Archive for the ‘Estate Plan’ Category
Monday, 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
Friday, 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: (more…)
Posted in Estate Plan, Living Trust Inheritance, Probate & Inheritance, Trust, Will
Friday, 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. (more…)
Posted in California Conservatorship, Estate Plan, Guardianship, Health Care, Power of Attorney
Friday, 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. (more…)
Posted in Estate Plan, Health Care, Power of Attorney
Friday, 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. (more…)
Posted in Estate Plan, Guardianship, Trust, Will
Tuesday, September 29th, 2009
A personal representative’s job is to carry out the wishes of the deceased according to the instructions in his or her will and according to California law. If a person dies without a will, then the personal representative appointed by the court to handle the estate is called an “administrator,” while someone named by the will is called an “executor.” If you’re deciding whether to accept appointment as a personal representative – or thinking about who to nominate in your own will – then you need to know what a personal representative’s duties are during probate and how to fulfill these obligations without putting your personal assets in jeopardy.
Recently, much has been made about the many deals struck by the executors of Michael Jackson’s estate. (more…)
Posted in Estate Plan, Living Trust Inheritance, Probate & Inheritance, Trust, Will
Friday, August 7th, 2009
You’ve worked hard to build a successful business, and as you look ahead to your retirement here in San Diego, you should be thinking about your exit strategy: Will you sell your business, or pass it along to your family? Start this planning early, and if you want a successful transition, don’t just surprise your family with your final plan. It’s crucial that you involve your family as you answer important questions, such as determining which family members are best able and willing to run the business, whether these persons should get a greater ownership share than non-managing family members, and how to handle tax issues. Not only that, but you also need to make sure that you’ve planned for your own retirement needs. (more…)
Posted in Estate Plan, Living Trust Inheritance, Running a Business, Selling a Business, Trust, Will
Monday, July 13th, 2009
In California, you can prepare your end of life wishes now by creating an advance health care directive, instead of leaving these important decisions to your family during already difficult times. A New York Times health blog by Tara Parker-Pope encourages people to plan for death when you’re healthy, since “the better and the further in advance you plan for that end, the less traumatic it’s likely to be, not just for you but for those you leave behind.” (more…)
Posted in Estate Plan, Health Care, Trust, Will
Friday, June 12th, 2009
Eco-consciousness in burials – it’s on the rise according to a recent New York Times blog, but will it catch on in San Diego? A green or natural burial means using a biodegradable box and saying no to chemical embalming and concrete grave lining (which can also save a lot of money). By preparing burial instructions you can make certain your wishes for a greener resting place are followed. Even if you’re not interested in a green burial, it’s important to plan for burial plot and funeral expenses and help prevent burial disagreements. (more…)
Posted in Estate Plan, Living Trust Inheritance, Probate & Inheritance, Trust, Will
Friday, May 15th, 2009
Preparing a living trust in California can bring many benefits: your heirs (called beneficiaries) can avoid probate of trust assets, tax advantages are possible, and you can maintain more control over who gets what and when. To help ensure your wishes are carried out when you’re gone, it’s crucial that you think carefully about who will be your trustee. It’s easy to see why naming the right trustee is so important, since this person will be managing the assets and making distributions from the trust to your beneficiaries. (more…)
Posted in Estate Plan, Living Trust Inheritance, Trust
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