The Powerball lottery jackpot is advertised as $1,400,000,000 but if (when!) you win, how much will you really see deposited into your bank account? First, let’s assume that you hold the only winning ticket (you have a about a 1 in 300 million chance). The advertised amount is what you would receive if you agree to take payments spread out over 30 years. If you opt to take the lump sum (which most financial advisers would recommend), you would receive a fairly decent deposit of $868 million – that’s a loss of 38% of the advertised jackpot.
After that, Uncle Sam will be ready to tax the lump sum amount as your regular income at the highest federal rate of 39.6%, leaving you with $524 million. If you live in Illinois, you will also need to pony up another 3.75% for Illinois income tax – for a net total of around $492 million. Bam, you just lost almost a billion dollars from the advertised jackpot.
Another factor to consider is gifting. If you decide to generously spread out your winnings to friends, family, neighbors, or your local attorney, any amount gifted may be subject to a federal gift tax of 40%. If you have an agreement to share prize money before the drawing, though (like an office pool), that would not result in gift tax.
So, when you’re deciding how much of your nest egg to invest in lottery tickets, don’t be fooled by the advertised jackpot – you could lose a billion dollars.
In families with a sick or elderly parent (or grandparent, aunt, uncle, cousin, etc.), it is common for one family member to bear most of the burden of taking care of that relative. Caring for an elderly parent can be extremely taxing, especially when the caregiver has their own family to tend to as well. I find it is quite rare, though, for the sick relative to have an estate plan in place that takes this into consideration (even when that caregiver is not being paid).
In some families, this does not lead to any issues or resentment because perhaps the caregiver never wanted any more recognition for their care or – in some cases – the family has all agreed to provide extra gifts from mom’s estate to the sibling that took the burden from the rest of the family. In many instances, though, there is some friction which can often go unaddressed as it is a touchy subject that can be difficult to bring up. In Illinois, there are two statutes to be aware of that can have a profound effect on the rights a caregiver may have in the estate of the cared-for relative.
First, the Illinois Probate Act provides that caregivers can file a “Statutory Custodial Claim” against the Estate of a deceased person if that caregiver meets some very specific criteria (755 ILCS 5/18-1.1):
- The person making the claim must be the spouse, parent, sibling, or child of the person who received the care; and
- The person making the claim must ‘dedicate himself or herself to the care’ by living with and personally caring for the person for at least 3 years.
In cases where that criteria is met, the amount of award is to be determined by the Probate judge who should take into consideration the emotional distress and the lost lifestyle and employment opportunities of the caregiver. The law also sets minimum award amounts that vary based on how disabled the person was when they were receiving care. The minimums range from $45,000 to $180,000.
This law can be very beneficial to a family member who meets the criteria above and who would otherwise receive no consideration for the care they provided. This is especially true with regard to estates that are subject to other claims (such as medical bills, credit card bills, or unpaid taxes) because Illinois considers a Statutory Custodial Claim a 1st Class Claim, meaning it is to be paid by the estate before almost all other debts or claims (755 ILCS 5/18-10).
The second law to be aware of is new as of 2015 and, in many ways, is the inverse of the law discussed above. The new section of the Probate Act – 755 ILCS 5/4-a – is titled “Presumptively Void Transfers” and deals with non-family caregivers who are left gifts in the estate plan of the person they cared for. Essentially, the law states that any will, trust, beneficiary designation, etc. that would leave a gift larger than $20,000 to a caregiver is presumed void and ineffective. This would only be the case if the transfer or document is challenged; but, if any such challenge occurs, it is the obligation of the caregiver to prove that the transfer was done of the person’s own free will and not due to fraud, duress, or undue influence. This is the opposite of most such challenges as courts will usually presume that any such transfer or document was a reflection of the deceased person’s wishes and the burden is generally on the person making the challenge to prove that the transfer was done inappropriately. Importantly, the law also states that if the caregiver is unable to prove that the transfer was done of the deceased person’s own free will, then the caregiver shall be responsible for all the attorney’s fees and court costs for both sides.
So, if you are a caregiver, are receiving care, or know someone to whom these situations apply, it is crucial that the estate plan wishes of the parties are carefully written out and overseen by an attorney who specializes in that area. It is a lot easier (and MUCH cheaper) to set things up correctly while mom or dad are still alive and have their faculties than waiting too long and finding out we can’t do what they would have wanted.