Ernie Banks and the Caregiver: Who Gets the Estate?

If you're pulling for the family of Ernie Banks in their dispute with his long-time caretaker over his estate, know this: The widow will fare well no matter what, and the children have some tools to work with (though the best one is too new to be available to them).

 

  

 

The facts: Mr. Cub died on January 23, 2015 in Chicago at the age of 83. A wife and three children survived him. The wife secured appointment as the administrator of the estate (which implies that he died without a will). Then the caretaker filed a will made in October of 2014 that named her the executor and gave all the property to a trust that she controls. A will of that kind is fairly common and is known as a "pour-over will": The probate estate pours over into a trust. Details of the trust have not been reported, which is one of the virtues of having a trust - privacy: Trusts do not go through probate as wills do.

The wife will do all right in this contest no matter what. A spouse cannot be disinherited. At minimum, the wife can exercise her right to renounce the will and thereby receive one-third of the property (the share would be one-half if there were no descendants). (See 2-8 of the Probate Act of 1975 (755 ILCS 5/2-8)). (Of course, that right can be waived pursuant to a pre-nuptial agreement.)

The children have no right of renunciation. Their recourse is to contest the will on the basis of some defect in the making, signing, or witnessing of it. For instance, these facts invite a challenge on the "composite theories" of undue influence and incompetence: The will was made only three months before Ernie Banks died, and he had dementia, according to the death certificate. He put great trust and confidence in the caretaker, who has ended up with total control of the property (if not ownership of it). The will was prepared by a suburban attorney who apparently had no prior relationship with the ballplayer but only with the caretaker.

However, Ernie Banks had every right to give his property away as he pleased, and it is not illegal to be 83 years old. The law presumes that he was competent when he made that will, and the burden is upon challengers to the will to rebut that presumption.

 Which gets to the aforementioned point about a "tool" that is too new to be available to the children of Ernie Banks. Today certain transfers of property to caregivers are presumptively void. Public Act 98-1093, which added Article 4a to the Probate Act, applies to wills, trusts, and the like made or changed after January 1, 2015. Any transfer of more than $20,000.00 of money or other property to a caregiver is presumed to be void if (i) it is challenged, (ii) provision for it appears in a "transfer instrument" intended to take effect after the death of the transferor (e.g., a will or a trust), and (iii) the caregiver is unrelated to the transferor.

The caregiver can attempt to rebut the presumption by (i) showing, by a preponderance of evidence, that the share is no greater than what the caregiver would have been entitled to under an instrument in effect before the caregiver became a caregiver; or (ii) showing, by clear and convincing evidence, that the transfer was not the product of fraud, duress, or undue influence. A caregiver who tries and fails to overcome the will be chargeable with the costs and attorney's fees of the proceeding.

This new law could be improved by expanding it to caregivers who are family members. Family members, after all, account for much of the mischief in this area. An opportunistic family member was the mastermind in a contested probate matter that was recently resolved to the satisfaction of some 30 clients of this office. First he submitted for himself a $17,000.00 claim against a probate estate for caregiver services to a sibling who lived in a nursing home with round-the-clock professional care. That claim, which was allowed in full before we entered the case, was a trifle compared to his other activity. He orchestrated an eleventh hour change to a trust that increased the share earmarked for his children from a mere nine percent of the value of the trust to 75 percent. We built a case for undue influence and incompetence that induced the opposition to propose a settlement conference with the judge. The ensuing settlement agreement restored nearly $900,000.00 to the side of the family that we represented, and reversed the split from 75/25 in favor of the opposition to 63/37 in favor of our clients.

FAQs About Trusts

Is property in trust beyond the reach of creditors of the beneficiary of the trust?
As a rule property held in a spendthrift trust for the benefit of a judgment debtor is beyond the reach of the creditors if the trust was created and funded in good faith by a person other than the debtor. The rule does not apply when the trust is so set up or funded as to hinder, delay, or defraud creditors. Nor does it apply when the debtor created the trust for the debtor's own benefit: Put another way, a "self-settled" trust is invalid as a spendthrift trust in Illinois. And even a legitimate spendthrift trust is liable for the unpaid child support obligations of a beneficiary-debtor. Are there tax benefits to trusts.

Are there tax benefits to trusts?

Transferring property into trust does not make tax obligations disappear. Income generated by trust assets will be taxable to the trust, to the person who created it (known as the settlor or the grantor), to the beneficiary, or to some combination thereof. Any doubt that many people have erroneously thought otherwise over time is dispelled by the treatment which the Internal Revenue Service has given to this subject. (See "Abusive Trust Arrangements" in 2011 Instructions for Form 1041 at p. 3).

In theory, trusts are subject to other taxes, too, among them the so-called "death taxes" and "inheritance taxes." In practice, those taxes are relevant only to the few: the current exemptions are $5.25 million in the case of the federal estate tax, gift tax, and generation-skipping transfer tax; $4 million for the Illinois estate tax; and double that for married couples.
There are many good reasons for establishing a trust, but they do not have much to offer in terms of reducing or eliminating income tax liability.

Why should I create a trust?

 

One good thing a trust can do is reduce or eliminate the risk of guardianship proceedings. In a typical "living trust" the settlor will designate himself or herself the trustee, and will designate a successor trustee in case he/she dies or becomes disabled. Should the initial trustee become disabled, a simple resignation is all it would take to put the "back-up" trustee in charge; and the fees, the paperwork, the trips to court, the delay and all the rest of what goes into obtaining a guardian of the estate could be avoided.

 THE LIVING TRUST IS RIGHT FOR YOU

by David McCarthy 

Natalie Wood's death has been cited as an argument for having a so-called "living trust" because when her estate was in probate an inventory of her property was on file and open to public inspection. Privacy is only one of the advantages of having a "living trust" (also known as an inter vivos trust).   

• Do you have children who are minors, or have special needs, or are spendthrifts?
• Are you in retirement, up in years, starting to slow down?
• Would you like to reduce the amount of taxes you pay?
• Are you philanthropically inclined?  

If you answered yes to any of those questions, a "living trust" is right for you.

You can use a trust to provide for minor children after you die, to provide for a special-needs child of any age throughout the child's life, to provide for children who just don't know how to handle money by establishing a trust that cannot be reached by the creditors of a spendthrift.

A trust permits easy transfer of your property to the beneficiaries after your death. It takes six months, minimum, to get through probate in Illinois, and as a rule, distribution of property to the heirs and beneficiaries occurs at the end of the probate process. If you want your beneficiaries to have your property without the wait, the trust can be drawn accordingly.

A trust and its creator (called the settlor) are two different persons in the eyes of the law and two different taxpayers. This can produce significant tax savings.

In our judgment, one should have a trust in addition to having a will rather than in lieu of having a will. One of the challenges of having a trust is making sure that all your property gets into the trust, and that whenever new property is acquired, it, too, is placed in trust. This is often easier said than done. And the next thing you know, the person who established the trust (the settlor) personally owns property that did not make it into the trust and which, therefore, is subject to probate.

Understand this about probate. Whether it does or does not live up to its nightmarish reputation will depend almost entirely on whether the heirs and beneficiaries do or do not get along with one another. The expense, the time, and the emotional toll will increase as the level of contest and hostility increases. Illinois has long had a form of probate known as "independent administration." Had Natalie Wood's case undergone "independent administration" in Illinois, the inventory of her property would never have become a matter of public record. However, if the heirs and beneficiaries are at each other's throat, and one of them asks for "supervised administration," then the inventory would become a matter of public record.

The upshot: Have a will and a trust. You won't regret it.

           

MORE ABOUT AVOIDING PROBATE

by David McCarthy

We recently spoke about an effective (but imperfect) tool for avoiding probate: the living trust. Some elaboration about the subject, probate avoidance, might be of interest.

Probate is not the ordeal it is widely supposed to be, and its hellish reputation is a triumph of the advertising of the living trust industry over reality.

One of the claimed advantages of the living trust over probate is privacy. The living trust "community" cited for this point the estate of a deceased celebrity (if memory serves, the celebrity was either Bing Crosby or Natalie Wood). In any case, the estate was probated. In the course of that proceeding an inventory of the property of the departed was required by law to be filed of record. And the gawkers of Southern California were at liberty to pull the file and see all that the deceased owned.

The risk of that is diminished if not eliminated in Illinois by the availability of "independent administration." Virtually any estate that must be probated in Illinois is eligible for "independent administration." "Independent administration" eliminates the privacy objection touted by the proponents of the living trust: The inventory of the property of the deceased need not be filed of record in an "independent administration."

Let us now turn to that most basic and obvious of probate avoidance devices: the will. True, the existence of a will does not, strictly speaking, enable one to "avoid" probate. It can and does, however, manage and control a number of risks that give probate a bad name.

The greatest advantage of a will is surpassingly simple: It distributes the property of the deceased in the way that the deceased intended the property to be distributed.
 
When a person dies intestate (that is, without a will), the property is distributed in the way that the State dictates pursuant to the statute of descent and distribution. Those intentions -- the intentions of the deceased and the intentions of the statute of descent and distribution -- are not necessarily one and the same. Another advantage of a will, especially as to estates of some consequence, is that it can call for no surety on the bond of the executor. Surety bonds can get expensive.

There are other devices that can streamline and simplify probate, or avoid probate altogether. Holding property in "joint tenancy" is one such device. Property held in "joint tenancy" does not pass into the probate estate of a joint tenant so long as one other tenant is still alive. Rather joint tenancy property passes, upon the death of one joint tenant, to the co-tenants who survive. Another handy device is for the testator (the person who makes a will) to purchase a modest policy of insurance on his/her life and designate as the beneficiary thereof his/her estate. The proceeds of the policy payable upon the death of the person whose life is insured will pass into his/her estate and provide liquidity to pay expenses.

Probate differs in no important way from any of the other business and affairs of life that end up in court.

There is a direct correlation between the time, expense, uncertainty and hard feelings and the level of contest. When all disputes between the parties in interest are resolved by agreement, the cost (in all senses of the word "costs") is low. When all disputes between the parties in interest are resolved by the court, the costs are high. In most cases, we see a bit of both, that is, a mix of disputes resolved by agreement, and disputes resolved by order of court. And over time, in any given case, the amount of business resolved by agreement rises and the amount of business resolved by the court falls, because the parties in interest feel ever more acutely the pain of having to pay the lawyers.

Living Trust or Probate

by David McCarthy

The "living trust" has been pitched as a new alternative to probate. It is neither one. It has been around for hundreds of years. It is not an alternative to probate.

As a probate avoidance tool, the living trust is only as good as the settlor's ability to make sure that all his/her property gets into the trust.


The settlor is the person who sets up a trust.

As time goes by the settlor acquires other property, e.g., by purchase, by inheritance, or by transfer or exchange of trust property. However, the settlor neglects to put the newly-acquired property into the trust. Unless that property is otherwise disposed of during the lifetime of the settlor, it will become part of the settlor's probate estate. Having a living trust in addition to a will makes sense. Having one in lieu of a will does not.