Life Insurance Trusts in California

The Internal Revenue Service (IRS) and state government are intent on taxing every possible dollar under any circumstances, even in the case of the death of an individual. One area that receives particular attention is a life insurance policy. If you have a life insurance policy, then upon your death, the policy will be distributed and your beneficiary (spouse) will receive the proceeds. The money from this policy is added to the estate of the beneficiary (spouse). Due to exemptions amounts in Federal Estate Taxes, this life insurance may cause the estate to be above the exemption amount on the year of death of the beneficiary. An Irrevocable Life Insurance Trust (ILIT) will remove the life insurance policy from being included in the estate, thereby reducing the amount of the estate and eliminating or significantly reducing the amount owed for federal estate taxes.

  • You can purchase your life insurance policy in the name of a trust that has designated beneficiaries
  • You can transfer your existing policy into a trust

If possible, the first option allows for an easier creation of an ILIT. If you transfer your existing policy into a trust, then there is a three-year survival requirement. In order for the policy to be successfully transferred, you must survive for at least three years from the date of transfer to complete the process. Otherwise, it will be included in the estate when determining exemption from federal estate taxes. There are also a number of specific benefits to utilizing an ILIT:

  • You can avoid estate tax liability for this policy
  • You can increase your estate without increasing tax liability
  • It will protect your beneficiaries from creditors accessing funds from this specific asset

Seeking an effective estate plan

At Barnholtz & Kugler, our Valencia estate planning attorneys understand the difficulties associated with determining the right Estate Plan to pursue, and we will work with you to achieve the results that you need when you choose to work with us. We are ethical and moral in our practice, and we do not compromise our values when representing any client. We have been serving the residents of Valencia, Canyon Country, and Newhall, California in various estate planning matters for a number of years. With almost 40 years of combined experience, you can count on us to help you pursue the plan that you need for the future of your estate. Contact our firm today to discuss your situation and to learn more about how we can help you.