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Estate Planning with Life Insurance

estate planning with life insurance
Insurance Quotes 2 Day Team

Written By Doug Mitchell

Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA.  Doug has spent close to 30 years in the insurance and financial planning industry and has held licenses to sell securities, long-term care insurance, health.  Doug is also a financial blogger addressing the topics of life insurance, annuities and retirement income planning.

Holly Mitchell  &

Holly Mitchell’s background in life insurance insurance goes back to 1985 when she worked for her father who was a New York Life agent. Holly has a marketing degree from Auburn University and has had a life insurance license since 2008. In addition to advising life insurance for customers all around the country, Holly is our website fact checker.

Rob Pinner   &

Rob Pinner is the founder and CEO of Pinner Financial Services servicing all 50 states. Rob started his insurance career in 2002.

Louis LaBash

Results-driven and innovative life insurance professional with 30 plus years of life insurance industry sales and marketing experience. Recognized as a pioneer in the field, leveraging phone and internet channels to exceed personal sales of over $100 million during the first decade of the 21st century. Creator of a highly effective intuitive IUL life insurance sales software that facilitated the sale of millions of dollars of indexed universal policies by numerous life insurance agents. Proven track record as a Managing General Agent (MGA), Life Agent, IUL Life Insurance Sales Software developer, and leading-edge creator of insurance marketing tools, educational content, and delivery systems.

 4 minute read

If you own anything, you have an estate; plain and simple. It doesn’t matter how valuable your estate is or how modest it may be, you have an estate that consists of various assets and you cannot take it with you when you die.

If your estate is modest, like a car or home that is paid-for and some cash in the bank when you die, you can use a will to provide instructions on how you’d like your assets distributed and even if you don’t, the state will do that for you through probate. Without a will, however, you’ll have no legal say in how your property is distributed.

But, what if you have very large estates that include significant personal assets like cash, personal property, and investments? And what if you also own a business with cash, business property, and investments? Shouldn’t you have more than just a will?

Yes, especially if you want to pass these assets on to your heirs and not have to worry about the tax liability that could have a significant impact on the value of the estate. And, your tax liability could be even more significant if you live in a state that charges an inheritance tax.

Who Should Consider Estate Planning with Life Insurance?

Yes, everyone who has assets should have a will and a health care directive no matter the size of their estate. For individuals or couples who own enough assets that will likely be taxed when passed on to their heirs, you need to consider more advanced strategies.

For 2022, the Internal Revenue Service was kind enough to increase the exemption for estate tax liability to $12.06 million for individuals and $24.12 million for married couples. They also decided to increase the gift tax exemption to $16,000.

Using the new exemptions that were established for 2022 would mean there are still many individuals and families in the U.S. who should protect their estates from tax liability when they die.

Here is an example to consider, if an individual owns a large working farm in the Pacific region of the country, the real estate value of that farm is about $6,430 per acre. Using the $12.06 million exemption amount, if the farm consists of more than 1,773 acres, the federal estate tax would be triggered. Although the average size of a farm in the U.S. is about 450 acres, much larger farms are at risk.

Certainly, there are other examples to consider than family farms, such as people who have been building a business over a lifetime. A business certainly does have to be very large in order to accrue assets that could add up to significantly more than the $12.06 million exemption allowed by the IRS.

How to Create an Estate Plan using an Irrevocable Life Insurance Trust (ILIT)

irrevocable life insurance trust


Most estate planning professionals recommend using permanent cash-value life insurance to fund an Irrevocable Life Insurance Trust where the trust owns the life insurance policy. Doing so means the insured’s estate will not have any ownership in the trust and will, therefore, remove the proceeds of the trust from being included in the value of the estate for estate tax purposes.

Having an ILIT in place will reduce the estate taxes that would be owed when the insured person in the policy passes away. When the insured person dies, the trustee of the ILIT will make the death benefit available for paying any estate taxes on the transfer of the estate and any other associated costs such as legal fees, state taxes, and probate costs.

Although an ILIT is irrevocable and cannot be changed after it has been officially set up, the owner is still in charge of the way the assets will be distributed because the trustee must follow the instructions that the owner has left.

What’s the Best Type of Life Insurance for Estate Planning

Whole Life Insurance

Whole life insurance is a popular choice because it is permanent insurance coverage as long as the required premiums are paid by the policyholder. Another important feature of whole life insurance is that the policy will build cash value over time and can be accessed through policy loans if the trust is set up to allow for policy loans.

Whole life insurance is generally the most expensive type to purchase so it’s critical that you shop for a highly rated company with the most affordable rates.

Guaranteed Universal Life (GUL)

The guaranteed universal life insurance policy or GUL is a good option because the applicant can specify an age for guaranteed coverage and the rates are substantially lower than whole life insurance. Since the GUL is focused on death benefit rather than cash accumulation, most policies will not build enough cash value to worry about accessing it. The policyholder is basically trading a lower premium for less cash value.

Indexed Universal Life Insurance

Indexed Universal life is another permanent life insurance that can be used to fund an ILIT. These policies typically build significant cash value over time with the interest paid tied to index accounts like the S&P 500 or the NASDAQ. They are generally purchased by individuals looking to accumulate wealth for retirement and also avoid paying taxes on the income that can be taken as policy loans.


An Irrevocable Trust is not for Everybody

estate planning with life insurance


The type of trust that might be recommended by your estate planning professional will depend on what you are hoping to accomplish with the trust. For individuals and couples who do not anticipate estate tax liabilities may not want a trust at all.

Although the term “irrevocable” might cause you to hesitate, for individuals and couples who do anticipate an estate tax liability for their heirs, an irrevocable life insurance trust will provide estate tax benefits and provide a shield from creditors for the assets in the trust.


For more information about estate planning with life insurance and to get a free and confidential quote, call us today at 800-712-8519.
author avatar
Doug Mitchell, CLU Independant Advisor
Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA. Doug has spent almost 30 years in the life insurance industry and has also held licenses to sell securities, long-term care insurance and home and auto insurance. Doug is a Top of the Table Million Dollar Round Table member (MDRT).  MDRT is a global, independent association of the world's leading life insurance advisors.  For two years, Doug served as President of the Auburn Opelika Association of Financial Advisors and has been a member of the Million Dollar Round Table. He obtained Life Millionaire status at Horace Mann Insurance Company and was awarded the Life Agent of the Year Award. Later in his career with New York Life he was an Executive Council Member. Doug currently serves as President of Ogletree Financial, a managing general agency serving life insurance agents and clients in all parts of the United States. Today, Doug’s main focus is servicing 1000s of policyholders and growing the agency through the reach of