Tier One: Strategic Tips for Using Life Insurance in Ultra-High-Net-Worth Estate Planning

For families with very large estates, life insurance plays a much different role than it does for most households. It’s not about income replacement, mortgage protection, or meeting basic financial needs. Instead, life insurance becomes a structural element of generational planning, including providing liquidity, managing tax exposure, supporting legacy objectives, and protecting illiquid assets from being dismantled under pressure.

As a consultant in the ultra-high-net-worth (UHNW) insurance space, a goal for the team at Life Insurance Strategies Group does not sell products. Instead, we help families determine whether life insurance is appropriate, how much (if any) they need, and how to structure the acquisition in a way that integrates seamlessly with the estate plan.  In 2025, we all experienced new legislation that reshaped tax thresholds and added to complexity of growing estates becoming more complex, making our company’s guidance more crucial than ever.

Here are several strategic considerations and planning tips for UHNW families evaluating life insurance as part of an estate plan:

1. Understand the New Estate Tax Landscape Under the OBBB

The One Big Beautiful Bill (OBBB), passed on July 3, 2025, fundamentally reshapes long-term estate planning. Beginning January 1, 2026, the federal estate, gift, and GST exemptions increase to $15,000,000 per person, or $30,000,000 for married couples, with future cost-of-living adjustments.

Importantly:

• Unlike the TCJA, the OBBB exemption does not sunset.

• Had it not passed, the exemption would have been cut roughly in half (to ~$7 million), creating sudden and substantial tax exposure for many families.

• Congress can change the rules again, so long-term planning still requires vigilance.

  
  

For UHNW families, the higher exemption provides breathing room but not immunity. Large estates still face significant estate tax liability, especially when illiquid assets (operating companies, real estate, art, aviation, or collectibles) dominate the asset base. Life insurance remains one of the most efficient tools for satisfying those obligations without forcing disruptive asset sales.

2. Use Life Insurance to Protect Illiquid Estates from Fire Sales

One of the greatest risks to very large estates is illiquidity at death. Estate taxes are typically due within nine months, and your heirs may have no choice but to sell assets quickly and under pressure if liquidity is lacking.

Ultra-affluent estates often include:

• commercial real estate portfolios

• family businesses or private equity interests

• art, automobiles, or other collectibles

• concentrated stock positions or restricted securities

  
  

Life insurance provides immediate liquidity exactly when the estate needs it most.

This liquidity can:

• prevent forced sales during unfavorable market conditions

• allow the family to settle taxes and expenses calmly

• preserve multigenerational assets (like a family vacation property or business)

• support a smoother, more strategic wealth transition

  
  

When structured correctly, life insurance becomes a stabilizing force that protects family legacies from being dismantled merely to satisfy liquidity needs.

3. Incorporate an ILIT to Keep Insurance Proceeds Outside the Estate

For families with very large estates, personally owning life insurance is a mistake. If the insured owns the policy, the death benefit is included in the taxable estate, defeating much of its purpose.

The solution is an Irrevocable Life Insurance Trust (ILIT). An ILIT:

• owns the life insurance policy

• receives the death benefit outside the taxable estate

• provides liquidity to the estate or beneficiaries

• distributes assets according to instructions you set in advance

  
  

Key advantages for UHNW families include:

• Estate tax exclusion. Proceeds stay outside the taxable estate if the ILIT is structured correctly and the insured retains no “incidents of ownership.”

• Liquidity on demand. The ILIT can loan funds to the estate or purchase illiquid assets from the estate to generate liquidity.

• Asset protection. Because the ILIT is a separate legal entity, its assets are generally shielded from creditors and lawsuits.

• Control. The trust can create guardrails around how beneficiaries receive funds, particularly important when multiple generations are involved.

Because of the IRS’s three-year lookback rule on transferring existing policies into an ILIT, many UHNW families choose to have the ILIT acquire a new policy instead of transferring an old one.

4. Use Life Insurance to Equalize Inheritances

Unequal inheritances often occur naturally in UHNW estates, especially when:

• one child receives the family business

• real estate or a family home goes to a particular heir

• certain heirs participate in the family office or investment partnerships while others do not

Life insurance is a clean, tax-efficient tool for alignment. For example:

• Child A inherits a $40 million operating company

• Child B inherits a $5 million investment portfolio

• An ILIT-owned policy delivers $35 million to Child B’s trust, equalizing their inheritances without forcing fragmentation of the operating business

This approach avoids resentment and prevents impractical co-ownership structures.

5. Use Life Insurance in Planning for Beneficiaries with Disabilities

For heirs who require lifetime support and who may be receiving government benefits, life insurance can be structured to fund a Special Needs Trust (SNT).

Key benefits:

• death benefit does not disrupt government benefit eligibility

• the trustee pays for supplemental needs

• the policy creates a secure, predictable funding source for lifetime care

For ultra-HNW families, an SNT paired with life insurance provides long-term protection without diluting the inheritances of other heirs.

6. Consider Life Insurance as Part of a Larger Wealth Transfer Strategy

Life insurance can accelerate and amplify wealth transfer when used with other structures such as:

• Spousal Lifetime Access Trusts (SLATs)

• Grantor trusts

• Dynasty trusts

• Charitable remainder trusts (CRTs)

• Private placement life insurance (PPLI) (for families requiring institutional-grade planning)

Its tax-favored treatment that includes income-tax-free death benefit, potential creditor protection, and leverage make it uniquely compelling in multi-generational planning.

7. Choose Trustees and Advisors Carefully

Large policies and sophisticated estate plans require sophisticated oversight.

Trustees must:

• administer Crummey notices properly

• manage premium flows

• oversee investment-linked policies where applicable

• coordinate with the estate attorney, CPA, and family office

For UHNW families, the trustee is not merely a fiduciary, they are a structural part of the family governance system. Selecting an experienced institutional trustee or professional fiduciary is often the right approach.

Final Thought: Objective Guidance Matters

Life insurance is one of the few assets that reliably creates tax-free liquidity at death and protects estates from unnecessary disruption. But the larger the estate, the more care must be taken in determining:

• whether life insurance is needed

• how much coverage is appropriate

• which structure will best integrate with the family’s estate plan

• how to avoid traps such as the three-year rule or incidents of ownership

This is why UHNW families benefit from objective, product-agnostic guidance. The stakes are too high, and the planning too complex. for guesswork or sales-driven advice.

When used correctly, life insurance is not simply a policy, it’s a planning tool that protects wealth, preserves family enterprises, and ensures that wealth flows according to design, not pressure.

If you’d like an objective evaluation of whether life insurance belongs in your estate plan and, if so, how to structure it strategically reach out to us at www.lifeinsurancestrategiesgroup.com.