June 21st, 2010
Benefits of Life Insurance
Knowing loved ones will be financially cared for in the event of death can give a family breadwinner great peace of mind. Life insurance is a valuable tool in any estate plan because of the benefits it provides.
First, life insurance can help family members bare the financial consequences of an unexpected death. The National Funeral Directors Association approximates the average expense of a funeral to be upwards of $6500.00. This is a cost that may be prohibitive unless there is a reliable and immediate source of funds which can be used to pay for high funeral expenses.
Second, a life insurance policy ensures the loved ones’ future financial security. For example, if the family’s primary income earner passes away, a well funded life insurance policy will provide money to meet current and future household expenses such as mortgage and education costs. If you want to ensure that all of your life insurance proceeds are used for the purposes which you intend, you may want to consider having your attorney prepare an Irrevocable Life Insurance Trust for you.
Life Insurance and Estate Tax
What you may not know is that the proceeds paid on a life insurance policy are included in an estate (everything you own when you die) for estate tax purposes. This means the size of the estate is actually inflated by the face value of the policy. For example, if you have real estate, bank accounts, and stocks that add up to $2,000,000 you may think that only $2,000,000 of the estate will be subject to the federal estate tax rate. However, if you have $500,000 worth of life insurance it is considered part of your estate, and estate taxes will be due on $2,500,000! The underlying reason life insurance benefits are included in an estate is because the policy holder is deemed to “own” the proceeds so that the IRS can fully tax those proceeds as part the deceased persons estate at death.
Reduce Estate Tax With a Life Insurance Trust
One way to avoid tax on life insurance proceeds is to establish an Irrevocable Life Insurance Trust, or ILIT. Under an ILIT, the life insurance policy is not “owned” by the decedent or his or her spouse. Therefore, the proceeds are not considered part of the decedent’s estate. This is done by transferring ownership of a life insurance policy to the trustee of an ILIT. After ownership interest of the life insurance policy is transferred to the trustee, you’ll no longer “own” the policy and the proceeds can’t be taxed as being part of your estate when you die.
Advantages and Disadvantages
However, there are a few drawbacks to consider in setting up an ILIT. For example:
- You can’t change the beneficiary of the policy: If you as an insured want the flexibility to deal with changed family circumstances, an ILIT may not be the right choice for you because after the ILIT is created, the insured gives up the right to change the beneficiary of the policy.
- You can’t borrow from the policy: If your policy normally allows you to borrow against the policy or make cash withdrawals from it, under an ILIT you will no longer be able to do this.
- Transferring an existing policy to the trust could be complicated: If you already have a life insurance policy, ownership can be transferred. But, if the insured dies within 3 years of the date from which the policy was transferred, the life insurance policy will be included in the estate for tax purposes anyway! However, depending on a number of factors, your attorney may be able to avoid this problem with a “fail-safe” clause that ensures that the proceeds of a transferred policy are held separately under an ILIT.
Our estate planning attorneys at San Diego Law Firm know the complexities involved in making sure loved ones and assets will be cared for and protected in the worst-case scenario for a family. We can answer your questions about life insurance trusts and other estate planning tools that you can use to ensure that 100% of life insurance proceeds go to the beneficiaries instead of to paying estate taxes. Also, we can look over your existing estate plan to make sure that all potential “fail-safe” mechanisms are in place. Call us at 619-794-0243 for advice and a consultation on ILIT issues.
Posted in Estate Plan, Life Insurance
May 14th, 2010
The decision of who inherits your property (and how) can either be made by you, or can be decided by the State of California. Let’s say that you never create a will or trust. Who would inherit your money and property?
Dying Without a Valid Will (Intestacy)
If you don’t leave behind any instructions for how you want your property divided (such as with a valid will or living trust), then California law steps in so that the probate court can distribute your property to your heirs. A person who dies without a valid will is said to have died “intestate.” In these situations, California’s intestacy laws apply. These laws decide which family members will inherit by creating a hierarchy. Sometimes things get more complicated, but here are the basics: Read the rest of this entry »
Posted in Estate Plan, Living Trust Inheritance, Probate & Inheritance, Trust, Will
April 23rd, 2010
As discussed in the previous post, a power of attorney is a great tool that lets you plan for possible of incapacity in the future, but this document can also be used now in your day to day life if you’d like.
Decide if you want your agent’s powers to start now, or later
Just as important as what your agent can do is when they can do it. A power of attorney can give your agent power right away, or hold off until a future event or condition happens. We’ll explain the benefits and drawbacks with either option. Your decision will depend on who you will name as your agent and your personal circumstances. Read the rest of this entry »
Posted in California Conservatorship, Estate Plan, Guardianship, Health Care, Power of Attorney
April 23rd, 2010
In California, a “financial power of attorney” is a document you can use to give someone permission to manage your money and property and make decisions on your behalf.
Choosing someone to manage your finances
Whoever you choose to handle your finances through your power of attorney is known as your “agent.” If this person steps in because you aren’t able to manage your finances, then you’ll depend on your agent to keep things on the right track for you. Read the rest of this entry »
Posted in Estate Plan, Health Care, Power of Attorney
March 12th, 2010
Parenthood involves planning not only for your day to day responsibilities, but also for the major “what-ifs.” If you have minor children, have you thought about who you would want to take care of them if both you and the other parent become incapacitated or pass away? California law lets you choose in your will who you’d want to raise your children if you and the other parent are unable to. This is done through a “guardianship.”
Your choice of guardian is one of the most important decisions you’ll make in your will, so how do you decide? In “How to Choose a Guardian,” mother of three Denise Oliveri proposes that you figure this out by answering five questions. To decide who will be right for the job, she suggests you evaluate age and health concerns, moral and educational values, financial ability to care for a child, and whether your child would have to move away. Read the rest of this entry »
Posted in Estate Plan, Guardianship, Trust, Will
February 9th, 2010
When you’re concerned about the safety and wellbeing of someone close to you who has lost the mental or physical ability to make personal or financial decisions, a California conservatorship can help. By creating a conservatorship, the court will name a person to serve as a “conservator,” who will supervise the incapacitated person’s care or finances. Every situation is different, which is why conservatorships can take three different forms: The conservator can be given decision-making authority over the incapacitated person’s personal affairs (known as a conservatorship of the person), over his or her property and finances (known as a conservatorship of the estate), or both. The type of conservatorship created will depend on what’s needed under the circumstances to fully take care of the “conservatee.” Read the rest of this entry »
Posted in California Conservatorship
January 8th, 2010
To make sure that beneficiaries to a will or living trust aren’t kept in the dark when it comes to the money being spent, earned, and distributed from the estate, California law requires that certain people who are in charge of handling the estate or trust property provide accountings. The right to an accounting becomes even more important when administering a living trust because there’s much less court oversight than there is when property is distributed by the probate court when a person passes away with or without a will. Every trust designates a “trustee” to handle administration of the trust and distribution of its assets. If a person dies with a will, these responsibilities can fall on the “executor” who was named in the will, and when neither a trust nor a will is left behind, an “administrator” will be appointed for the job. Read the rest of this entry »
Posted in Living Trust Inheritance, Probate & Inheritance, Trust, Trust Administration
December 9th, 2009
Reuters reports that throughout most of California, the costs of long term care are rising faster than inflation, with the median annual cost for a private nursing home room here in San Diego coming to $86,688 (or about $237.50 a day). Judging by these numbers, your savings can quickly run out and your assets can soon be depleted when paying for long term care and medical expenses. You can act to help prevent these possible consequences with Medi-cal planning. Among other things, the Medi-cal program, with its joint federal and state funding, provides need-based help to persons who are age 65 or older, blind, or disabled, through payment for long term medical care in a skilled nursing home. Proper planning seeks to qualify applicants for government Medi-cal benefits by adjusting to meet eligibility requirements, while also protecting income and assets as permitted under California law. Read the rest of this entry »
Posted in Current Events, Health Care, Medi-Cal Help
November 18th, 2009
Threats of disinheritance to prevent challenges to a will or living trust are nothing new, but the enforceability of these threats will be affected by new California law. At the start of the new year in 2010, the rules will be changed for challenges brought against wills and trusts if the “testator” (the person who made the will) has included a “no contest clause” in the document. A no contest clause generally says that if you challenge the will and lose the contest, you’ll be completely disinherited under the will, or take a significantly reduced share. For public policy reasons, no contest provisions are not blindly followed by the courts. That’s why even when there is a no contest clause, if the legitimacy of the will or trust (or parts of the document) come into question, it’s sometimes possible to bring a valid challenge in order for the probate court to determine if the deceased’s true wishes are reflected in the will. Read the rest of this entry »
Posted in Current Events, Law Changes, Living Trust Inheritance, No Contest Clause, Probate & Inheritance, Trust, Will
October 7th, 2009
After nearly six months, the trial of Anthony Marshall is winding down and jury deliberations have begun, as recently reported by the Associated Press in the San Diego Union Tribune. Marshall, a Broadway producer, is the only son of Brooke Astor, one of New York’s most well known philanthropists and socialites, who died at the age of 105 in 2007, leaving behind an estate estimated to be worth $198 million. The 85-year old defendant stands accused of grand larceny, forgery, and of allegedly defrauding his mother of her estate by making changes to her will when she no longer had the mental capacity to do so, says the Los Angeles Times. Read the rest of this entry »
Posted in Current Events, Living Trust Inheritance, Probate & Inheritance, Trust, Will
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