Most of our clients under the age of 70 have some form of life insurance as part of their financial plan to protect their families. What most may not realize is that life insurance that is owned by you will enlarge the size of your estate when it comes to calculating whether or not your family will need to pay an estate tax.

Though it may be fairly simple leaving your spouse as the primary beneficiary on your large life insurance policy since they in most cases qualify for the unlimited marital deduction, your estate could be subject to estate taxes after the death of your spouse or upon the death of you both in a common accident. The death benefit of the life insurance policy, if owned by you individually, will be included in the calculation of your assets when determining if an estate tax is due.

The current (2023) Federal Estate Tax exemption is $12,920,000 per person. This is the amount a US Citizen can leave to others who are US Citizens without implication of estate taxes at a 40% tax rate being due upon death (provided no lifetime gifts beyond the annual gift tax exclusion amount were made). Currently, that amount is $17,000 per person annually. Any amounts over the current $12,920,000 amount are subject to the 40% estate tax. Again, one exception is when assets are left to a US Citizen spouse since they qualify for the unlimited marital deduction.

But let’s say you have a $3,000,000 policy and you leave that to your spouse. You pass and they collect the death benefit and invest that money into real estate. Then that real estate triples in value over the next 20 years. Now that death benefit has enlarged your spouse’s estate by $9,000,000. If there are other assets in the estate and depending upon how the total estate between the two of you was structured before you passed, could have a huge impact upon whether or not your family will end up paying estate taxes when your spouse passes.

There are estate strategies to avoid this issue. If you are concerned and need help or you would like to consult about setting up or updating an estate plan, please reach out to our intake department at (760) 448-2220 or at

Post A Comment