Life Insurance and the Estate Tax

There are a number of important factors to consider when it comes to comprehensive estate planning. Every family has unique needs, and every estate plan is different and designed in a way that best meets those needs. However, many estate plans include life insurance as an important component of ensuring loved ones are taken care of. While life insurance can be an important part of an estate plan, it is important to plan appropriately to make sure you can make the most out of your life insurance policy.

Life Insurance and Estate Tax

The new tax bill has raised the estate tax threshold quite a bit by doubling it to an individual threshold of $10 millions and a married threshold of around $20 million, with the actual number dependent in some part on inflation. The change in the law is not permanent, either. In fact, it will expire in 2025 absent further action by Congress.

While this number may seem rather high, it is important to remember that all of your individual or marital assets can be included in the value of your estate. That includes primary real estate, vacation homes, digital assets, vehicles, and life insurance policies. Some life insurance policies can have large benefits depending on the terms of the policy, and knowing whether or not your life insurance policy could place your estate in danger of being subject to the estate tax is an important part of effectively including life insurance in your comprehensive estate plan.


Life insurance is generally included in an individual’s taxable estate when such insurance allows the individual covered to change beneficiaries and/or other aspects of the policy and if the benefits are payable to a beneficiary other than the individual’s spouse. That can make it very difficult for you to nominate other beneficiaries like a child or other relative if your estate is close to the threshold, which can have significant consequences on many surviving spouses that hold policies of their own.

One alternative to traditional life insurance policies where you nominate a beneficiary through the company providing the policy is to create an irrevocable life insurance trust. With this arrangement, the trust itself pays the premiums due on the policy and you will be able to nominate anyone you want to be the beneficiary of the trust. There are many nuances to an arrangement like this, especially when it comes to transferring existing policies to such a trust. An experienced estate planning attorney can help you make the most out of your life insurance policy, especially when it comes to concerns related to estate tax and federal income tax.

Contact Information