The Facts about Life Insurance and Federal Estate Tax
Federal estate taxes are taxes imposed on an individual’s assets at the time of their death. Assets can include anything from a car to real estate to investments. When these assets exceed certain amounts, they can be subject to federal estate tax. Life insurance provides an affordable way to offset some or all of these taxes for your family.
How Federal Estate Tax Works
The amount of tax owed depends on how much value is transferred over the lifetime exclusion amount — $12.06 million per spouse in 2022. The exemption increases each year based on inflation. If you have more than $12.06 million in assets, you may be subject to federal estate taxes at a rate of up to 40%.
Only 9 Months to Pay
The 2025 Changes
The estate tax exemption changes at or near the expiration of limits set by Congress. The next round of changes was scheduled for 2025 and could bring significant changes to the exemption amount. This makes planning now especially important — locking in life insurance coverage while it’s affordable gives your estate flexibility no matter what Congress decides.
Key Facts
How Life Insurance Helps
By holding a life insurance policy in an Irrevocable Life Insurance Trust (ILIT), the proceeds can be kept outside of your taxable estate entirely — providing your heirs with tax-free funds to pay the estate tax bill without having to sell cherished assets.
