How Recent Rulings and Legislative Proposals Could Change Insurance Estate Planning

High-net-worth (HNW) estate planning in the United States increasingly relies on life insurance — especially Private Placement Life Insurance (PPLI), Irrevocable Life Insurance Trusts (ILITs), and premium-financed structures — to preserve wealth, mitigate estate tax, and provide liquidity. Recent administrative rulings and legislative proposals (including proposals to tax unrealized gains at death) — alongside stricter regulatory scrutiny — could materially alter product design, costs, and compliance burdens for U.S. families and their advisors. This article explains the practical effects for HNW estate plans in major U.S. hubs (New York City, Miami, Los Angeles), names the insurers commonly used, states realistic cost structures and compliance exposures, and offers an actionable checklist for advisors.

Executive summary: what’s changing and why it matters

• Potential legislative changes such as proposals to tax unrealized capital gains at death or alter basis step-up rules would affect whether insurance remains an efficient vehicle for wealth transfer and tax mitigation.
• Rulings and guidance from the IRS and Treasury — plus bank/regulatory initiatives on AML/KYC and capital rules — increase documentation, reporting, and due-diligence demands for PPLI, premium financing, and employer-owned life insurance.
• Operational impact: higher cost of capital for premium financing, larger compliance teams at insurers, and slower underwriting for complex multi-jurisdictional deals.
• Geographic focus: New York-based trusts and policies, Florida (Miami) residences, and California (Los Angeles) domiciles will see the largest immediate advisory demand because of high concentrations of taxable estates and active wealth-management markets.

Key federal reference points to monitor:

• The Treasury Department’s annual policy proposals (Greenbook) that outline potential revenue-raising options and tax changes: https://home.treasury.gov/system/files/131/General-Explanations-FY2024.pdf
• IRS estate and gift tax guidance, including annual exemption amounts and rules on life insurance inclusion: https://www.irs.gov/businesses/small-businesses-self-employed/estate-and-gift-taxes

Which products are most exposed?

• PPLI (Private Placement Life Insurance) — widely used by U.S. HNW clients to combine life-insurance sheltering with segregated investment strategies. Typical single-premium minimums in the industry start around $1 million and more commonly $2–5 million for boutique or offshore wrappers. Common carrier names: Pacific Life, Prudential, New York Life (via private placement wrappers), Lombard International.
• ILIT-funded permanent insurance — remains the workhorse for liquidity to pay estate taxes and equalize inheritances.
• Premium financing — used to fund large single premiums while preserving liquidity; pricing and terms are sensitive to interest-rate markets and credit availability.
• Employer-owned and corporate-owned policies — face ERISA, state, and reporting considerations that may be impacted by changes in transfer-for-value and inclusion rules.

Recent rulings & proposals: practical implications

• Proposal to tax unrealized gains at death or restrict step-up in basis:
  • Potentially reduces the relative tax advantage of holding appreciated assets inside an insurance wrapper for wealth transfer if gains become immediately taxable on death.
  • Could push planners toward greater focus on liquidity planning (life insurance) to pay hypothetical capital gains tax liabilities at death.
• IRS guidance clarifying estate inclusion for certain life insurance arrangements (IRC §2042 and related guidance):
  • Reinforces need to structure ILITs and ownership to avoid unintended estate inclusion.
  • Heightens documentation and trustee-advisor coordination to prove lack of incidents of ownership.
• Increased scrutiny on premium financing:
  • Lenders and insurers demand stronger collateral, higher margin calls, and clearer audit trails. Expect more conservative credit spreads and covenants.
• AML / KYC / banking regulations and capital/reserving rules:
  • Insurers and intermediaries will intensify source-of-funds and beneficial-owner checks for large single-premium policies, especially for cross-border families.

How insurers and products may change

• Product manufacturers (e.g., Pacific Life, Prudential, New York Life, Lombard International) will:
  • Raise minimum single-premium thresholds and tighten sub-account investment eligibility for PPLI.
  • Increase policy fees or modify crediting to protect carrier capital if regulatory reserving changes raise internal costs.
  • Add enhanced reporting packages and model-language riders to help clients comply with evolving IRS and Treasury requirements.

Cost and market signals to expect

• PPLI minimums: industry-typical starting points of $1M, trending toward $2M–$5M in competitive boutique offerings. (Advisors should confirm current minimums with each carrier.)
• Premium financing:
  • Financing spreads will reflect market rates tied to SOFR or prime; expect mid-single to low-double-digit effective annual costs in tighter credit markets.
  • Lenders will increase covenants, margin-call thresholds, and collateral requirements.
• Product pricing: carriers may allocate higher policy administration fees or adjust mortality/carrier credit spreads to account for increased compliance/reserving costs.

Comparison: How proposals impact common insurance strategies

Actionable checklist for advisors in New York, Miami, and Los Angeles

• Review existing ILIT and ownership structures to ensure no incidents of ownership that trigger IRC §2042 inclusion.
• Re-run after-tax modeling of PPLI vs. direct holding assuming:
  • Current estate tax exemption, and
  • Scenarios imposing a capital-gains-at-death tax for estates above specified thresholds.
• Reassess premium-financing sensitivities:
  • Model effective borrowing cost under SOFR + spreads, and test covenant stress scenarios.
• Strengthen documentation:
  • Keep contemporaneous trustee minutes, waiver letters, and proof of no incidents of ownership.
  • Audit-proof premium-financing documentation per best practices: see Documenting Transactions: Audit-Proofing Premium Financing and Complex Insurance Deals.
• Monitor binding guidance and rulings:
  • Subscribe to IRS/Treasury updates and maintain a relationship with tax counsel. See related primer: IRS Guidance on Life Insurance and Estate Inclusion: What Advisors Must Monitor.
• Evaluate insurer credit and contract terms:
  • Conduct regulatory due diligence on carrier reserving and contractual clauses: see Regulatory Due Diligence for High-Value Policies: Insurer Credit, Contractual Clauses, and Reserving (internal cluster resource).

Practical client conversations (what to tell HNW clients)

• “We are planning for multiple scenarios. Insurance continues to provide unique liquidity and creditor-protection benefits even if capital gains rules change, but the tax-efficiency calculus will shift.”
• “For large single-premium products (PPLI), carriers and lenders now expect more documentation and larger minimums; plan on stronger underwriting and slightly higher ongoing fees.”
• “If you live in high-tax states such as New York or California, state-level treatment and trust situs planning remain critical. Consider domicile planning for trusts where appropriate.”

Next steps for advisors and fiduciaries

1. Re-assess each client’s estate and investment portfolio under both current law and plausible legislative scenarios (including taxation of unrealized gains at death).
2. Re-engage life carriers and lenders to update pricing and minimums for any pending transactions.
3. Update client engagement letters and KYC/AML gathering processes when structuring large premium transactions.
4. Coordinate with tax counsel to prepare for potential IRS audit triggers and to assemble an “audit packet” for funded insurance transactions. For guidance on building robust audit documentation, consult Preparing for an IRS Examination: Checklists for Insurance-Funded Estate Tax Positions.

Sources & further reading

• Treasury Department, General Explanations of the Administration’s Fiscal Year 2024 Revenue Proposals (Greenbook): https://home.treasury.gov/system/files/131/General-Explanations-FY2024.pdf
• IRS — Estate and Gift Taxes: https://www.irs.gov/businesses/small-businesses-self-employed/estate-and-gift-taxes

By proactively re-evaluating structures, documenting transactions, and coordinating with carriers and counsel, advisors in New York City, Miami, Los Angeles, and across the U.S. can preserve the benefits of insurance in HNW estate plans even as the regulatory and legislative landscape evolves.