Irrevocable Life Insurance Trusts in San Diego, California

If you own a home in La Jolla, Del Mar, Rancho Santa Fe, or Carmel Valley, you may be closer to the federal estate tax line than you think. Add retirement accounts, a business, and a life insurance policy, and the total can climb fast. One tool many families use is an irrevocable life insurance trust, or ILIT. It owns the policy so the death benefit stays out of your taxable estate, and it lets you decide how and when your heirs receive the money.

This page focuses on what is different in California. If you want the full picture first, start with our irrevocable life insurance trust guide. One important note: Western Pacific Insurance is an insurance agency, not a law firm. A California estate planning attorney writes the trust. We help design and place the policy the trust owns. Nothing on this page is legal or tax advice.

California has no state estate tax

Good news first. According to the California State Controller’s Office, California has not required a state estate tax return for anyone who died on or after January 1, 2005, and the state has no inheritance tax. San Diego families are really planning around the federal estate tax. For 2026, the IRS sets the federal basic exclusion amount at $15,000,000 per person. Married couples can often protect up to $30,000,000 by combining their exclusions through a rule called portability.

With coastal home values, plenty of San Diego families are nearer those numbers than they expect. A life insurance policy you own yourself counts as part of your estate, which is why many families ask whether a trust should own it instead.

Community property and your policy

California is a community property state. Under Family Code section 760, property acquired during a marriage while living in California is generally community property. If you paid premiums with community funds, both spouses may have a claim to the policy, even if only one of you is the insured.

This matters in two places: when an existing policy moves into the trust, and when you make the yearly gifts that pay the premiums. Attorneys often ask both spouses to sign off in writing, or they fund the gifts from separate property. Those decisions are for your attorney. You can make that meeting go faster by knowing when each policy was bought and how the premiums have been paid.

Proposition 19 and why cash matters

Proposition 19 changed how property taxes work when real estate passes from parents to children on or after February 16, 2021. According to the Board of Equalization, a child keeps the parent’s lower taxable value on a family home only if they make it their primary residence within one year, and the benefit has a dollar limit. Other inherited property, like a rental, is generally reassessed at current value.

An ILIT does not change any of those property tax rules. What it can do is put cash in your heirs’ hands from a death benefit that sits outside your estate. That money can help them hold on to a family home or rental and cover a bigger property tax bill, instead of feeling pushed to sell. Your attorney and CPA can tell you how Proposition 19 applies to your specific properties.

How the trust gets paid for

Most ILITs are funded by yearly gifts from you to the trust, and the trustee uses that money to pay the premiums. To qualify those gifts for the federal annual exclusion, which the IRS lists as $19,000 per recipient for 2026, each beneficiary gets a short-term right to withdraw their share. The trustee sends a written letter, called a Crummey notice, to let them know. Beneficiaries usually choose not to withdraw, and the money stays in the trust to pay the premium.

Timing matters if you already own a policy. If you transfer it into the trust and then die within three years, the death benefit is pulled back into your estate. Having the trust apply for a brand new policy generally avoids that problem.

Choosing the right kind of coverage

Couples often look at second-to-die coverage, because estate tax usually comes due after both spouses have passed. Families with younger children sometimes have the trust own term coverage to protect them through the years they rely on you. We work with your attorney and your trustee on the policy design and the underwriting process. If you are not sure how much coverage makes sense, see how much life insurance San Diego families need.

Your living trust is not an ILIT

Many San Diego families already have a revocable living trust that holds their home. It is a different tool. A revocable trust is great for avoiding probate, but it generally does not take life insurance out of your taxable estate. If your home is in a revocable trust, make sure your homeowners policy matches how the deed is titled. Our guide to California trust homeowners insurance walks through it.

Questions to bring to your San Diego attorney and agent

• With our life insurance included, how close is our estate to the federal exemption?
• Are our current policies community property, and how would moving one into a trust work?
• Would a policy that pays after both of us have died fit better than coverage on one person?
• Who should be our trustee, and who will send the yearly notices?

Talk to us about San Diego

Western Pacific Insurance serves families across California, Nevada, Arizona, and Utah. We also have local pages for Henderson, Phoenix, and Lehi. For the basics of coverage here, see our San Diego life insurance page and our individual life insurance overview. Gather a summary of your current policies and your attorney’s contact information, then call 702-932-3105 or request a quote online.