With the federal estate tax exemption now permanently set at $15 million per person, fewer families face federal estate tax. For those who do, and for many who face state estate taxes, life insurance remains the most efficient way to pay the bill.
Key takeaways
- The top federal estate tax rate is still 40% on amounts above the $15 million per-person exemption.
- Life insurance owned by an irrevocable trust can deliver tax-free cash outside the taxable estate.
- Permanent coverage also protects against future changes in tax law, which clients can’t predict.
Above the exemption, the federal estate tax still takes up to 40%. Life insurance can deliver the cash to pay it, without forcing a sale of the family business or property.
The estate tax picture today
The exemption has moved a lot: about $5 million (indexed) from 2011 to 2017, roughly double that from 2018 to 2025, and now $15 million per person from 2026 under the One Big Beautiful Bill Act. The rate on amounts above it is still 40%. See what the permanent $15 million exemption means for planning.
Who still faces estate tax
- High-net-worth families with estates above $15 million per person, or $30 million per couple
- Families whose estates are likely to grow past the exemption over their lifetimes
- Residents of states that impose their own estate or inheritance tax, often at much lower thresholds
Why life insurance is the right tool
Estates are often rich in assets but short on cash: a family business, farmland, or real estate. Without liquidity, heirs may have to sell assets, sometimes at the wrong time, to pay taxes due within nine months of death. Permanent life insurance owned by an irrevocable life insurance trust (ILIT) pays a death benefit that is generally income-tax-free and kept outside the taxable estate, providing cash exactly when it’s needed.
Planning for an uncertain future
No one can predict future tax law. A properly structured permanent policy gives families flexibility regardless of what Congress does, with level premiums and cash value that can support other goals. Contact us to run a survivorship or single-life design for your client.
Frequently asked questions
Is life insurance subject to estate tax?
It can be if the insured owns the policy. Having an irrevocable life insurance trust own it generally keeps the death benefit outside the taxable estate.
What is the federal estate tax rate?
The top rate is 40% on the amount of the taxable estate above the exemption.
Why use life insurance to pay estate taxes?
It provides cash at death, generally income-tax-free, so heirs don’t have to sell a business, real estate, or other assets to pay the tax.
Reviewed by Tim Fuller on 2026-09-25
Tim Fuller
President, SRS Inc.
Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.
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