Legal Services helps individuals and families in Naperville, DuPage County, Kane County, Will County, and surrounding Illinois communities evaluate whether a trust fits their planning objectives and establish trusts under Illinois law.
A trust creates a legal relationship involving property and instructions for how that property should be managed or distributed.
The person who creates or contributes property to a trust is generally called the settlor. The trustee is responsible for administering trust property according to the trust’s terms and applicable law. Beneficiaries are the people or organizations with beneficial interests in the trust.
Illinois trust law is primarily governed by the Illinois Trust Code. Under 760 ILCS 3/401, a trust may be created in several ways, including by transferring property to a trustee or by an owner declaring that identifiable property is held as trustee.
Illinois law also imposes requirements for creation. 760 ILCS 3/402 generally requires, among other things, capacity and intent to create the trust, a definite beneficiary or a qualifying statutory exception, and duties for the trustee to perform.
The trust document establishes the framework, but the property associated with the trust is equally important. Creating a trust without properly addressing ownership of the intended assets can leave the estate plan operating differently than expected.
There is no single reason to establish a trust. The value of a trust depends on what the person creating it is trying to accomplish.
Common planning objectives can include:
Some people have several of these concerns. Others may determine that a trust adds complexity without providing enough benefit for their circumstances.
The broader estate planning process should help answer that question by considering the trust alongside wills, powers of attorney, beneficiary designations, and asset ownership.
One of the first distinctions to understand is whether a trust is revocable or irrevocable.
A revocable trust is generally designed so that the settlor retains the ability to make permitted changes or revoke the trust during life.
Illinois law does not simply presume that every trust can be revoked. Under 760 ILCS 3/602, a settlor may revoke a trust only if the trust instrument expressly provides that it is revocable or that the settlor has an unrestricted power of amendment. The statute likewise addresses when and how a settlor may amend a trust.
A revocable trust can allow the settlor to retain substantial control while creating a structure for managing trust property during life and after death.
For example, a person may establish a revocable trust, serve as the initial trustee, transfer property into the trust, and name a successor trustee to take over when appropriate under the trust’s terms.
An irrevocable trust involves a different level of control and commitment.
The person creating an irrevocable trust generally does not retain the same unrestricted ability to revoke or amend it. Depending on the trust’s purpose and terms, transferring property to an irrevocable trust can have significant legal, financial, and tax consequences.
That does not make an irrevocable trust inherently better or worse than a revocable one. It means the two structures should not be treated as interchangeable.
The decision should be driven by the planning objective, the property involved, the amount of control the settlor wants to retain, and the consequences of the particular arrangement.
One common reason people consider trusts is probate planning.
Property that is properly held in a trust can generally be administered according to the trust’s terms rather than being transferred through the settlor’s probate estate solely because of the settlor’s death.
That can provide practical advantages. A successor trustee may be able to continue administering trust property under the trust document without requiring the same process used to appoint an executor and administer probate property.
But there is an important qualification: the trust must actually be connected to the property it is intended to govern.
Signing a trust agreement does not automatically cause every asset you own to become trust property.
If someone establishes a trust but leaves substantial assets individually owned without another effective transfer mechanism, those assets may still become part of the probate estate.
This is why trust planning should include a careful review of how significant assets are titled and how they are intended to transfer.
When probate is required, Keller Legal Services also assists families with the Illinois probate process.
The term funding a trust generally refers to transferring or assigning appropriate property to the trust so that the trust can actually govern that property.
Depending on the asset, this might involve changing title, executing an assignment, or taking another appropriate step.
Examples of property that may require consideration include:
Not every asset should necessarily be retitled into a trust. Retirement accounts, insurance policies, and other assets with beneficiary arrangements require separate consideration.
The point is not to put everything into the trust automatically. The point is to make sure the ownership and transfer plan for each significant asset is intentional.
A trust document and an asset plan should work together.
A trustee may have substantial responsibility for property that belongs to other people or is being managed for their benefit.
Depending on the trust, a trustee’s responsibilities can include managing investments, maintaining property, keeping records, making distributions, communicating with beneficiaries, paying appropriate expenses, and following detailed instructions contained in the trust.
When creating a revocable trust, the settlor may initially serve as trustee. The plan can then identify a successor trustee to take responsibility if the initial trustee dies, resigns, or can no longer serve.
Choosing that successor deserves careful consideration.
Relevant questions include:
It may also be appropriate to name an additional successor in case the first choice cannot serve.
A trust can do something that an immediate outright gift cannot: establish continuing instructions for property after the original owner is gone.
That can matter when a beneficiary is young or when the person creating the plan does not want a beneficiary to receive an entire inheritance at once.
Trust terms can address questions such as:
This flexibility can be useful, but more restrictions are not automatically better. A trust that continues for years may require ongoing administration and can place substantial responsibility on the trustee.
The terms should reflect an actual planning need rather than adding complexity without a clear reason.
A trust does not necessarily eliminate the need for a will.
A person may intend for most significant property to pass through a trust but still have individually owned property at death. A will can address probate property and perform functions that are separate from the trust.
This is why wills and trusts should be viewed as potentially complementary components of an estate plan rather than competing documents.
A coordinated plan considers what the will controls, what the trust controls, and what passes through beneficiary designations or other ownership arrangements.
A properly structured trust can also provide continuity in the management of trust property if the person currently serving as trustee can no longer manage it.
For example, the trust terms may establish how a successor trustee assumes responsibility when the original trustee can no longer serve.
That can be an important part of incapacity planning, but it does not make other documents unnecessary.
A trustee’s authority concerns trust property. Someone may still need authority to address assets outside the trust and other financial matters. Keller Legal Services’ discussion of powers of attorney in Illinois addresses that separate role.
Likewise, a trust does not replace documents concerning medical decision-making. Those issues should be considered separately through appropriate advance health care directives.
The decision to establish a trust should start with your circumstances rather than a preconceived idea that everyone needs one.
Useful questions include:
No particular level of wealth automatically determines whether a trust is appropriate. The more important questions involve the property you own, how you want it managed and transferred, and whether the benefits of the trust justify the additional planning and administration.
Depending on the type and terms of the trust, yes. It is common for the settlor of a revocable trust to serve as the initial trustee. Different considerations can apply to other trust structures.
Not necessarily. The consequences depend on the type of trust and its terms. A revocable trust in which you retain appropriate powers is very different from transferring property under an irrevocable arrangement.
It depends on the trust. A revocable trust may permit amendment or revocation according to its terms and Illinois law. An irrevocable trust presents different issues and should not be created on the assumption that its terms can later be changed freely.
The decision to create a trust should not begin and end with avoiding probate. The more important question is how you want your property managed during your lifetime, what should happen when you can no longer manage it yourself, and how beneficiaries should receive what you leave behind.
Keller Legal Services can help you determine whether a trust makes sense within your estate plan and develop an approach suited to your property and objectives. We assist clients in Naperville, DuPage County, Kane County, Will County, and surrounding Illinois communities.
To discuss establishing or updating an Illinois trust, call 630-505-1515 to schedule a free consultation with Keller Legal Services.
