Life Insurance Trusts
Establishing a life insurance trust can be an excellent estate planning tool, which can minimize your exposure to estate taxation and provide liquidity at the time of your death. Proceeds from a Life Insurance Trust can be used to pay for burial and estate-settlement expenses as well as to ensure the availability of funds to satisfy tax obligations or other unexpected expenses, which could otherwise require the liquidation of estate assets.
At Howard Law, our estate planning lawyers work across all departments of our comprehensive law practice, including our thriving business litigation department, to ensure our clients have all the legal and financial resources necessary to properly plan and execute a comprehensive estate plan.
Tragically, life insurance proceeds often boomerang through an unplanned estate, causing unintended tax consequences. For instance, a person may have a $1 million estate that includes a family home or small business. A $250,000 life insurance police may have come close to settling the tax liability under historic estate tax rates. But, left unprotected, the insurance proceeds are also subject to taxation, resulting in a base tax of $345,000 under the historic estate-tax rate. The result can require the liquidation of a business to settle the tax obligation of a life insurance policy that was bought to protect the estate from taxation in the first place.
A establishing a Life Insurance Trust provides for independent ownership of insurance proceeds. When the proceeds are not owned by a decedent or spouse, they will not be considered part of the estate. When administered properly, the proceeds can be distributed to beneficiaries free of federal estate taxes. In fact, the payment of life insurance principals can often be made tax free under the gift tax exemption.
Certain restrictions apply, and an experienced estate planning attorney can assist you in determining if establishing an Irrevocable Life Insurance Trust is right for you and your family. In general, you cannot maintain any rights to the trust to qualify for the tax benefits, so a trust must be irrevocable, and changes to beneficiaries or loans against the policy cannot be made once the trust is established.
The Los Angeles estate planning lawyers at Howard Law offer confidential consultations to anyone dealing with estate planning issues throughout the Los Angeles area, including Santa Ana, Riverside and Anaheim.
CALIFORNIA LIFE INSURANCE TRUST - Call (800) 872-5925 - Howard Law