How to Create a Living Trust in Illinois

A living trust allows you to maintain control of your assets during your lifetime while establishing clear instructions for distribution later. For Illinois residents, creating a living trust involves several important steps, from deciding between revocable and irrevocable options to properly funding the trust. While the process may seem complex, understanding the fundamentals can help you determine if this estate planning tool aligns with your financial goals and family circumstances.

If you’re thinking about forming a living trust, you may benefit from working with a financial advisor.

Steps to Create a Living Trust in Illinois

A living trust is a legal document that allows you to place your assets into a trust during your lifetime. It provides instructions for the management and distribution of these assets after your death.

In Illinois, a living trust can help you avoid probate and maintain privacy. It helps ensure a smoother transition of your estate to your beneficiaries.

It takes just a few steps to set up:

1. Figure out which type of trust you need. The type of trust you need often depends on your filing status. Single people only have the option of a single trust. If you’re married, you have the choice of each spouse getting a single trust or getting a joint trust together. A joint trust often makes sense if you co-own property like homes or vehicles.
   
2. Take stock of your property. It’s important to know exactly what you own and what you want to place into your trust. You can place anything from bonds and bank accounts to artwork and antiques into a living trust. You should also gather all relevant paperwork for your property, including proof of home ownership and car titles.
   
3. Pick a trustee. You might want to name yourself trustee, but you can also pick someone else, such as your children or a trusted relative. If you choose yourself, you’ll also want to select a successor trustee who will take over management of your estate when you die. The trustee is also responsible for ensuring the distribution of your property to your beneficiaries according to your trust, leaving another matter for you to decide.
   
4. Create the trust document. You can either do this using an online service or with the help of a living trust lawyer.
   
5. Get the document notarized. Sign the trust document in the presence of a notary.
   
6. Fund your trust by moving your property into it. You can do this yourself, but the help of an attorney may be beneficial, as the process does require some paperwork that can be complex.

What Is a Living Trust?

A living trust is a legal framework in which you can place assets and property. It is established by a document providing specific information, such as your trustee and the type of trust.

A trust has a trustee who is responsible for managing the trust and distributing the property to beneficiaries in accordance with its instructions. You can name yourself as trustee, or you can give that job to someone else.

There are two types of living trusts:

• Irrevocable trust. An irrevocable trust is permanent. This means a grantor cannot remove property placed inside it unless they get permission from everyone named in the trust.
• Revocable trusts. There are also revocable trusts, which offer some flexibility because they are modifiable. With this type of living trust, the grantor maintains ownership of the assets placed in the trust and pays taxes as usual.

How Much Does It Cost to Create a Living Trust in Illinois?

The cost of a living trust in Illinois depends on its structure.

• Online software. You can choose to use an online program, which will likely run a few hundred dollars or less.
• Attorney. If you choose to hire an attorney, their fees may vary. You could end up paying more than $1,000 to create a living trust with the help of an attorney.

Though DIY estate planning is less expensive, there are risks.

• Complex. Trusts can be tricky to set up, so you’ll need to invest plenty of time in researching to ensure you do everything properly.
• Attorney fees. If you choose to work with an attorney, make sure to ask about their fees so you understand the costs.
• Specialty. Another important factor is whether the attorney is a trust specialist rather than merely an estate planner.

Why Get a Living Trust in Illinois?

The most common reason for a living trust in Illinois is to simplify matters for your family when you die.

Probate

Any property that’s inside the trust will not be subject to probate court. This is a process that estates must go through after a person dies to ensure their property goes to the appropriate parties. This process can be very time-consuming and costly, and privacy is often an issue.

The probate process can be especially lengthy in Illinois, as the state does not use the Uniform Probate Code. In other states, this code streamlines the probate system.

Child Beneficiaries

Using a living trust can also be helpful if you’re leaving property or assets to a minor child. With a living trust, a trustee can take ownership of the assets until the child comes of legal age. ¹

Additionally, a living trust can be useful if you become incapacitated. If this occurs while you have a living trust, you can avoid conservatorship because yo already have designated a trustee.

Who Should Get a Living Trust in Illinois?

Living trusts are not just for the wealthy.

Especially in Illinois, which does not use the Uniform Probate Code, a living trust can be helpful even for smaller estates, as it allows your heirs to avoid probate.

Note that in the state of Illinois, estates with a total value of under $100,000 that don’t include real estate may be able to skip the probate process. ² In those instances, a living trust may not be especially useful because a small estate affidavit is required instead.

Drawbacks of an Illinois Living Trust

There are downsides to using a living trust, such as:

• Trusts are more complex to arrange.
• They tend to be more costly than wills.
• They can cause issues after your death, as living trusts offer families a larger window of time to contest the estate than a will does.

Regardless of whether you choose to create a living trust, remember that everyone needs an estate plan.

Living Trusts vs. Wills

When planning your estate, it’s important to understand the differences between living trusts and wills.

Both are legal tools that allow you to specify how your assets will be distributed after your death, but they function in distinct ways. Knowing which option best fits your needs can help ensure your wishes are honored and your loved ones are protected.

Even if you get a living trust, make sure to also make a will. A will can direct the fate of any property that does not end up in the trust.

Moreover, a will has some capabilities that a living trust does not, including:

• Establishing guardianship for children who are minors
• Selecting managers for children’s property
• Providing instructions on how to pay taxes and debts
• Naming an executor

Here’s a deeper dive into the legal abilities of both documents.

Living Trusts vs. Wills

Living Trusts and Taxes in Illinois

A living trust probably will not have much of a tax impact. Still, you should look into the Illinois estate tax and Illinois inheritance laws when you are thinking about your estate plan.

While there is no inheritance tax in Illinois, it’s important to understand your estate tax restrictions.

The estate tax in Illinois applies to estates that are worth more than $4 million. The tax is progressive, and rates range from 0.80% to 16%.

The federal estate tax can also apply. ³ Estates worth more than $15 million, or $30 million for couples, must file a tax return on behalf of the trust.

TODI: A Lower-Cost Way to Transfer Your Home

If your main concern is avoiding probate for your home, a living trust is not the only option available in Illinois.

State law allows homeowners to sign a Transfer on Death Instrument (TODI) naming who will receive the property after the owner’s death. If the TODI is validly executed and recorded, the home passes directly to the named beneficiary instead of becoming part of the probate estate.

A TODI does not change ownership while you are alive. You continue to own and manage the property, remaining responsible for expenses such as taxes, insurance and maintenance.

You may also cancel the TODI or record a new one naming a different beneficiary if your plans change. The beneficiary’s interest does not take effect until your death. Illinois law requires the document to be signed, witnessed, notarized and recorded with the county recorder before the owner’s death.

Illinois expanded the law in 2022 so a TODI can be used for any type of real estate in the state. ⁴ For homeowners whose largest asset is their residence, this can provide a relatively simple and inexpensive way to transfer that property without creating a living trust.

A TODI serves a much narrower purpose than a living trust. It affects only the real estate identified in the document and does not provide instructions for other assets or address incapacity planning.

If you own substantial investments, multiple properties or want to control how beneficiaries receive assets over time, a living trust may still be the more comprehensive estate planning tool. In some cases, homeowners use both, with a TODI for a specific property and a trust for the rest of the estate.

Bottom Line

Creating a living trust in Illinois helps ensure your assets are managed and distributed according to your wishes. At the same time, it helps your loved ones avoid the lengthy and often costly probate process. By understanding the essential steps, such as choosing the right type of trust, selecting a trustworthy trustee and properly funding your trust, you can tailor your estate plan to fit your unique needs.

Estate Planning Tips

• If you’re planning your estate or are just trying to create a financial plan, it might be a good move to work with a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Make sure to update your will and other aspects of your estate plan. Things change, and your estate plan should change along with them.
• You can’t transfer ownership of your retirement account to your trust. However, you can name your trust as a beneficiary. If you do this, your 401(k) or life insurance benefits will automatically go to your trust.

Photo credit: ©iStock.com/jacoblund, ©iStock.com/filo, SmartAsset.com