Free life insurance estate tax calculator. Estimate whether life insurance proceeds push your estate above the federal estate tax exemption.
Life insurance death benefits are generally income tax-free to beneficiaries. However, if you own the policy at death, the death benefit is included in your taxable estate for federal estate tax purposes. For large estates, this can trigger estate tax at up to 40%.
An Irrevocable Life Insurance Trust (ILIT) is the primary tool for removing life insurance from your taxable estate. By transferring ownership of the policy to an ILIT, the death benefit is paid to the trust and distributed to beneficiaries outside your estate.
This calculator helps you determine whether your life insurance proceeds could create an estate tax liability and the potential savings from an ILIT.
Legal professionals, business owners, and individuals alike benefit from transparent life insurance estate calculations when evaluating obligations, settlements, or compliance requirements. Bookmark this page and return whenever circumstances change so you always have current figures at your fingertips.
From contract negotiations to dispute resolution, having reliable life insurance estate numbers at your disposal strengthens your position and streamlines decision-making. Adjust the inputs to reflect your unique circumstances and run the calculation as many times as needed to cover every plausible scenario.
From contract negotiations to dispute resolution, having reliable life insurance estate numbers at your disposal strengthens your position and streamlines decision-making. Adjust the inputs to reflect your unique circumstances and run the calculation as many times as needed to cover every plausible scenario.
Life insurance intended to provide for your family could lose up to 40% to estate taxes if not properly structured. An ILIT can completely eliminate this risk. Instant recalculation as you change inputs lets you model multiple scenarios quickly, giving you the data foundation needed for well-informed legal and financial decisions.
Estate With Insurance = Estate Value + Death Benefit Estate Tax = max(0, (Estate With Insurance − Exemption)) × 40% ILIT Savings = Estate Tax With Insurance − Estate Tax Without Insurance
Result: $556,000 estate tax
Estate $12M + $3M death benefit = $15M. Minus $13.61M exemption = $1.39M taxable at 40% = $556,000 estate tax. Without the insurance in the estate, the $12M estate would be entirely exempt.
An ILIT is most valuable when: your estate (including life insurance) exceeds the estate tax exemption, you want to ensure death benefits are protected from creditors, you want controlled distributions to beneficiaries, or you anticipate the exemption may decrease.
Establishing an ILIT costs $2,000–$5,000 in attorney fees. Ongoing costs include trustee management and annual Crummey notices. These costs are small compared to the potential 40% estate tax savings on the death benefit.
In community property states, life insurance premiums paid with community funds may result in the policy being partially included in the estate of the non-insured spouse. Proper funding of the ILIT with separate property or gifts is essential.
No. Life insurance death benefits are income tax-free to beneficiaries regardless of the amount. However, if the death benefit is included in the decedent's taxable estate and the estate exceeds the exemption, estate tax (up to 40%) applies to the excess.
An Irrevocable Life Insurance Trust (ILIT) is a trust specifically designed to own life insurance policies. Because the trust (not you) owns the policy, the death benefit is not included in your taxable estate. The trust distributes proceeds to beneficiaries per its terms.
If you transfer a life insurance policy to an ILIT and die within 3 years of the transfer, the death benefit is included in your estate as if the transfer never happened. To avoid this, have the ILIT purchase new policies directly.
Yes, but spousal ownership has risks: if your spouse predeceases you, the policy returns to your estate. Also, the proceeds may be included in your spouse's estate. An ILIT provides more reliable estate tax avoidance.
The grantor makes annual gifts to the ILIT, which uses the funds to pay premiums. Crummey powers give beneficiaries a temporary withdrawal right, qualifying the gifts for the annual gift tax exclusion ($18,000 per beneficiary in 2024).
The death benefit is paid to the ILIT. The trustee manages the proceeds and distributes them according to the trust terms — either outright, in stages, or held in continuing trust for beneficiaries such as minor children.