California Estate Planning & Irrevocable Trusts
Irrevocable Trusts play a significant role in long-term care estate planning. In California we use Irrevocable Trusts to protect the family home from a Medi-Cal estate claim and to protect the other assets from being spent down on nursing home care.We also use Irrevocable Trusts in conjunction with a Family Limited Liability Company or together with a Family Trust in order to protect assets and save death taxes. For example, an Irrevocable Life Insurance Trust (ILIT) is oftentimes used in conjunction with a Family Trust. In a properly structured ILIT, the insurance proceeds are received tax free on the surviving spouse’s death. Individuals with the majority of their net worth invested in real estate, closely-held business interests or other illiquid assets will find the ILIT to be an effective estate planning tool for addressing their exposure to the death tax. The insurance proceeds will provide the cash to pay death taxes and expenses of administration, and thereby, avoid a forced sale of the assets in the estate.
The purchase of a Single Premium Immediate Annuity (SPIA) to fund an ILIT is a simple and effective technique for addressing the exposure to the death tax. A lump sum of money which would otherwise be subject to the death tax is used to purchase a SPIA. The SPIA pays a fixed dollar amount each year for your lifetime. The annual payments from the SPIA are then used to fund the ILIT. At the time of your death, the SPIA is not subject to death tax because it has no value at that time. The ILIT, on the other hand, will provide tax-free insurance proceeds to your family.
Contact us for a Free Consultation to learn more about the use of Irrevocable Trusts in Estate Planning.
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