RNH Law Blog

Do I Need A Trust in Illinois? Can I Save Taxes Having A Trust?

As an Illinois trust attorney, two of the most frequent questions that I am asked are Do I Need a Trust in Illinois, and Can I Save Taxes Having a Trust?  This post discusses what a trust is, the different types of trusts, whether a trust can help in saving estate taxes, and whether a trust may be right for you.

What is a Trust?

A trust is a legal arrangement allowing an individual (the settlor) to transfer assets into a trust managed by a third party (the trustee) for the benefit of designated beneficiaries. Once assets are transferred into a trust, they typically are no longer considered part of a person’s estate for probate purposes.

What Types of Trusts Exist in Illinois?

In Illinois, there are several types of trusts, each serving a specific purpose. Some common types of trusts include:

  • Revocable Trust. Also known as living trusts, these trusts are created during the settlor’s lifetime and can be amended, changed, or revoked as needed. Typically the beneficiary of a Revocable Trust will be the same person creating the trust.
  • Irrevocable Trust. Once assets are transferred to an irrevocable trust, they cannot be withdrawn by the settlor, and can only be used for the beneficiaries and purposes set forth in the trust.
  • Asset Protection Trust. These trusts are designed to protect a person’s assets from future creditors’ claims and can be structured to be irrevocable for a specific term or permanently. In order to be effective to protect assets, this trust must be carefully structured, and it will not be effective to protect assets from claims that have arisen prior to the asset transfer.
  • Charitable Trust. Created to support a specific charity or the public in general, these trusts are often used to lower estate and gift taxes.
  • Special Needs Trust. Special needs trusts hold assets for the benefit of a special needs individual, and are designed to supplement government benefits without reducing the government benefits eligibility of the special needs individual.
  • Spendthrift Trust. This type of trust is designed to protect beneficiaries from quickly spending their inheritance, typically by limiting the amount that can be given to a beneficiary over time.
  • Tax Bypass Trust. This type of trust allows one spouse to transfer money to the other while limiting the amount of federal estate tax due upon death.

As a Frankfort trust attorney, I can help you determine which type of trust is best suited to your situation and provide guidance on protecting your assets and your family.

What Is an Irrevocable Trust? Can An Irrevocable Trust Be Changed?

An irrevocable trust is a permanent arrangement, once established, and cannot be canceled or modified. These trusts may be particularly useful for potentially minimizing estate tax liabilities, protecting property from creditors, reserving monetary support for future generations, addressing the special needs of designated beneficiaries, and helping elderly and disabled individuals maintain eligibility for government programs like Medicaid.

Irrevocable trusts are made to benefit an individual (or individuals) or organization(s) other than the settlor (the person contributing the assets). Although irrevocable trusts generally cannot be modified or terminated, a trust protector or advisor can be named to make certain adjustments if necessary due to changes in the law or other circumstances.

What Are Some of the Benefits of Forming an Illinois Trust?

When assets are transferred into a trust other than a Revocable Trust, the settlor gives up ownership rights to the assets, and the trustee gains legal authority to manage and distribute the assets to beneficiaries. Trusts offer several potential benefits, including:

  • Allowing disabled individuals to have assets held in a Special Needs Trust without affecting eligibility for vital government benefits.
  • Passing assets to beneficiaries without requiring probate.
  • Protecting assets from creditor claims and preserving a child’s inheritance.
  • Providing estate tax shelters.

What is the Estate Tax Exemption in Illinois?

In Illinois, the current estate tax exemption is $4 million.  Thus, estates valued under this amount do not need to pay Illinois estate taxes.

Can I Avoid Estate Taxes if I Have a Trust?


A Revocable Trust (or Living Trust) will not reduce either Illinois state or federal estate taxes for an individual, but in Illinois a married couple can use a trust to take advantage of an increased Illinois estate tax exemption.

While this is somewhat complicated, if a person dies without a trust in Illinois with an estate valued at $6 million, their estate would be subject to Illinois estate taxes on $2 million ($6 million less the Illinois exemption of $4 million = $2 million).  If this person was married and had a Revocable Trust with a spouse, the surviving spouse would then be able to apply their $4 million exemption (thus increasing the exemption to $8 million), so there would not be any estate subject to taxes (as the $8 million exemption exceeds the $6 million estate).

An irrevocable trust may or may not reduce estate taxes.  Part of the complicating factor here includes whether the transfers to the trust for the benefit of someone else would be subject to gift taxes at the time made.  As a result, it’s critical to speak to an experienced Illinois trust attorney to understand the specific factors regarding taxation.

Do I Need a Trust If I Have A Modest Estate?

Even if you have a modest estate, establishing a trust may still offer significant benefits. While you may not be subject to estate taxes in Illinois if the value of your estate is less than the $4 million Illinois estate tax threshold, a trust can typically provide a streamlined probate process, ensuring that your assets are distributed to your beneficiaries according to your wishes.  Moreover, because assets in a trust typically are not subject to probate, assets in a trust can be transferred to beneficiaries outside of the public probate process (thus helping to preserve confidentiality).

Children and the Benefits of a Trust

In the situation of parents with young children, there is the possibility that the parents may die before the children become responsible adults. If a trust is not enacted, then normally the children will inherit the assets of the parents when they die (through either the will of the parents or through Illinois intestate laws if there is no will). Through what is sometimes known as a “spendthrift” trust, assets can be held in the trust and then used for the children and paid out over time as their needs may arise.  As a result, if the parents have two children and they die with $1 million in assets, the trustee of the trust may pay out money to cover the living and educational expenses of the children until they reach a specified age (such as 25), at which point the balance of the trust can be paid to them.

But I’m Not a Millionaire – Do I Still Need a Trust?

Perhaps.  One aspect that people often fail to consider when valuing their estate is the value of a life insurance policy.  As an example, while a person’s estate may be fairly nominal (perhaps the value of their home over what they owe, as well as cars, a savings account, and a retirement account), the person may also have a large life insurance policy, maybe even $1 million or more.  If there is a trust, the trust may be the beneficiary of the policy, so that if parents die while their children are young, the insurance proceeds will then be paid into the trust to provide for the needs of the children.

Can I Avoid Creditors By Placing All of My Assets Into a Trust?

Generally, the answer is “no”, at least with respect to Revocable Trusts where the person creating the trust is also the beneficiary.  The assets in other types of trusts (like an Irrevocable Trust) may or may not be subject to creditors.

With an Irrevocable Trust, a key factor will likely be when the assets were transferred to the trust.  As an example, if assets were transferred to the trust several years before the debts arose, then most likely the creditors will not be able to reach such assets.  However, if the assets were given to the trust after the debts were incurred and it appears that the reason that the assets were transferred to the trust was to avoid creditors, then the creditors will likely be able to reach the assets.

Creating the Right Trust for You

Trusts can also be tailored to address specific concerns, such as providing for a disabled family member, protecting a beneficiary from creditors, or managing assets for minor children until they reach a designated age. As a Frankfort trust attorney, I can help you determine whether a trust is appropriate for your modest estate and guide you through the process of establishing a trust that best meets your needs and objectives.

Do I Need a Will If I Have A Trust?

Yes.  Most individuals will own property that has not been transferred to a trust.  This may include things like items of furniture, clothing, or even intangible items, such as the rights to recover proceeds in a lawsuit.  If these items are not addressed in a will, then a person will be deemed to have died intestate (i.e. without a will) with respect to assets that the person owns that were not already transferred to the trust. As a result, such assets must then be transferred in accordance with Illinois intestate laws.

As a Frankfort trust lawyer, I often emphasize to clients the importance of having both a trust and a will. While a trust can cover the assets placed within it, a will ensures that any assets not included in the trust are distributed according to your wishes. A will can also designate guardians for minor children, which cannot be done through a trust.

Having both a trust and a will in place provides comprehensive protection and seeks to ensure that all aspects of your estate are properly addressed. At RNH Law, we can help you create a cohesive estate plan, providing you with peace of mind and ensuring your intentions are carried out.

Schedule A Free Consultation With An Experienced Frankfort Trust Lawyer Today.

If you are considering establishing a trust in Illinois, it is crucial to consult with an experienced trust attorney. As a Frankfort trust attorney, I am well-equipped to help you navigate the various types of trusts and determine the best option for your situation. Trusts can provide numerous benefits, including asset protection, tax savings, and ensuring your loved ones are taken care of in the future.

Don’t leave your estate planning to chance. Protect your family and your assets.  Contact RNH Law today to schedule a free consultation and discuss your trust and estate planning needs. Together, we can develop a comprehensive plan to protect your assets and provide peace of mind for you and your family. Call us at (708) 279-4050 to get started.