Insurance Curator High-net-worth estate planning often pivots on two powerful tools: life insurance (typically owned by an Irrevocable Life Insurance Trust — ILIT) and lifetime gifting. This article models a realistic U.S. case study (New York City focus) showing how each approach affects net-family-wealth (NFW) at the second death, describes the assumptions behind the math, and flags the commercial choices advisors and families face (carriers, premium ranges, premium financing).
Target audience: US-based high-net-worth families and advisors in New York City, with comparisons to California and Texas where state estate tax regimes differ.
Key facts and tax parameters (2024 U.S. market)
- Federal basic exclusion (unified credit): $13,610,000 per individual (2024). Source: IRS Estate Tax overview.
https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax - Federal top estate tax rate: 40% on taxable estate above the exclusion.
(IRS unified transfer tax rules apply.) - Annual gift tax exclusion: $18,000 per recipient (2024). Source: IRS inflation adjustments.
https://www.irs.gov/newsroom/irs-announces-inflation-adjustments-for-tax-year-2024 - State notes:
- New York: has a state estate tax with a much lower exclusion and its own rate schedule — important when modeling NY-based clients. https://www.tax.ny.gov/pit/estate/
- California and Texas: no state estate tax (but NY often triggers additional planning).
- Life carriers commonly used by HNW families: New York Life, Northwestern Mutual, MassMutual. For large survivorship (second-to-die) coverage these mutual carriers, plus private placement life insurance (PPLI) managers, are typical market choices.
Case study setup — assumptions (explicit)
- Location: New York City (state estate tax is a factor; modeling here primarily isolates federal outcomes but notes NY impact).
- Couple: joint current gross estate = $50,000,000 (assets excluding planned insurance).
- Time horizon: second death in 12 years (illustrative).
- Asset growth (pre-tax): 4% annually (applied to invested assets).
- Federal exclusion applied at death: $13.61M (per individual; unified credit used where applicable).
- Insurance strategy: purchase a $30,000,000 survivorship (second-to-die) policy owned by an ILIT. Illustrative annual premium assumption: $300,000 for 12 years (total premiums = $3,600,000). Premiums are assumed funded from outside the appreciating estate (e.g., separate liquidity or gifts), so they remove $3.6M of family liquidity but do not continue to compound inside the estate in this simplified model.
- Market note: large survivorship universal/whole-life policies for 60–70 year-old couples frequently have premiums ranging widely; illustrative range for $10M–$40M face is often $150k–$600k/year depending on carrier, product and underwriting. See joint-life product primer: Policygenius (joint/survivorship overview). https://www.policygenius.com/life-insurance/joint-life-insurance/
- Gifting strategy: demonstrate two gifting variants:
- Small gifting matching the premium cost: gift $3.6M today (invested by recipients, grows at same 4%).
- Large gifting using lifetime exemptions: couple fully uses their combined 2024 lifetime exemptions (~$27.22M) as an upfront gift, invested and growing at 4% for 12 years.
All dollar amounts rounded to the nearest $1,000 for clarity.
Baseline (no planning) — numbers
- Estate at second death: 50,000,000 × 1.04^12 ≈ $80,050,000
- Taxable estate (federal) = 80,050,000 − 13,610,000 = $66,440,000
- Federal estate tax = 40% × 66,440,000 = $26,576,000
- Net to heirs (after federal tax) = 80,050,000 − 26,576,000 = $53,474,000
Strategy A — Survivorship life insurance in an ILIT (illustrative)
Assumptions repeated: $30M face, premiums $300k/year × 12 = $3.6M total paid into the ILIT (gifts/Crummey contributions). ILIT owns the policy; death benefit is excluded from estate.
- Estate at second death (liquid assets left after premiums paid from outside estate) ≈ $80,050,000 − $3,600,000 = $76,450,000
- Taxable estate = 76,450,000 − 13,610,000 = $62,840,000
- Federal tax due = 40% × 62,840,000 = $25,136,000
- Estate net to heirs (estate after tax) = 76,450,000 − 25,136,000 = $51,314,000
- ILIT death benefit received (outside estate) = $30,000,000
- Total net-family-wealth (NFW) = estate-net + ILIT proceeds = 51,314,000 + 30,000,000 = $81,314,000
Net effect vs baseline: Insurance strategy increases NFW by ≈ $27.84M vs baseline $53.47M, at a total premium cost of $3.6M over 12 years.
Strategy B — Gifting
Variant B1 — gift equals premium total ($3.6M), recipients invest at 4%:
- Gift grows: 3,600,000 × 1.04^12 ≈ $5,763,600
- Estate at death after the gift (invested outside estate) = 80,050,000 − 3,600,000 = $76,450,000
- Federal tax = same as Strategy A = $25,136,000
- Estate net to heirs = $51,314,000
- Total NFW = estate-net + gift growth = 51,314,000 + 5,763,600 = $57,077,600
Variant B2 — use combined lifetime exemptions (both spouses) and gift $27,220,000 now, invested at 4%:
- Gift growth (12 years): 27,220,000 × 1.04^12 ≈ $43,578,000
- Remaining estate principal: 50,000,000 − 27,220,000 = $22,780,000
- Remaining estate at death after 12 years: 22,780,000 × 1.04^12 ≈ $36,470,000
- If lifetime exemptions are fully used, remaining unified credit is consumed — taxable estate at death (federal) ≈ $36,470,000 (for simplification we assume no remaining exclusion)
- Federal tax at death = 40% × 36,470,000 = $14,588,000
- Estate net = 36,470,000 − 14,588,000 = $21,882,000
- Total NFW = gift growth + estate net = 43,578,000 + 21,882,000 = $65,460,000
Comparative summary (rounded)
| Scenario | Estate net to heirs | Outside proceeds (insurance/gifts grown) | Total NFW |
|---|---|---|---|
| Baseline (no plan) | $53,474,000 | $0 | $53,474,000 |
| Insurance (ILIT, $30M face) | $51,314,000 | $30,000,000 | $81,314,000 |
| Gift = premium total ($3.6M) | $51,314,000 | $5,764,000 | $57,078,000 |
| Use lifetime exemptions ($27.22M) | $21,882,000 | $43,578,000 | $65,460,000 |
Interpretation & practical takeaways
- In this illustrative model, a relatively small premium outlay ($3.6M) funds a $30M survivorship death benefit that covers federal tax and creates significant leverage, producing far higher NFW than simply gifting the equivalent premium or even using lifetime exemptions (given these assumptions).
- Key drivers where results could flip:
- Premium amount and carrier pricing: Actual premiums vary widely based on age, health, product (survivorship UL vs. guaranteed WL). Illustrative premium used here is conservative relative to some underwriting outcomes. Contact major carriers (New York Life, Northwestern Mutual, MassMutual) or a broker for firm illustrations.
- Funding source: If premiums are funded from estate assets that would otherwise grow, the estate depletion effect is larger. If premiums are paid from outside appreciating assets or via premium financing, the leverage increases.
- Timing / mortality: Survivorship policies only pay at the second death. If the second death occurs much later, estate growth and tax dynamics change.
- State taxes: New York’s estate tax rules and credit calculation can materially alter optimal face amount and whether insurance should be structured to address state + federal exposure.
- Credit usage and portability: Using lifetime exemptions today reduces future exclusion available at death; portability rules and legislative change risk must be considered.
Commercial considerations — carriers, pricing, and financing
- Major mutual carriers often used by HNW clients: New York Life, Northwestern Mutual, MassMutual. These carriers provide large guaranteed or universal life products suitable for ILIT ownership and second-to-die designs. Pricing is highly individualized; illustrative market range for large survivorship policies for clients aged 60–70 is often $150,000–$600,000/year for $10M–$40M face amounts depending on underwriting (source: market summaries and joint-life product primers). See Policygenius overview for joint-life considerations. https://www.policygenius.com/life-insurance/joint-life-insurance/
- Premium financing (banks such as Bank of America Private Bank, Goldman Sachs Private Wealth, and regional private banks) can be used to fund large premiums — interest rates, covenants, and recourse terms vary. Review with a lending specialist.
- For more advanced wrappers and tax-efficient investment inside insurance, consider PPLI (private placement life insurance). See internal case study resources such as PPLI Case Study: How Alternative Asset Wrappers Changed Tax and Growth Outcomes.
Next steps for advisors and families (actionable)
- Run a multi-scenario model that varies: death timing, estate growth, premium level, funding source (estate vs outside), state tax application.
- Use the ILIT structure and confirm Crummey powers, trustee liquidity, and substitution clauses to avoid estate inclusion.
- Obtain carrier illustrations from at least three providers (e.g., New York Life, Northwestern Mutual, MassMutual) and compare guaranteed vs illustrated performance.
- If considering premium financing, run a stress test of interest-rate moves and collateral calls (see: Premium Financing Stress Test: Real-World Scenario Analysis for a $50M Estate).
- Build sensitivity scenarios for portability, future legislative change, and potential state tax exposures (NY vs CA vs TX).
Closing note
Insurance inside an ILIT can create substantial leverage for federal (and state) estate tax liquidity needs compared with pure gifting, but results are highly dependent on premiums, funding source, timing, state rules, and mortality. Always run full scenario modeling (and consider tools such as the insurer and advisor calculators) and coordinate with tax counsel, a life insurance broker, and fiduciary trustees.
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