Life Insurance & Estate Tax Calculator
See how life insurance proceeds affect your estate tax — and whether an ILIT could save your heirs hundreds of thousands in taxes.
Adjusted taxable gifts reported on prior Form 709s — combined with the taxable estate under IRC §2001(b) to compute tentative tax
Estate Tax (without insurance)
$00% effective rate
Insurance Included in Estate
$5,000,000§2042 ownership test
Estate Tax (with insurance)
$1,840,0009.2% effective rate
ILIT Tax Savings
$1,840,000
Tax saved if policy is moved to an ILIT (after 3-year lookback)
Coverage Gap
Fully covered
Additional insurance needed to cover estate tax liability
Life insurance and estate tax FAQs
Are life insurance proceeds subject to federal income tax?
Death benefits paid to a beneficiary are generally excluded from federal gross income, but interest paid on retained proceeds can be taxable. Estate-tax inclusion is a separate question from income tax.
When are life insurance proceeds included in the insured's estate?
Under IRC section 2042, proceeds are generally included when payable to the estate or when the insured held incidents of ownership in the policy at death, such as the power to change beneficiaries or borrow against the policy.
What is the three-year rule for transferring life insurance?
If the insured transfers an existing policy and dies within three years, IRC section 2035 can pull the proceeds back into the gross estate. Buying a new policy through a properly structured ILIT can produce a different result.
Does an ILIT automatically eliminate estate tax?
No. An irrevocable life insurance trust can keep policy proceeds outside the insured's estate when ownership, funding, and administration rules are followed, but it does not remove other estate assets or cure an improper transfer.