Estate Tax Planning After The Exemption Increase

Quick Article Guide

Here’s what we'll cover in this post:

• Why Estate Taxes Are Likely to Change Again
• Creating an Irrevocable Life Insurance Trust
• Transferring Wealth While the Window Is Open
• Common Estate Planning Mistakes to Avoid

Why Estate Taxes Are Likely to Change Again

In 2017, President Trump signed the Tax Cuts and Jobs Act into law, dramatically increasing the federal estate tax exemption. That legislation removed over 99 percent of American households from potential estate tax exposure and significantly reduced estate planning activity nationwide.

While the exemption has now been extended and increased to $15 million per person, it remains a legislative provision and can be reduced or repealed at any time. Many Democratic lawmakers have openly proposed lowering the federal estate tax exemption to $3.5 million per individual, or $7 million for married couples, a level last seen in 2009.

If enacted, this change would dramatically increase estate tax liability for families who are currently unaffected under today’s exemption. This uncertainty is precisely why estate planning should be done proactively, not reactively.

It is also important to remember that several states impose their own estate or inheritance taxes. Oregon, for example, has an estate tax exemption of just $1 million, with tax rates ranging from 10 percent to 16 percent on amounts above that threshold.

How the Very Wealthy Reduce Estate Taxes

High net worth individuals typically reduce estate taxes by removing taxable assets from their estate and creating liquidity to pay any taxes that remain. One of the most common and effective strategies is the use of a properly structured Irrevocable Life Insurance Trust, or ILIT, funded with permanent life insurance.

To ensure the policy is excluded from the estate, the trust must be listed as the owner and payor of the policy at the time of application. If the policy is owned by the individual, or transferred improperly, the death benefit may be included in the taxable estate.

Once the policy is in force, the estate owner can use the annual federal gift tax exclusion to fund the trust. In 2026, individuals can gift up to $19,000 per beneficiary, or $38,000 for married couples, without creating a gift tax liability. These funds are typically used by the trust to pay the insurance premiums.

Term life insurance is not appropriate for estate planning, as it is designed to expire. Permanent coverage with guaranteed premiums and a guaranteed death benefit is required to ensure liquidity is available whenever death occurs.

When the estate owner passes away, the life insurance policy pays the death benefit directly to the trust. The trustee then uses these funds to pay estate taxes and other obligations, allowing heirs to receive assets without being forced to sell property or investments.

Creating an Irrevocable Life Insurance Trust

A successful estate plan requires three key professionals: a qualified estate planning attorney, a knowledgeable life insurance agent, and a reliable trustee.

The attorney drafts the trust, the insurance agent helps select a permanent policy with sufficient coverage, and the trustee manages the trust according to its terms. While online trust services exist, most affluent individuals work directly with an attorney to avoid costly errors.

Trustees are commonly banks, corporate trustees, or attorneys. While family members can serve as trustees, they must not have a personal interest in the trust and must be capable of managing its responsibilities properly.

Estate planning activity declined after the original TCJA passed, but many professionals expect renewed interest as families recognize that today’s exemption may not last.

Transferring Wealth While the Window Is Open

Wealth can be transferred either at death or during your lifetime. If your estate is below the current exemption but expected to exceed a lower future threshold, gifting assets now may help reduce future tax exposure.

There is no clawback on the estate tax exemption, meaning assets transferred under today’s rules will not be retroactively taxed if the exemption is lowered later. Annual gifts can also be made without using any lifetime exemption.

Because future legislation could close existing planning opportunities, many advisors recommend acting sooner rather than later.

Common Estate Planning Mistakes to Avoid

Procrastination remains the most common mistake. Others include failing to use an attorney, owning your own life insurance policy, serving as your own trustee, purchasing term insurance, and choosing policies with investment risk.

When life insurance is used for estate planning, policies must offer level premiums and guaranteed death benefits. Guaranteed universal life insurance is typically the preferred solution.

How We Can Help

Our independent agency specializes in guaranteed universal life insurance designed specifically for estate planning. These policies offer fixed premiums and guaranteed coverage to ages 90, 95, 100, 105, 110, or 121, without market risk.

We work with dozens of highly rated life insurance companies and help clients structure coverage that aligns with their estate planning goals. Our agents have extensive experience working with high net worth individuals and complex planning situations.

If you are concerned about future estate tax changes or want to explore your planning options while favorable rules are still in place, call us today at 855-247-9555  or enter your information below to compare permanent life insurance options.