Estate Planning is the creation of a plan for managing, preserving, and distributing your assets both during your lifetime and after your death. A well-drafted and properly implemented estate plan ensures your wealth is transferred only to the beneficiaries you choose, protects your family from the time, expense and publicity associated with judicial probate of your estate, avoids court-appointed guardians if you die while your children are still young, and reduces or totally eliminates the burden of estate taxes after your death. Estate plans can also contribute to family harmony and a smooth transition of your wealth to the next generation.
We can customize your estate plan to make sure your assets pass when you want, how you want, and to whom you want by using some or all of the following methods:
Standard Estate Plan Package. The typical estate plan includes a Revocable Living Trust where you, as the settlor, appoint trustees to manage the trust should you become unable to do so, designate the beneficiaries of your estate, and dictate the timing of distribution of your assets to your beneficiaries after your death. You can amend or revoke the trust at any time during your lifetime. Depending on your financial and marital situation, the trust may split into one or more sub-trusts at your death (A-B Trust/A-B-C Trust). A standard estate plan also includes:
• Pour-Over Will transferring assets left outside your trust into the trust at your death;
• Durable Power of Attorney appointing someone to handle your financial affairs in the event you are rendered mentally or physically unable to do so;
• Advance Health Care Directive instructing your family how you want your medical treatment handled in the event you become seriously ill or injured; and
• Miscellaneous transfer documents necessary to properly fund the trust, such as quitclaim deeds, beneficiary designation forms, marital property agreement, etc.
Irrevocable Life Insurance Trust. An Irrevocable Life Insurance Trust (ILIT) is an estate planning tool that can be used in addition to the Revocable Living Trust. The ILIT is designed to hold life insurance policies, and to pass the proceeds of the policies to the beneficiaries without incurring any income or estate tax at your death. The ILIT becomes the owner of the life insurance policy. An ILIT is irrevocable, meaning it cannot be changed or canceled after it is created. An independent trustee, such as a reliable friend or relative, must be appointed to act as trustee of the ILIT. In order to pay the premiums on the policy, you typically will make a gift to the trust each year to cover the premium. The gift can be structured in such a way as to avoid any gift tax. In large estates, the proceeds of the ILIT can be earmarked to pay all or part of your estate’s tax liability at your death, which avoids your beneficiaries from having to sell other assets in your estate to cover the tax liability.
Special Needs Trust. If you have a child (or other relative) that receives government assistance such as supplemental security income (SSI) or Medi-Cal, those government benefits may be jeopardized if your child received money outright through an inheritance. A properly drafted Special Needs Trust will hold cash or other assets in the trust under the direct supervision and control of an independent trustee, thereby allowing the child to continue receiving government assistance. The assets of the trust may then be paid out by the trustee to cover medical expenses, dental expenses, and personal services that benefit the disabled child.
Family Limited Partnership. A Family Limited Partnership (FLP) can be an excellent estate planning device for families with significant assets such as real estate investments or stock market portfolios. In some cases it can also provide asset protection from creditors. In a typical FLP, parents transfer assets to the FLP, serve as the general partner, and then gift limited partnership interests in the FLP to their children. While the parents are giving up ownership in the FLP assets by transferring limited partnership interests to their children, they still retain control over the property by serving as the general partner. The FLP effectively reduces the estate tax burden of the parents because ownership of the assets is transferred to the children during the parents’ lifetimes. There is a potential for gift tax, but this can be avoided by proper use of the parents’ unified credit against the gift tax. The parents also are entitled to a valuation discount on the gift since the children, as limited partners, own the majority of the interests in the FLP, making it less desirable from a sales perspective. At the parents’ death, the assets in the FLP can be distributed to the children free of estate tax. A properly structured FLP can offer substantial tax savings and asset protection. However, the attorney and certified public accountant must work closely together in order to ensure the FLP is properly structure and implemented so as to avoid IRS scrutiny.
We can also assist you with your other estate planning needs including:
• Business Succession Planning
• Charitable Giving
• Lifetime Gifts
• Probate and Trust Administration