Estate taxes don’t just hit the ultra-wealthy anymore. With state exemptions as low as $1 million and a federal sunset looming in 2026, more families than ever could face a surprise tax bill when a loved one passes.
But here’s the good news: there’s a way to handle the tax man without liquidating property, investments, or retirement accounts.
It’s called life insurance for liquidity. And it’s one of the most overlooked strategies in estate planning today.
Imagine this scenario:
Your client owns a $3 million property, $2 million in a 401(k), and $1 million in non-liquid assets. The estate is over the exemption in states like Oregon, Massachusetts, or Minnesota.
At death, heirs may owe $300K+ in estate taxes—but have no liquid cash to pay it. That means selling property, draining retirement accounts, or taking loans.
That’s where life insurance becomes the hero.
Life insurance creates instant liquidity—tax-free—to help cover estate or inheritance taxes, settle debts, and preserve family assets.
Keeps policy outside of the estate (avoids inclusion in taxable estate)
Gives heirs direct access to tax-free cash at death
Protects proceeds from creditors or unintended beneficiaries
🧠Advisor Script:
“The goal isn’t just to avoid taxes—it’s to make sure your kids don’t have to sell the family home or business just to pay them.”
$4M business + $2M real estate = over MA exemption
Heirs use life insurance policy inside an ILIT to pay 16% estate tax (~$960K)
The business stays in the family—no fire sale needed
$1M OR exemption + $1M in assets = taxed above threshold
A $300K second-to-die policy protects kids from selling retirement home or paying from their own pockets
| Type | When to Use |
|---|---|
| Second-to-die (Survivorship) | Married couples, pays at second death |
| Level Guaranteed UL | Premium stability + strong death benefit value |
| Term Life (rare) | Only if client is young + cash flow conscious |
For wealthier clients, even if estate taxes are unavoidable, life insurance can rebuild what’s lost:
Leave equal legacies to heirs
Replace charitable gifts
Offset state tax leakage
Target clients in estate-tax states with real estate or business assets
Flag portfolios over $3–5M (or $10M for couples in 2025)
Bring up liquidity planning as part of legacy conversations
Offer to review current life policies—many are underfunded, expiring, or inefficient
Need help designing an estate liquidity plan with life insurance?
We’ve got illustrations, trust templates, and carrier options ready to go.
[Contact us here] or reply to this blog—let’s make sure your clients don’t have to sell th