Insurance Curator Estate planning for high net worth (HNW) families in the United States increasingly pairs survivorship (second‑to‑die) life insurance with charitable strategies to reduce estate tax exposure while meeting philanthropic goals. This article explains how these tools work together, compares charitable structures, provides illustrative pricing context, and highlights state‑specific considerations for cities such as New York City, Los Angeles, and Chicago.
Why combine survivorship insurance and charitable strategies?
Survivorship life insurance pays a death benefit only after both insured spouses have passed. For HNW estates, survivorship policies are a cost‑efficient way to create liquidity to pay estate taxes or equalize inheritances among heirs while preserving the estate’s appreciating assets (e.g., family business, real estate, marketable securities).
Combining survivorship insurance with charitable techniques lets you:
- Reduce taxable estate value through charitable transfers or trust gifts (thereby lowering estate tax exposure).
- Preserve heirs’ inheritance by using life insurance proceeds (often held in an Irrevocable Life Insurance Trust — ILIT) to replace value transferred to charity.
- Create philanthropic legacy with trusts that deliver income to heirs and remainder to charities, or pay charities first while the remainder returns to family.
Key federal context:
- The federal estate tax top rate is 40%. (IRS)
- The federal unified estate and gift tax exemption (adjustable by year) can be very large for individuals but planning remains critical for estates that exceed state exemptions or face post‑2025 legislative changes. (IRS)
Sources: IRS estate tax overview and Topic 701 (estate tax) — https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax and https://www.irs.gov/taxtopics/tc701
Common charitable strategies paired with survivorship insurance
Below are the most frequently used charitable structures with survivorship policies:
- Charitable Remainder Trust (CRT) — donor transfers assets into CRT, receives income (or unitrust payments), gets an immediate charitable deduction for the remainder value, and the CRT pays the charity after a term or life income period. Survivorship life insurance can replace the eventual charitable remainder for heirs or be used in tandem to manage liquidity.
- Charitable Lead Trust (CLT) — charity receives income stream for a term; remainder passes back to heirs tax‑efficiently. A CLT can reduce estate tax at grantor’s death; a survivorship policy can ensure heirs still receive other liquidity.
- Donor‑Advised Fund (DAF) — immediate gift to a DAF reduces estate value while authorizing ongoing grantmaking. Survivorship insurance provides non‑charitable proceeds to heirs.
- Private Foundation — long‑term philanthropic vehicle offering control but with higher administrative requirements and less immediate tax efficiency.
Comparison table: Charitable strategies and how they pair with survivorship insurance
| Strategy | Estate‑tax impact | Liquidity needs | How survivorship helps |
|---|---|---|---|
| Charitable Remainder Trust (CRT) | Lowers estate by moving assets out; provides charitable deduction | CRT assets illiquid until termination | Survivorship proceeds owned by ILIT provide family liquidity without adding to estate |
| Charitable Lead Trust (CLT) | Can remove future appreciation from estate; good for transferring family businesses | CLT reduces estate value but may not provide immediate cash | Survivorship policy can fund family buyouts or taxes when CLT ends |
| Donor‑Advised Fund (DAF) | Immediate deduction, removes assets from estate | Immediate liquidity transfer to DAF | Survivorship benefits preserve family wealth outside DAF gifting |
| Private Foundation | Permanent philanthropy, less estate tax efficiency (but control) | Ongoing admin and payout rules | Survivorship proceeds can fund family payouts or a foundation endowment |
Practical structuring — common approaches
-
ILIT + Survivorship Policy + CRT/CLT/DAF
- Transfer a survivorship policy into an Irrevocable Life Insurance Trust (ILIT) so proceeds are not includible in the insureds’ estates.
- Make a charitable transfer (CRT/CLT/DAF) to remove appreciating assets from estate.
- ILIT proceeds replace the value transferred to charity for heirs, preserving family equity while reducing estate taxes.
-
Split strategy for business owners
- Place operating assets into a CLT or transfer minority interests to family members.
- Use survivorship insurance to fund buy‑sell agreements or estate taxes (especially effective for liquidity planning without forcing sale of business).
-
Hybrid approach for high‑appreciation real estate
- Move real property into a CRT or sell to CRT in exchange for income interest (subject to rules).
- Survivorship life insurance held outside the estate supplies heirs with cash while real estate flows to charity or family per trust terms.
For more on trust structures with survivorship policies, see How Survivorship Policies Work with ILITs and Trust Structures for HNW Estates.
Illustrative pricing: what HNW clients should expect
Pricing for survivorship life insurance varies by carrier, policy type (term vs permanent), ages, health, face amount, and product design. Sources such as Policygenius provide general cost comparisons for joint‑life policies: https://www.policygenius.com/life-insurance/joint-life-insurance/.
General illustrative ranges (for planning purposes only — obtain carrier quotes for exact pricing):
- Joint 20‑year term, $2M face (healthy couple aged 55): approximately $1,200–$3,000 per year (ranges reflect underwriting differences).
- Survivorship permanent policy (guaranteed universal life or survivorship whole life), $5M face (healthy couple aged 60): premiums can range from $20,000 to $100,000+ per year depending on product guarantees, funding strategy, and underwriting.
Large mutual carriers to consider:
- New York Life — known for durable permanent products suitable for estate planning and ILIT funding (contact for quotes). https://www.newyorklife.com
- Northwestern Mutual — competitive in guaranteed/universal strategies for HNW clients. https://www.northwesternmutual.com
- MassMutual and Prudential — strong options for survivorship UL and whole life designs; pricing must be individualized. https://www.massmutual.com, https://www.prudential.com
Note: permanent survivorship coverage for large face amounts (e.g., $5M–$50M) is commonly used in estate tax planning for HNW clients in New York City and Chicago; in California (Los Angeles) planners may prioritize state tax planning differently because California currently has no estate tax.
State considerations: examples for NY, CA, IL
- New York City / New York State: New York imposes an estate tax with an exemption substantially lower than the federal exemption — historically around the mid‑single millions (NY Dept. of Taxation data). When planning for NYC or upstate NY estates, charitable transfers combined with survivorship insurance are often used to manage both federal and state exposures. Source: New York State Department of Taxation and Finance — https://www.tax.ny.gov/bus/estate/default.htm
- Los Angeles / California: California currently does not impose a state estate or inheritance tax, so strategies may focus on federal estate tax and income tax consequences; charitable vehicles (CRTs and DAFs) are still used for income tax management and philanthropic objectives. Source: California Franchise Tax Board — https://www.ftb.ca.gov/file/personal/estate-inheritance/estate-tax/index.html
- Chicago / Illinois: Illinois has its own estate tax with an exemption lower than the federal amount. Local tax rules often make survivorship + charitable strategies attractive to reduce both federal and state estate taxes.
Key implementation points and pitfalls
- Use an ILIT to keep policy proceeds out of the insureds’ estates; otherwise survivors may face unexpected estate inclusion and tax consequences. See related piece: How Survivorship Policies Work with ILITs and Trust Structures for HNW Estates.
- Timing and valuation matter. Charitable deductions for CRTs/CLTs depend on actuarial assumptions; coordinate life insurance funding and trust funding to avoid gift tax surprises.
- Consider policy funding mechanics. Over‑funding a survivorship policy may trigger Modified Endowment Contract (MEC) issues or gift tax consequences if not held in an ILIT — consult advisors.
- Model multiple scenarios (mortality, investment returns, taxation). See modeling examples in: Real-World Scenarios: Modeling Survivorship Policy Outcomes for Multigenerational Families.
Next steps for HNW families in New York City, Los Angeles, or Chicago
- Run net‑worth and estate tax projections (include federal + state exposures).
- Obtain insurer modeled quotes from carriers such as New York Life, Northwestern Mutual, MassMutual, and Prudential — permanent survivorship policies are priced case‑by‑case. (Brokers like Policygenius can provide comparative cost guidance: https://www.policygenius.com/life-insurance/joint-life-insurance/.)
- Work with estate counsel to draft ILITs, CRTs, or CLTs tailored to state rules (NY, CA, IL differences matter). For design and premium strategies on large estates, see Designing Survivorship Policies for Large Estates: Coverage Amounts and Premium Strategies.
- Coordinate with tax and philanthropic advisors to balance current income tax benefits (charitable deductions) with long‑term estate tax reduction and family objectives.
Combining survivorship insurance with charitable strategies is a powerful approach for HNW estate planning, but it requires coordinated legal, tax, and actuarial work — particularly in states with active estate taxes like New York and Illinois. Work with specialized advisors and get firm carrier quotes for accurate design and pricing before implementing any trust or insurance solution.