White Paper · Estate Planning
Life Insurance as an Estate Planning Tool
Strategies for Wealth Transfer, Tax Efficiency & Legacy Protection
A practitioner’s guide to using life insurance for estate liquidity, charitable replacement, dynasty wealth, business succession, and special needs planning — updated for the permanent $15 million exemption and the Connelly decision.
Introduction: The Role Life Insurance Plays in Estate Planning
Most people think of life insurance as a death benefit — money that replaces income when someone dies. That’s one function. But for individuals and families with meaningful assets, life insurance serves a much broader purpose: it’s an estate planning instrument that provides liquidity, tax efficiency, wealth transfer, and legacy protection in ways no other financial tool can replicate.
Consider what happens at death without planning. Federal estate taxes can claim up to 40% of assets above the exemption threshold. State inheritance taxes add another layer in many jurisdictions. Illiquid assets — real estate, business interests, art collections — may need to be sold at distressed prices to cover the tax bill. Heirs who expected to inherit the family home or the family business find themselves in a forced liquidation.
Life insurance solves these problems with a unique combination of features: an income-tax-free death benefit under IRC Section 101(a)(1), the ability to be owned outside the taxable estate through an irrevocable trust, and guaranteed liquidity available precisely when it’s needed most.
Key Insight
The scheduled 2026 “sunset” of the enhanced exemption never happened. The One Big Beautiful Bill Act of 2025 made the exemption permanent and set it at $15 million per individual ($30 million per married couple) for 2026, indexed for inflation. But permanence in the tax code lasts only until Congress changes it — and many states tax estates at far lower thresholds. The case for planning has changed shape, not disappeared.
This white paper examines the major strategies that use life insurance as a cornerstone of estate planning. Each section covers the mechanics, the ideal candidate, and a practical case example. Whether you’re an advisor helping clients structure their estate or an individual evaluating your own plan, the strategies here represent the most effective applications of life insurance in the current tax environment.
Prepared For
Estate planning attorneys, CPAs, financial advisors, and high-net-worth families evaluating how life insurance fits into wealth transfer, tax efficiency, and legacy planning.
Estate Tax Liquidity and the Irrevocable Life Insurance Trust (ILIT)
The most established use of life insurance in estate planning is providing liquidity to pay estate taxes without forcing the sale of other assets. An Irrevocable Life Insurance Trust (ILIT) is the vehicle that makes this work.
How It Works
The grantor creates an irrevocable trust and funds it with annual gifts. The trustee uses those gifts to purchase and maintain a life insurance policy on the grantor’s life (or a survivorship policy on both spouses). Because the trust — not the insured — owns the policy, the death benefit is excluded from the grantor’s taxable estate.
At death, the trust receives the death benefit income-tax-free. The trustee can then use those funds to purchase assets from the estate (providing cash to pay taxes) or lend money to the estate, all without the proceeds being pulled back into the taxable estate.
Key Requirements
- Irrevocable Structure: The trust must be irrevocable — once established, the grantor gives up control over the policy.
- Crummey Notices: Gifts to the trust must be covered by Crummey withdrawal notices to qualify for the annual gift tax exclusion ($19,000 per beneficiary in 2026).
- Three-Year Rule: If an existing policy is transferred into the ILIT, the insured must survive three years to avoid estate inclusion under IRC Section 2035.
- Independent Trustee: The trustee should be independent (not the insured) to avoid incidents of ownership.
Critical Compliance Point · IRC §2035 (Three-Year Rule)
Transferred policies are pulled back into the taxable estate if the insured dies within three years of the transfer. New policies should be issued inside the ILIT from day one. Retained policy rights — changing beneficiaries, borrowing, surrendering, or assigning — constitute incidents of ownership and cause estate inclusion under IRC §2042.
Ideal Candidate
Individuals or couples with combined estates above — or growing toward — the federal exemption, and residents of states that impose their own estate or inheritance taxes at much lower thresholds. Business owners with illiquid assets, real estate investors, and anyone whose estate is concentrated in non-cash holdings benefit most.
The Henderson Family
Combined estate of $45 million; primary assets are commercial real estate and a family business.
Against the permanent $30 million couple exemption (2026), the $15 million taxable excess projects to roughly $6 million of federal estate tax — due in cash nine months after the second death, from an estate that is overwhelmingly illiquid.
Established an ILIT with a $7 million survivorship universal life policy; funded with $36,000/year in Crummey gifts (2 beneficiaries).
The death benefit covers the full projected tax liability plus administration costs; real estate and business pass intact to heirs; a total premium investment of ~$720,000 over 20 years creates $7M in tax-free liquidity.
The Wealth Replacement Trust
When a donor makes a major charitable gift — whether outright, through a Charitable Remainder Trust (CRT), or a bequest — the assets going to charity are no longer available to heirs. A Wealth Replacement Trust (WRT) solves this by using life insurance to “replace” the donated assets within the family.
How It Works
The donor establishes a CRT funded with appreciated assets. The CRT sells the assets tax-free (no capital gains inside the trust), reinvests the proceeds, and pays the donor an income stream for life or a term of years. At the end of the trust term, the remainder passes to the charity.
Simultaneously, the donor uses a portion of the CRT income (and/or the income tax deduction generated by the charitable gift) to fund an ILIT. The ILIT purchases a life insurance policy sized to replace the value of the assets that will ultimately go to charity.
The Triple Benefit
- Benefit 1: The donor receives lifetime income from the CRT.
- Benefit 2: The charity receives the CRT remainder at the end of the trust term.
- Benefit 3: Heirs receive the life insurance death benefit, tax-free and outside the estate, restoring the family’s wealth.
Dr. Ramirez
Age 62; holds $2 million in highly appreciated stock (cost basis $400,000); wants to support her alma mater.
Selling the stock triggers ~$320,000 in capital gains tax; gifting it to heirs means the asset leaves the family.
Funded a 5% CRUT with the stock; the CRT sells tax-free and pays $100,000/year for life; used $30,000/year of CRT income to fund an ILIT with a $2M survivorship policy.
The alma mater receives the remainder; heirs receive a $2M death benefit tax-free; Dr. Ramirez nets $70,000/year after ILIT funding vs. $0 income if she had simply held the stock.
Multigenerational Wealth Transfer: The Dynasty Trust
A dynasty trust is designed to hold and grow assets across multiple generations without triggering estate or gift taxes at each generational transfer. Life insurance inside a dynasty trust supercharges this strategy.
How It Works
The grantor establishes an irrevocable dynasty trust in a jurisdiction that allows perpetual (or very long-term) trusts — states like South Dakota, Nevada, or Delaware are popular choices. The grantor uses a portion of the lifetime gift and generation-skipping transfer (GST) tax exemption to fund the trust. The trustee uses those funds to purchase life insurance on the grantor (or the grantor and spouse). When the death benefit pays out, the trust holds those funds for the benefit of children, grandchildren, and beyond — all free of estate tax at each generation.
Why Life Insurance Multiplies the Impact
Without life insurance, the dynasty trust is funded only with the GST exemption amount. With life insurance, that exemption funds premiums on a much larger death benefit — effectively multiplying the GST-exempt assets several-fold. A $5 million premium gift to fund a survivorship policy on a healthy couple in their 60s might purchase $15–$25 million of death benefit, all of which enters the trust GST-exempt.
The Whitfield Dynasty Trust
Couple, ages 65 and 63; combined estate of $40 million; want to provide for children, grandchildren, and great-grandchildren.
Without planning, estate taxes will erode wealth at each generation; a standard ILIT only addresses the first generation.
Established a South Dakota dynasty trust; allocated $5M of GST exemption; the trust purchased a $15M survivorship IUL policy.
The $15M death benefit enters the trust tax-free; projected to grow to $50M+ over 60 years inside the trust; no estate tax at any generational transfer.
Business Succession and Buy-Sell Agreements
For business owners, the death of a partner or key shareholder can be catastrophic. Life insurance funds buy-sell agreements that keep the business running and ensure fair compensation to the deceased owner’s family.
Two Common Structures
Cross-Purchase Agreement: Each owner purchases a life insurance policy on the other owner(s). At death, the surviving owner uses the death benefit to buy the deceased’s share from the estate. The surviving owner gets a stepped-up basis in the purchased interest.
Entity-Purchase (Stock Redemption) Agreement: The business itself owns policies on each partner. At death, the business uses the proceeds to redeem the deceased’s ownership interest. Simpler when there are multiple owners, but doesn’t provide a basis step-up to survivors.
Critical Compliance Point · The Connelly Decision (2024)
In Connelly v. United States (2024), the U.S. Supreme Court held unanimously that life insurance proceeds received by a corporation to fund a redemption increase the company’s value for estate tax purposes — with no offsetting reduction for the redemption obligation. The result: entity-purchase structures can inflate the taxable estate of the deceased owner. Existing redemption-style agreements should be reviewed, and cross-purchase structures (or special-purpose insurance LLCs) are now strongly preferred for estate-tax-sensitive owners.
Estate Planning Implications
A properly funded buy-sell agreement establishes the value of the business interest for estate tax purposes under IRC Section 2703. Without it, the IRS can (and often does) argue that the business is worth significantly more than the family believes — resulting in a larger tax bill on an asset the heirs no longer own.
- Value Certainty: The buy-sell agreement fixes the value for estate tax purposes if it meets the safe harbor requirements of Section 2703(b).
- Guaranteed Funding: Life insurance guarantees the cash will be there to execute the agreement regardless of when death occurs.
- Cross-Purchase Advantage: Cross-purchase arrangements are generally preferred for estate planning because they provide a step-up in basis — and, after Connelly, because they keep the death benefit out of the company’s estate tax value.
Pacific Coast Manufacturing
Three equal partners; business valued at $12 million; each partner’s interest is $4 million.
No partner has $4M in liquid assets to buy out a deceased partner’s share; without funding, the deceased’s family is stuck with an illiquid minority interest.
Each partner purchased $2M policies on each of the other two partners (6 policies total); a cross-purchase agreement was executed with an annual valuation clause.
At the first partner’s death, the two survivors each received $2M tax-free, purchased the deceased’s $4M interest, and gained a stepped-up basis; the estate received fair market value in cash.
Charitable Legacy Strategies
Life insurance offers several distinct paths for individuals who want to leave a meaningful charitable legacy while maintaining flexibility during their lifetime.
Charity as Beneficiary
The simplest approach: name a charity as beneficiary of an existing policy. The death benefit passes directly to the charity. If the estate is the policy owner, the estate receives a charitable deduction that offsets the inclusion of the death benefit in the taxable estate — a net wash for estate tax purposes, but the full amount goes to the charity rather than to taxes.
Charity-Owned Life Insurance
The donor gifts an existing policy (or funds a new policy purchase) to a charity. The charity owns the policy and is the beneficiary. The donor’s premium payments are deductible as charitable contributions (subject to AGI limitations). This approach removes the policy from the donor’s estate entirely.
Charitable Lead Trust with Life Insurance
A Charitable Lead Trust (CLT) is the inverse of a CRT: the charity receives income during the trust term, and the remainder passes to family members. Life insurance can be used in tandem — if the grantor dies during the trust term, a life insurance policy held in a separate ILIT ensures the family receives immediate liquidity rather than waiting for the CLT term to expire.
Planning Note · CLT + ILIT
For donors with philanthropic goals and taxable estates, the combination of a CLT (for the estate/gift tax deduction) and an ILIT (for guaranteed family liquidity) creates a structure where the donor’s legacy goals and family goals are both fully funded.
Premium Financing for Large Estates
For ultra-high-net-worth individuals, premium financing allows the purchase of large life insurance policies without liquidating investments or using significant cash flow. A third-party lender (typically a bank) provides a loan to the ILIT to pay the premiums.
How It Works
- The Loan: The ILIT borrows from a lender to pay policy premiums.
- Collateral: The policy’s cash value serves as primary collateral; the insured or the ILIT provides additional collateral (letter of credit, investment portfolio, or personal guarantee).
- Interest: Interest on the loan accrues (or is paid annually, depending on the arrangement).
- Repayment: At the insured’s death, the death benefit repays the loan, and the remainder passes to beneficiaries.
Risks and Considerations
Premium financing is not a strategy for everyone. The interest rate environment matters significantly — if borrowing costs exceed the policy’s internal rate of return, the economics deteriorate. The insured must also be comfortable with the collateral requirements and the possibility that the lender calls the loan if collateral values decline.
That said, when rates are favorable and the estate is large enough, premium financing allows families to acquire $20 million, $50 million, or more in estate tax liquidity with minimal out-of-pocket cost — preserving their investment capital and lifestyle.
Special Needs Planning and Family Protection
Life insurance plays a critical role in families with a member who has special needs. A Special Needs Trust (SNT) funded with life insurance proceeds can provide for a disabled beneficiary without jeopardizing eligibility for means-tested government benefits such as Supplemental Security Income (SSI) and Medicaid.
Structure
The parents (or another family member) establish a third-party SNT and name it as the beneficiary of a life insurance policy. The trust is drafted to supplement — not replace — government benefits, covering expenses like therapy, recreation, education, and quality-of-life items that public programs do not provide.
The life insurance death benefit provides a guaranteed, known dollar amount that the trustee can plan around. Unlike other inherited assets, it arrives as a lump sum, income-tax-free, precisely when the beneficiary’s primary caretakers are no longer there to provide support.
Sizing the Policy
Financial planners typically calculate the supplemental needs of the disabled beneficiary over their expected lifetime, factor in inflation and conservative investment returns, and arrive at a target trust corpus. The life insurance death benefit should be sized to fully fund that target.
Policy Selection: Which Type of Life Insurance for Estate Planning?
Estate planning strategies almost universally require permanent life insurance. The need doesn’t go away at age 80 or 85 — it exists until death. Term insurance, while valuable for income replacement during working years, is generally inappropriate for estate liquidity, trust funding, or buy-sell agreements.
Whole Life
Guaranteed death benefit and guaranteed cash value growth. Premiums are fixed and level. Participating policies from mutual companies pay dividends that can reduce net cost over time. Best suited for conservative clients who value predictability and are willing to pay higher initial premiums for guarantees.
Indexed Universal Life (IUL)
Cash value is credited based on the performance of a market index (typically the S&P 500), subject to a cap and a floor (usually 0%). This provides upside potential without direct market risk. Premiums are flexible. IUL is well-suited for estate planning because it offers a potentially higher internal rate of return than whole life, which translates to a larger death benefit per premium dollar.
Guaranteed Universal Life (GUL)
Designed to provide a guaranteed death benefit to a specified age (often 100, 110, or 121) at the lowest possible premium. Minimal cash value accumulation. GUL is the most cost-efficient way to fund an ILIT when the sole objective is estate tax liquidity and no cash value access is needed.
Survivorship (Second-to-Die) Policies
Available in whole life, IUL, and GUL structures. The death benefit pays at the second spouse’s death — exactly when the estate tax is due (thanks to the unlimited marital deduction, there is typically no tax at the first death). Premiums are significantly lower than single-life policies because the risk is based on two lives.
| Policy Type | Death Benefit | Cash Value | Best For |
|---|---|---|---|
| Whole Life | Guaranteed | Guaranteed growth | Conservative clients; dividend potential |
| IUL | Flexible | Index-linked (0% floor) | Growth-oriented ILIT funding; flexible premiums |
| GUL | Guaranteed to age 100–121 | Minimal | Lowest-cost estate liquidity |
| Survivorship | Pays at 2nd death | Varies by chassis | Married couples; estate tax timing |
The 2026 Exemption: Permanent on Paper — Why Planning Still Matters
The Tax Cuts and Jobs Act of 2017 roughly doubled the federal estate and gift tax exemption, and for years planners worked against a scheduled January 1, 2026 “sunset” back to roughly $7 million per person. That sunset never arrived. The One Big Beautiful Bill Act, signed in July 2025, eliminated it — setting the exemption at $15 million per individual ($30 million per married couple) effective January 1, 2026, made “permanent” and indexed annually for inflation. The GST exemption matches these amounts.
That is good news for many families — and a poor reason to stop planning. Four realities keep life insurance at the center of estate strategy:
- Permanence is legislative, not constitutional: The exemption is permanent only until a future Congress changes it. Locking insurance proceeds outside the estate through an ILIT hedges against reductions that could arrive with any change in political control.
- State taxes never sunsetted: Oregon, Massachusetts, Washington, New York, Illinois, Maryland, Hawaii, Minnesota, and others impose estate or inheritance taxes at thresholds far below $15 million — some near $1–2 million. For residents of these states, the federal exemption is only half the story.
- Estates grow: A $20 million estate compounding at 7% doubles in roughly a decade. Families comfortably “under the exemption” today may not be at the second death — and insurability is never better than it is right now.
- The non-tax benefits remain: Liquidity, equalization, creditor protection, controlled distribution, and wealth replacement for charitable gifts have nothing to do with the exemption level. Most ILITs earn their keep on these grounds alone.
Action Item
If your combined estate exceeds (or is growing toward) the exemption — or you live in a state with its own estate or inheritance tax — schedule a review of your estate plan now. Underwriting and trust drafting take months, and the cost of a properly structured ILIT is a fraction of the exposure it eliminates. Locking in insurability while health is good is the one part of the plan no legislature can restore later.
Integrated Case Study: The Calloway Family
The following hypothetical case shows how several of the strategies in this paper combine in a single coordinated plan. Names and numbers are illustrative only.
The Calloway Family
Frank (66) and Ellen (64) Calloway own a specialty food manufacturing company valued at $24 million, commercial and agricultural real estate worth $14 million, an $11 million securities portfolio, and roughly $3 million in retirement assets and residences — a $52 million combined estate. Their son runs the company; their two daughters do not. They have pledged $3 million to their community foundation and want the business to pass to their son without burdening him with debt — or shortchanging his sisters.
Against the $30 million couple exemption, the $22 million taxable excess projects to roughly $8.8 million of federal estate tax at 40% — due in cash nine months after the second death, from an estate that is more than 70% business and real estate. Passing the company to their son intact would leave the daughters with materially less, and the charitable pledge is currently unfunded.
(1) Dynasty ILIT: A South Dakota dynasty ILIT with hanging Crummey powers purchases a $14 million survivorship IUL on Frank and Ellen, funded at $280,000 per year for 15 years. Annual exclusion gifts to six Crummey beneficiaries cover $228,000 (6 × $19,000 × 2 donors, 2026); the modest balance uses a small slice of lifetime exemption, reported on Form 709 with GST exemption allocated. (2) Wealth replacement: A 5% CRUT funded with $4 million of low-basis securities sells tax-free, pays the couple roughly $200,000 per year, and generates a six-figure income tax deduction — income that comfortably covers the ILIT gifts; the community foundation receives the remainder, fulfilling the pledge. (3) Buy-sell review: The company’s redemption-style buy-sell is restructured post-Connelly as a cross-purchase arrangement so corporate-owned insurance no longer inflates the taxable value of the business.
At the second death, the dynasty ILIT receives $14 million income- and estate-tax-free: approximately $8.8 million provides the estate’s tax liquidity through asset purchases at fair market value, and roughly $5 million equalizes the two daughters while the son receives the company. The CRUT remainder — projected near the full $4 million — satisfies the charitable pledge. The trust’s GST allocation shelters the remaining proceeds for grandchildren and beyond. Total gift outlay of $4.2 million over fifteen years, funded largely by CRT income, secures $14 million of leveraged liquidity, a completed legacy gift, and a business succession free of forced sales.
Hypothetical illustration. Actual results depend on underwriting, carrier pricing, index performance, policy charges, and Section 7520 rates at funding.
Conclusion: Building an Estate Plan That Works
Life insurance is not an investment product, and it’s not a tax shelter. It’s a planning instrument — one that provides certainty in a process full of variables. Death is certain. The timing is not. The tax code will change. Asset values will fluctuate. Family circumstances will evolve.
What life insurance offers is a guaranteed, income-tax-free, liquid asset that arrives exactly when it’s needed, in exactly the amount planned for, regardless of market conditions or legislative changes. No other financial instrument makes that promise.
The strategies in this paper — ILITs, wealth replacement trusts, dynasty trusts, buy-sell funding, charitable structures, premium financing, and special needs planning — each address a specific estate planning challenge. Most well-designed estate plans incorporate more than one of these strategies. The common thread: start early, fund adequately, and work with qualified professionals who understand both the insurance and the legal architecture. The cost of planning is always less than the cost of failing to plan.
Strategy Diagrams
Create the irrevocable trust; make annual exclusion gifts to fund premiums.
Owns the policy from day one; sends Crummey notices; pays premiums from gifts.
Issues the policy with the trust as owner & beneficiary; pays the death benefit to the trust.
Heirs receive proceeds income- and estate-tax-free. The estate receives liquidity via loans or asset purchases at FMV — no forced sales to pay the tax.
Funds the CRT with appreciated assets; receives a deduction ≈ PV of the charitable remainder.
Sells assets — no capital gains inside the trust; pays the donor income for life or a term.
Funded with CRT income or tax savings; owns the replacement policy.
Receive the income- and estate-tax-free death benefit — family wealth restored.
The business owns the policies and redeems the deceased owner’s interest. After Connelly, the proceeds increase the company’s estate tax value with no offset for the redemption obligation — and survivors get no basis step-up.
Each owner insures the others and personally buys the deceased’s interest — delivering a basis step-up and keeping proceeds out of the company’s taxable value. A properly drafted agreement also fixes the interest’s value under IRC §2703(b).
Glossary of Key Terms
Definitions are general in nature; specific treatment depends on the family’s facts, document drafting, and current law.
- Annual Gift Tax Exclusion
- The amount ($19,000 per donee in 2026, indexed annually) a donor may give each recipient yearly without using lifetime exemption or filing gift tax. Crummey powers make ILIT premium gifts qualify.
- Basis Step-Up
- The reset of an asset’s cost basis to fair market value at the owner’s death. Cross-purchase buy-sell structures give surviving owners a step-up in the purchased interest; entity redemptions do not.
- Buy-Sell Agreement
- A binding contract governing the transfer of a business interest at death, disability, or departure. Properly drafted under IRC §2703(b), it can fix the interest’s value for estate tax purposes.
- Charitable Lead Trust (CLT)
- A trust paying income to charity for a term, with the remainder passing to family — the inverse of a CRT, often paired with an ILIT for interim family liquidity.
- Charitable Remainder Trust (CRT / CRUT)
- An irrevocable trust paying income to non-charitable beneficiaries for life or a term, with the remainder to charity. The trust sells appreciated assets without immediate capital gains tax; a CRUT pays a fixed percentage revalued annually.
- Connelly v. United States (2024)
- The unanimous Supreme Court decision holding that corporate-owned life insurance proceeds used to redeem a deceased owner’s shares increase the company’s estate tax value with no offset for the redemption obligation — a structural strike against entity-purchase agreements for taxable estates.
- Cross-Purchase Agreement
- A buy-sell structure in which each owner insures the others and personally purchases the deceased’s interest — delivering a basis step-up and, after Connelly, keeping proceeds out of the company’s taxable value.
- Crummey Power / Notice
- A beneficiary’s temporary written right (typically 30–60 days) to withdraw a gift made to a trust, converting it into a present interest that qualifies for the annual exclusion.
- Dynasty Trust
- A long-duration or perpetual trust — commonly sited in South Dakota, Nevada, or Delaware — designed with GST exemption allocation to benefit multiple generations without transfer tax at each level.
- Entity-Purchase (Redemption) Agreement
- A buy-sell structure in which the business owns the policies and redeems the deceased owner’s interest. Administratively simpler, but provides no basis step-up and now carries Connelly valuation risk.
- Generation-Skipping Transfer (GST) Tax
- A 40% federal tax on transfers to grandchildren and more remote descendants. Allocating GST exemption (equal to the estate exemption) to trust gifts shields multigenerational distributions.
- Guaranteed Universal Life (GUL)
- Permanent coverage engineered for a guaranteed death benefit to age 100–121 at the lowest premium, with minimal cash value — the cost-efficient choice for pure estate liquidity.
- ILIT (Irrevocable Life Insurance Trust)
- An irrevocable trust that owns life insurance so the insured holds no incidents of ownership, excluding the death benefit from the gross estate while keeping it income-tax-free.
- Incidents of Ownership
- Retained policy rights — changing beneficiaries, borrowing, surrendering, assigning — that cause estate inclusion under IRC §2042. The ILIT vests all such rights in the trustee.
- Indexed Universal Life (IUL)
- Permanent insurance crediting interest from index performance subject to caps and a floor (typically 0%), offering upside participation without market-driven loss of cash value.
- Lifetime Gift and Estate Tax Exemption
- The cumulative amount ($15 million per individual / $30 million per couple in 2026, permanent and inflation-indexed under the One Big Beautiful Bill Act) transferable free of federal estate and gift tax.
- Marital Deduction
- The unlimited deduction for transfers between U.S.-citizen spouses, which typically defers all estate tax to the second death — the reason survivorship policies match the liquidity need.
- Portability
- A surviving spouse’s ability to inherit the deceased spouse’s unused federal exemption, combining up to $30 million (2026) of shelter for the couple.
- Premium Financing
- Third-party lending that advances large ILIT premiums, with cash value and posted collateral securing the loan; the death benefit (or accumulated value) ultimately repays the lender.
- Special Needs Trust (SNT)
- A third-party trust drafted to supplement — not replace — means-tested benefits such as SSI and Medicaid, commonly funded with a life insurance death benefit sized to the beneficiary’s lifetime supplemental needs.
- Survivorship (Second-to-Die) Policy
- A single policy insuring two lives that pays at the second death — when the estate tax is actually due — at materially lower cost than two single-life policies.
- Three-Year Rule (IRC §2035)
- Transferred policies are pulled back into the taxable estate if the insured dies within three years of the transfer — the reason new policies should be issued inside the ILIT from day one.
- Trustee
- The independent individual or corporate fiduciary who owns and administers the trust’s policy, sends Crummey notices, and distributes proceeds under the trust terms. The insured should not serve.
- Wealth Replacement Trust (WRT)
- An ILIT funded with charitable tax savings or CRT income whose death benefit restores the value of donated assets to heirs — letting generosity and family stewardship coexist.
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This white paper is provided for educational and informational purposes only and does not constitute legal, tax, investment, or insurance advice. Tax figures are current as of 2026 and remain subject to legislative change. Life insurance guarantees are subject to the claims-paying ability of the issuing insurance company. Consult with qualified legal, tax, and financial professionals before implementing any strategy discussed herein. Tom Ligare is licensed in California (CA DOI License #0F26541) and nationally (License #5462221). © 2026 Nonprofit Professional Services. All rights reserved.