Are you in the process of setting up your estate and considering various options to save you and your family money? If so, you have likely looked into a life insurance trust. An irrevocable, non-amendable trust that is both the owner and beneficiary of one or more life insurance policies, a life insurance trust can be a great way to save potentially hundreds of thousands of dollars in estate taxes.
In California, it is important to designate the right beneficiaries in if you want your insurance proceeds to avoid federal estate taxation. Under current law, if the policy is owned by the insured, the proceeds will be subject to estate tax. To avoid estate taxation, some insureds name a child, spouse or other beneficiary as the owner of the policy. An experienced San Bernadino estate planning lawyer can go over beneficiaries of the insurance trust with you in more detail. The good news: no matter what, the proceeds will be exempt from income tax.
While a life insurance trust has many benefits, it is not for every San Bernadino family or individual. FOr example, a constantly-changing family or one looking for flexibility within their estate may not enjoy a life insurance trust as with a life insurance trust, the insured gives up the right to change the beneficiary of the policy. Only the appointed trustee has that right, and the insured cannot serve as the trustee of his own life insurance trust but he must find and/or hire a third party trustee to look after the trust. Furthermore, the insured cannot borrow against the policy. If you decide this is the trust for you, a San Bernadino estate planning lawyer can help you find the right trustee for your trust.
Minuses aside, there are also many positives to creating a life insurance trust in San Bernadino. In fact, many Californians find that the tax saving potential of a life insurance trust is worth the cost and hassle.
Here are 7 more benefits of a Life Insurance Trust:
- Provides immediate cash to pay estate taxes and other expenses after death.
- Reduces estate taxes by removing insurance from your estate.
- Inexpensive way to pay estate taxes.
- Proceeds avoid probate and are free from income and estate taxes.
- Gives insured maximum control over insurance policy and how proceeds are used.
- Insured can provide income to spouse without insurance proceeds being included in spouse’s estate.
- Prevents court from controlling insurance proceeds if beneficiary is incapacitated.
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