estate taxes

Everything You Need To Know About Life Insurance and Estate Taxes

When planning your estate, it’s important to take your life insurance policy into consideration, because it could be subjected to federal estate taxation.

While it’s highly unlikely that you’ll have a completely tax-free estate transfer, there are some steps that savvy investors take to avoid taxation on life insurance proceeds.

Life Insurance Death Benefits Taxation

The point of having a life insurance policy is to ensure that your heirs receive a large sum of money after you pass away. The great thing about life insurance death benefits is that they’re federal income-tax free. However, while this may be the case, it doesn’t mean that the proceeds won’t be included in your taxable estate.

The IRS set the threshold for estate taxes at $11.4 million. If the beneficiary of your life insurance policy is either your estate or someone other than your spouse—such as a child, grandchild, or friend—the policy will be included in the total worth of your estate.

So if your estate is valued over the threshold, it will be subjected to federal estate taxes.

Here’s how you can avoid this.

Ownership Transfer

Whether your life insurance proceeds are counted as part of your taxable estate depends on who owns the policy at the time of the insured’s death.

In order to avoid federal estate taxation, you’ll need to transfer ownership of your insurance policy to another individual or entity.

ownership transfer

When choosing who to name as the owner, make sure to pick a competent adult/entity. Moreover, have your insurance company provide the transfer of ownership forms.

The new owner will pay the premiums, and you’ll give up your rights to make any changes to the policy in the future. Be mindful of who you’re transferring ownership to, because it’s an irrevocable process.

Life Insurance Trusts

An alternative to policy ownership transfer is setting up an irrevocable life insurance trust (ILIT). This effectively removes the trust’s assets from your taxable estate. This, of course, also means you won’t be liable for federal estate taxation. This method only works if the grantor is not the trustee of the trust.

You can opt for an ILIT if you wish to maintain legal control over your insurance policy. If you have suspicions about the policy’s new owner’s ability to make premium payments, this is a good way to go about avoiding taxation.


In order to avoid subjecting your beneficiaries to hefty federal estate taxes, you should consult financial experts that will ensure your estate is planned properly so taxes are minimized.

We are a leading life insurance broker FL with years of experience in ensuring that our clients and their families are secure, with strong financial plans and insurance deals.

If you require Estate tax life Insurance FL or term life insurance services in Pinellas County, Palm Beach County, Miami-Dade County, Hillsborough County, and elsewhere in Florida, get in touch with us for a free quote! Or call us at (800) 381-1245.

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