High-Net-Worth individuals in the U.S. have unique tax planning considerations that they are often unaware of, and these can be challenging to address.
In 2024, the current federal estate tax exemption is 13,610,000 million for an individual and 27,220,000 million for a couple.
This includes all tangible property, real estate, stocks and other securities, and ownership in any corporation based in the U.S.
This means that upon death, the Taxable Estate is subject to the federal estate tax of 40%.
At the end of 2025, the federal estate tax exemption is scheduled to be cut by 50%.
Starting in 2026, significantly more U.S. residents will have their estate subject to the federal estate tax.
The end of 2025 and the impending tax law changes drawing closer present another critical opportunity to review your estate plan and gifting strategies.
How Does Life Insurance Help High-Net-Worth U.S. Residents?
Life insurance owned by a trust allows you to control your estate and your wishes and provides a tax-free benefit to offset any estate taxes owed.
Trusts are often created and used to purchase and own an insurance policy. A life insurance policy owned by an Irrevocable Life Insurance Trust (ILIT) is not considered to be part of the insured’s Taxable Estate.
An ILIT is an irrevocable trust that contains provisions specifically designed to facilitate the ownership of one or more life insurance policies. The ILIT is both the owner and the beneficiary of the policies, typically insuring the life of the person or persons creating the ILIT, known as the grantor.
If the trust is structured and managed properly, the life insurance and the death benefit received by the ILIT will not be subject to income tax or estate tax upon the death of the insured or the insured’s spouse. During the grantor’s life, the trustee will often hold certain powers, often including the ability to make distributions to the trust beneficiaries. Upon the grantor’s death, distributions from the trust to the beneficiaries will be made according to the trust terms.
Life insurance proceeds can be used to pay any U.S. estate tax that will be owed by the estate of a U.S. resident.
The life insurance market in the U.S. is extremely stable and mature. It is regulated at the state and federal levels.
Life insurance contracts provide a level of privacy and confidentiality which is attractive to many wealthy individuals.
Lifetime Insurance Planning does not provide legal or tax advice. We can refer you to an expert estate planning attorney.