Yes, when structured correctly, life insurance can provide immediate, income-tax-free funds when your heirs need them most. Life insurance can cover estate taxes, debts, or administrative costs without forcing the sale of a home, business, or investment portfolio.
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Advanced estate planning strategies
You’ve built something you’re proud of and now you’re faced with a different type of financial challenge: organizing your assets so that you can leave a lasting legacy.
Advanced estate planning is the process of preparing your assets so that you can transfer wealth as efficiently as possible.
Key takeaways
- A properly structured permanent life insurance policy can be a tax-efficient way to transfer wealth to your heirs.
- Annual gifting is a simple, often underused strategy for reducing a taxable estate over time.
- Survivorship policies offer a cost-effective way for married couples to fund estate taxes or leave a legacy.
Who needs advanced estate planning?
Federal estate taxes apply once the total value of an estate exceeds a certain threshold. For 2026, the federal estate tax exemption is $15 million per individual, or $30 million for married couples using a provision called portability, which allows a surviving spouse to claim any unused portion of their deceased spouse's exemption.1 Estates above these amounts could face a 40% federal tax rate on the excess.
Even estates that fall under the federal threshold may face taxes at the state level. Currently, 12 states and the District of Columbia charge their own estate taxes, often with significantly lower thresholds. In Oregon, the estate tax starts at $1 million.2
Life insurance for tax-efficient estate planning
Permanent life insurance is one of the most tax-efficient estate planning tools available. Death benefits pass to beneficiaries free of income tax. And if the policy is owned by an irrevocable life insurance trust (ILIT)—rather than by you directly—those proceeds can also be kept outside your taxable estate, shielding them from estate taxes as well.This approach is especially valuable for people with large illiquid assets, like a family business or real estate. If your heirs don’t have dedicated funds to cover estate tax when you die, they might be forced to sell assets like a family business, property, or investment portfolio, to cover those tax obligations.
What is an Irrevocable Life Insurance Trust?
An ILIT holds a life insurance policy outside your estate, shielding the death benefit from estate taxes—because the trust, not you, owns the policy. Most financial professionals recommend having the ILIT purchase a new policy rather than transferring an existing one: transferred policies are subject to a three-year lookback period, and if the insured dies within that window, the death benefit is pulled back into the taxable estate.3 Keep in mind that it’s irrevocable, so it usually can’t be changed once the trust is established.
Because premium payments to an ILIT are considered gifts, they must qualify for the annual gift tax exclusion. That exclusion only applies to gifts of a "present interest," meaning the recipient must have immediate access to the funds. A special provision called a Crummey power4 gives beneficiaries a limited window (typically 30 days) to withdraw contributions before the funds are used to pay premiums. Most beneficiaries don't exercise this right, but the option is what satisfies the IRS's present-interest requirement.
Survivorship Life Insurance
A survivorship life insurance policy—also called a second-to-die policy—covers two lives, paying the death benefit after both spouses have died. This timing aligns with when estate taxes are actually due, since the unlimited marital deduction means no federal estate tax is triggered until the second death.
Because the insurer's risk spans two lives, premiums are typically lower than two individual policies. Survivorship policies are a way to fund estate taxes, endow a trust, or leave a legacy to children.
Strategies for protecting assets
Gift Tax exclusion
The IRS allows individuals to give up to $19,000 per recipient per year without touching their lifetime exemption, or $38,000 for couples splitting gifts.5 This is a straightforward way to reduce a taxable estate over time. For instance, a couple with three adult children can move $114,000 out of their estate annually, free of gift tax. Over a decade, that's more than $1 million, and that’s not including any growth on those assets.
Trusts
Trusts offer additional ways to transfer wealth, minimize the tax burden, and maintain control over distributions.
- Bypass trust: A bypass trust (also called a credit shelter trust) holds assets up to the estate tax exemption amount when the first spouse dies, keeping those assets out of the surviving spouse's taxable estate and preserving both spouses' exemptions.6
- Spousal Lifetime Access Trust (SLAT): This allows a donor spouse to transfer assets into a trust that directly benefits the other spouse, children, and any other beneficiaries. When the beneficiary spouse dies, the trust assets go to the other beneficiaries without facing estate tax.7 SLATs require careful design. If both spouses create nearly identical trusts for each other, the IRS may void the tax benefits under the reciprocal trust doctrine.8
- Crummey trust: This type of irrevocable trust allows someone to transfer assets to their beneficiaries without triggering gift tax.
Long-term care
Without a dedicated funding source, long-term care costs can significantly diminish your estate before it ever reaches your heirs.
Long-term care (LTC) insurance directly funds those expenses and protects the rest of your estate. That way, your estate assets aren't depleted to cover care costs before they reach your heirs. Some permanent life insurance policies also include hybrid LTC features that allow the death benefit to be accessed early if care is needed.
What a financial professional can do for you
These strategies—ILITs, survivorship policies, trusts, gifting—need to work together. This requires coordination between your financial advisor, estate planning attorney, CPA, and sometimes other experts. Your advisor navigates all these moving parts, spots gaps, and connects you with the right people as tax laws change. That's how a plan becomes a legacy.
What New York Life can offer
With professionals nationwide, you can find a local financial advisor who can guide you from where you are today to what you will build tomorrow.
FAQs
At the very minimum, you should review your estate plan after any major life change, like a marriage, divorce, birth of a child or grandchild, a death of a beneficiary, or a significant change in asset values. You should also revisit your plan any time tax laws change.
Reducing your estate tax exposure depends on the size and composition of your estate. Common approaches include annual gifting, an Irrevocable Life Insurance Trust (ILIT), or survivorship life insurance to help fund estate tax obligations.
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A New York Life financial professional can help you understand options for preserving wealth, funding future needs, and leaving a lasting legacy. Neither New York Life nor its Agents provide tax or legal advice. Please contact your tax or legal advisor to find out whether the general concepts in this material apply to your personal circumstances.
1Internal Revenue Service. IRS releases tax inflation adjustments for tax year 2026, including amendments from the One, Big, Beautiful Bill. https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill. Accessed April 29, 2026.
2Oregon.gov. Estate Transfer and Fiduciary Income Taxes. https://www.oregon.gov/dor/programs/businesses/Pages/estate.aspx Accessed, April 29, 2026.
3Life Insurance Trust Company. Purchasing vs. Gifting a Policy: The 3-Year Rule. https://lifeinsurancetrustco.com/purchasing-vs-gifting-a-policy-the-3-year-rule/. Accessed April 30, 2026.
4Crummey Trust. Investopedia. https://www.investopedia.com/terms/c/crummey-trust.asp. Accessed April 29, 2026.
5Internal Revenue Service. IRS releases tax inflation adjustments for tax year 2026, including amendments from the One, Big, Beautiful Bill. https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill. Accessed April 29, 2026.
6Bypass Trusts: What You Need to Know. Trust & Will. https://trustandwill.com/learn/bypass-trust. Accessed April 29, 2026.
7A smart way for couples to preserve wealth. Fidelity. https://www.fidelity.com/learning-center/wealth-management-insights/protect-assets-with-a-SLAT. Accessed April 29, 2026.
8Cavitch Familo & Durkin. SLATs & Reciprocal Trusts: Avoiding Costly Mistakes. https://www.cavitch.com/blog/2025/02/slats-reciprocal-trusts-avoiding-costly-mistakes/. Accessed April 30, 2026.