Estate Planning

For estates approaching or exceeding the federal exemption, there are a variety of strategies that can reduce taxable estate liability. Some of these strategies involve lifetime gifts or sales to “freeze” the value of assets at current values. If someone is charitably inclined, certain charitable trusts ( such as charitable remainder trusts or charitable lead trusts) may be designed to benefit charity and family, while also creating income and estate tax benefits. If after careful planning estate tax liability is still expected, an irrevocable life insurance trust (ILIT) is a solution that can provide enough liquidity for payment of the tax. The right combination depends on lifestyle, family dynamics, and asset composition.

Your existing trust may remain valid, but it should be reviewed by a California attorney. California has specific rules governing community property, spousal rights, and fiduciary obligations that may not be addressed in an out-of-state trust. California also has unique property tax rules that need to be properly coordinated in any trust. Failure to do so may result in an unplanned reassessment.

This is one of the more complex planning scenarios. Various subtrusts can be created after the first spouse’s passing that can provide income and/or principal to a surviving spouse while preserving the remainder for children from a prior marriage. The structure requires careful drafting to balance the competing interests of both groups and avoid future disputes over trustee discretion.

In general, a no-contest clause is a provision that disinherits a person who contests the terms of a trust. California does allow no-contest clauses, but they are construed narrowly under the Probate Code. Whether a clause will be enforceable depends on how it is drafted and the nature of the challenge. An attorney can help draft a clause with appropriate scope and advise on its practical limitations.

A properly drafted special needs trust (also called a supplemental needs trust) holds assets for the benefit of the beneficiary without counting toward the asset limits for programs such as Medi-Cal or SSI. The trust must be carefully structured to avoid the benefits being treated as available resources. It is essential that the entire estate plan is coordinated so that assets do not inadvertently pass to a special needs beneficiary. Trustees of these trusts must also understand the spending rules to avoid disqualifying the beneficiary.