Permanent Life Insurance for Estate Planning in 2026: ILIT, Second-to-Die, and the Federal Exemption Reality
$13.99M
2026 individual estate tax exemption
[IRS Rev. Proc. 2024-40]
$27.98M
2026 married couple exemption
[IRS Rev. Proc. 2024-40]
40%
Federal estate tax rate above exemption
[IRC Sec. 2001]
2026 Legislative Status
The elevated TCJA estate tax exemption was extended through the One Big Beautiful Bill (passed Congress, May 2025). The exemption is now expected to remain at approximately $13.99M (individual) through 2025 and beyond, adjusted for inflation. Verify current law with an estate attorney before making decisions. Legislative status can change.
When permanent life insurance fits estate planning
Estate above the federal exemption
Estate value exceeds $13.99M (individual) or $27.98M (joint). Permanent insurance provides liquidity to pay the 40% federal estate tax without forcing heirs to sell illiquid assets (business, real estate).
Estate tax liquidity need
Heirs inheriting a closely-held business, farm, or real estate portfolio may lack the liquid assets to pay estate taxes. The death benefit provides immediate cash without a forced sale.
Special-needs trust funding
A child or family member with a disability requiring permanent financial support needs a lifelong death benefit. The permanent insurance is held in a third-party special-needs trust to preserve government benefit eligibility.
Charitable bequest
Permanent insurance held in a charitable lead trust or named to a charity provides a leveraged philanthropic gift. The premium is the cost of creating a much larger charitable contribution.
Business succession (cross-purchase buy-sell)
Partners in a closely-held business may need permanent insurance to fund a buy-sell at any future date. See /business-owner/ for buy-sell specific analysis.
ILIT mechanics
An Irrevocable Life Insurance Trust (ILIT) owns the life insurance policy rather than the insured. Because the insured does not own the policy, the death benefit is removed from the insured's taxable estate. The trust becomes the beneficiary and distributes proceeds according to the trust's terms.3-year look-back rule: if the insured transfers an existing policy to an ILIT within 3 years of death, the death benefit may be included in the taxable estate. Buying a new policy through the ILIT avoids this issue.Crummey powers: trust documents typically include Crummey powers that convert the trustee's annual premium contribution from a future-interest gift to a present-interest gift, qualifying for the annual gift tax exclusion ($18,000 per beneficiary in 2026).This is genuinely attorney territory. An ILIT involves irrevocable legal commitments. Work with an estate attorney and a fee-only fiduciary together, not just the insurance agent.
IUL vs whole life for estate purposes
Whole life: better fit for most estate planning
- ›Predictable death benefit; fixed premium
- ›No lapse risk from cost-of-insurance spikes
- ›Mutual carrier dividend history provides stable cash value
- ›Better fit when the estate-tax liability is predictable and long-horizon
IUL: secondary choice for estate planning
- ›Market-linked growth potential; flexible premiums
- ›Higher lapse risk from declining cap rates and rising COI
- ›May fit when the insured wants growth and can manage performance
- ›Second-to-die IUL available; generally cheaper than two individual policies