Glossary

What is Estate Tax and Insurance?

Life insurance strategies used to provide liquidity for estate tax obligations, prevent forced asset sales, and facilitate wealth transfer.

Full Definition

Estate tax and insurance strategies use life insurance to address the liquidity challenges created by federal and state estate taxes. The current federal estate tax exemption is $13.61M per individual (2024), with a 40% tax rate on amounts above the exemption. For UHNW families with estates exceeding the exemption, life insurance held in an Irrevocable Life Insurance Trust (ILIT) provides tax-free death benefit proceeds to pay estate taxes without forcing the sale of illiquid assets (businesses, real estate, art). With the current exemption set to sunset in 2026 (potentially dropping to ~$7M), estate tax planning with life insurance is increasingly urgent for affluent families.

Related Terms

Irrevocable Life Insurance Trust (ILIT)

Generation-Skipping Transfer Tax

Wealth Replacement Trust

Second-to-Die / Survivorship Policy

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Related Coverage & Services

Irrevocable Life Insurance Trust (ILIT)

A trust that owns a life insurance policy, removing the death benefit from the insured's taxable estate while providing liquidity for estate taxes.

Generation-Skipping Transfer Tax

A federal tax on transfers of wealth to beneficiaries two or more generations below the transferor, designed to prevent tax avoidance through generation-skipping.

Wealth Replacement Trust

A life insurance trust designed to replace wealth donated to charity through a Charitable Remainder Trust, preserving the inheritance for heirs.

Second-to-Die / Survivorship Policy

A life insurance policy covering two people that pays the death benefit only after both insureds have died.

Life Insurance

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