The federal estate and gift tax exemption rose to $15 million per person on January 1, 2026, a change that will reshape how families approach life insurance, trusts, and wealth transfer for years to come. The increase, enacted through the H.R.1. signed into law last July, replaces the sunset provision that had threatened to cut the exemption roughly in half. For married couples, the combined exemption now stands at $30 million, with annual inflation adjustments beginning in 2027.
The shift removes uncertainty that had driven aggressive estate planning over the past several years. Under the Tax Cuts and Jobs Act of 2017, the exemption had been scheduled to revert to approximately $7 million per person at the end of 2025. That looming deadline pushed many families to make large gifts, fund trusts, and accelerate wealth transfers before the window closed. Now, with the higher threshold locked in permanently, the pressure has eased, though the strategic value of planning remains.
Life insurance sits at the center of many estate plans, and the new exemption changes the calculus. When a policyholder owns their life insurance personally, the death benefit counts toward their taxable estate. For someone with $14 million in assets and a $6 million policy, the combined $20 million estate would have faced significant federal tax exposure under the old rules. Under the new $15 million threshold, fewer estates will cross into taxable territory, but large policies can still push totals over the line.
This is where irrevocable life insurance trusts continue to play a role. An ILIT owns the policy instead of the insured, keeping the death benefit outside the taxable estate. The proceeds flow to the trust upon death and are distributed to beneficiaries according to its terms. For high-net-worth families, this structure can mean the difference between paying a 40% federal estate tax on amounts above the exemption and passing assets to heirs tax-free.
The tradeoff is control. Once an ILIT is established and funded, the arrangement is permanent. The policyholder cannot access the cash value, change beneficiaries outside the trust terms, or reclaim ownership. Mistakes in drafting or funding can unravel the strategy entirely. For families considering this approach, working with experienced estate planning attorneys is essential. Understanding the life insurance cost of policies suitable for trust ownership, including premiums and cash value projections, helps ensure the strategy is funded correctly over time.
LIMRA’s research division noted in its February outlook that the permanent exemption increase should stabilize estate planning sales after years of uncertainty. When exemptions are unclear, families hesitate to act. Clarity, even at higher thresholds, tends to encourage planning rather than deter it. The industry expects continued demand for survivorship policies, which pay upon the death of the second spouse, though the audience for such products has narrowed with fewer estates facing federal exposure.
State-level estate taxes remain a separate consideration. The federal exemption increase does nothing to change rules in the 12 states plus the District of Columbia that impose their own estate taxes. Massachusetts, for example, has a $2 million threshold with no inflation adjustment. New York’s exemption sits around $7 million but features a cliff that can eliminate the entire deduction if an estate exceeds 105% of the threshold. Families in these jurisdictions may still need life insurance trusts and other planning tools regardless of federal rules.
For those whose estates fall comfortably below the $15 million mark, life insurance remains valuable for different reasons. It provides liquidity to cover final expenses, pay off debts, and replace income for dependents. Term policies offer affordable protection during working years, while permanent policies can build cash value and serve as part of retirement planning. Comparing carriers and policy types is the first step. Researching the best life insurance options based on financial strength, underwriting flexibility, and product features can help narrow the field.
The new law also introduces MAGA Accounts, tax-advantaged savings accounts for children under 18 with a $5,000 annual contribution limit. Contributions are post-tax, but growth and qualified withdrawals are tax-free. While not directly related to life insurance, these accounts may influence how families approach gifting and long-term wealth transfer, particularly for those who previously used UTMA or UGMA structures.
Another provision eliminates the deductibility of trustee and investment advisory fees for irrevocable non-grantor trusts. This change could prompt families to review existing trust structures and consider whether modifications make sense. It also underscores the importance of understanding total costs when establishing and maintaining trusts that own life insurance.
Industry observers note that the permanent exemption creates a new baseline for planning conversations. Advisors can now discuss strategies without the urgency of a looming deadline, which may lead to more thoughtful, less rushed decisions. At the same time, the 40% tax rate on amounts above the exemption remains unchanged, meaning estates that do exceed the threshold still face substantial liability.
For families who previously exhausted their exemptions under the old rules, the increase creates new capacity. Someone who used their full $13.99 million exemption in 2025 can now make additional tax-free transfers up to the new $15 million limit once the higher threshold takes effect. This additional room, roughly $1 million per person, may prompt another wave of gifting and trust funding in the coming months.
The bottom line is that the estate tax landscape has shifted significantly, but the fundamentals of planning have not. Life insurance remains a cornerstone of financial protection, whether the goal is paying estate taxes, providing for dependents, or leaving a legacy. The difference now is that families have more certainty about the rules and more room to plan without fear that exemptions will be cut in half overnight. For those with substantial assets, the permanent $15 million exemption is welcome news. For everyone else, it is a reminder that life insurance serves purposes far beyond tax avoidance, and those purposes remain as important as ever.
