Preserve your legacy: Beyond income replacement, life insurance can shield your family from estate taxes and preserve sentimental assets.
Consider an ILIT for tax efficiency: An Irrevocable Life Insurance Trust can keep your policy's payout out of your taxable estate, potentially saving your heirs thousands.
Plan early, review often: Estate planning with life insurance isn't one-size-fits-all. Work with a financial professional to tailor your strategy and update it as your life evolves.

Protecting your legacy starts with a plan. Life insurance, when paired with smart estate planning, ensures your loved ones are financially secure—even when you're no longer around.

 

 

 

Why life insurance matters in estate planning

Life insurance is more than just a safety net; it's a way to ensure that your loved ones avoid financial disruption and continue the legacy you’ve worked so hard to build. Including life insurance in your estate plan can: 

  • Provide for your loved ones' financial well-being: Life insurance can help cover funeral expenses, outstanding debts, and other final costs, so your family doesn't have to worry about money during a difficult time.
  • Pay off estate taxes: If you have a large estate, life insurance can help cover estate taxes, taking the pressure off your family to find additional dollars.
  • Supplement income: Life insurance can help replace your income so your family can maintain their standard of living.
  • Create a tax-smart legacy: Life insurance proceeds are generally tax free, which means your loved ones can use the money to achieve their own financial goals without worrying about tax implications or selling sentimental assets.
    • Example: Say your estate includes a family home or heirloom jewelry. Instead of selling these to pay taxes, your heirs can use the insurance payout to preserve them.

 

How Irrevocable Life Insurance Trusts (ILITs) work—and why to consider them

An ILIT is a trust that owns your life insurance policy. It keeps the death benefit out of your taxable estate, potentially saving your heirs thousands in taxes.

How it works:

  • You (the grantor) buy a life insurance policy and transfer it to the ILIT.
  • You appoint a trustee to manage the trust.
  • Your chosen beneficiaries receive the payout from the trustee after your death—tax free.

It is not included as part of your estate and not subject to federal estate taxes. Without an ILIT in place, the death benefit from your policy will be included in your gross estate. This amount could be subject to estate taxes.

Important note: If you transfer an existing policy into an ILIT, a three-year lookback rule applies. If you die within three years, the benefit may still be taxed as part of your estate.

 

Final thoughts

Life insurance isn’t just about replacing income—it’s about preserving your legacy. Whether your estate is modest or complex, integrating life insurance into your estate plan can provide peace of mind and financial stability for your loved ones.

Tip: Work with a Opens in a new windowfinancial professional to tailor a strategy that fits your unique situation.

 

Disclaimer:

©2025 The Prudential Insurance Company of America, Newark, NJ. Prudential does not provide tax advice. This material is being provided for informational or educational purposes only and does not take into account the investment objectives or financial situation of any client or prospective clients. The information is not intended as investment advice and is not a recommendation about managing or investing your retirement savings. If you would like information about your particular investment needs, please contact a financial professional.

 

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