With the One Big Beautiful Bill Act of 2025, the federal estate tax exemption increased from $28 million per married couple to $30 million, effective January 1, 2026. For your sophisticated clients who already maxed out their previous exemptions with gifts to irrevocable trusts or otherwise, this raises a critical question: What's the smartest way to use this additional $2 million of exemption capacity?
I ran the numbers on three different strategies for clients who already have substantial wealth both inside and outside their estates. The results tell a compelling story about leverage, timing, and tax efficiency.
Consider a married couple—he's 65, she's 62—with over $50 million in total assets. Before 2026, they took advantage of the full $28 million exemption gift to a series of irrevocable trusts (including SLATS for each other). Now, as of January 1, 2026, they have an additional $2 million in exemption space and substantial assets still in their taxable estate.
They have three clear options:
Strategy 1: Keep the $2 Million in the Estate Leave the money in their taxable estate, invested at 7% return (2% dividends, 5% growth, 0.5% advisory fee). At death, the accumulated value gets hit with 40% federal estate tax. (Note: If your clients live in a state with estate or inheritance taxes—such as New York, Massachusetts, Connecticut, Maryland, or Oregon—the results become even more dramatic, as combined federal and state transfer taxes can reach 50-56%.)
Strategy 2: Gift to Trust, Invest the Assets Transfer $2 million to an existing irrevocable trust and invest it with the same 7% return. This avoids estate tax entirely, but assets don't get a step-up in basis at death. Heirs pay 28.8% capital gains tax (federal, state, and NIIT) when they liquidate.
Strategy 3: Gift to Trust, Purchase Life Insurance Transfer $2 million to the trust and have the trustee purchase second-to-die survivorship life insurance. No estate tax, no income tax on death benefits, and immediate 4.6-to-1 leverage.
Here's what happens to that $2 million gift under each scenario at key ages:
At Age 70 (5 years):
At Age 85 (20 years):
At Age 95 (30 years):
The chart below shows the complete wealth transfer projection:
Summary of Values chart shows projected wealth transfer to heirs across three strategies from age 65 to 100:
Insurance (Strategy 3) provides massive early advantage. In the first 20 years, the insurance strategy delivers $4 - 7 million more to heirs than the invested trust. If death occurs at age 70 (well within life expectancy for a 65-year-old couple), the insurance delivers $7.08 million more than the invested alternative—even assuming the invested portfolio achieves a robust 7% annual return.
The invested trust (Strategy 2) narrows the gap over time, but insurance still wins. By age 95, after 30 years of 7% compounding, the invested trust has grown to $9.16 million—coming within $556,000 of the insurance death benefit. This demonstrates that even with enhanced market returns (7% year over year) the tax-free leverage of life insurance remains superior throughout the most statistically relevant timeframe.
Keeping assets in the estate (Strategy 1) loses at every age. The 40% federal estate tax hit is substantial enough to make this the worst option throughout. Even after 30 years of growth, heirs receive only $6.47 million—$2.69 million less than the invested trust and $3.24 million less than insurance. For clients in states with additional estate or inheritance taxes (New York, Massachusetts, Connecticut, Maryland, Oregon, and others), the gap widens even further as combined transfer taxes can reach 50-56%.
This isn't just about math—it's about risk and certainty.
Strategy 2 (invested trust) requires betting that:
Strategy 3 (insurance) provides:
Even with optimistic 7% return assumptions on invested assets, the certainty of insurance outweighs the possibility of earning an extra $500K-$1M if both spouses live into their late 90s and markets cooperate perfectly for three decades.
The life insurance is funded through a Preliminary Funding Account (PFA), a tax-efficient structure that makes this strategy elegant:
Total premium outlay: $2,126,542 creates $9,712,276 in guaranteed death benefit. That's 4.6 to 1 leverage on day one—leverage that would take the invested trust 30 years to approach.
Certainty vs. Uncertainty
With insurance, the family receives $9.7 million tax-free regardless of market conditions, interest rates, or timing of death. There's no hoping the portfolio performs well or that death doesn't occur during a market downturn.
Liquidity When It Matters Most
This couple already has $28 million in their trust plus substantial assets in their estate. Adding $9.7 million in liquid, tax-free insurance proceeds provides flexibility at death—pay estate taxes without forced sales, equalize inheritances among children, fund charitable intentions, or provide business succession liquidity.
State Tax Amplification
The analysis shown here reflects federal estate tax only (40%). For clients in the 17 states (plus DC) with state-level estate or inheritance taxes, the advantage of moving assets out of the taxable estate becomes even more pronounced. Combined federal and state transfer taxes can reach 50-56%, making both Strategy 2 and Strategy 3 significantly more attractive relative to keeping assets in the estate.
Protection Against Legislative Changes
Once the gift is made, it is permanent. If Congress reduces the exemption back to $5 million or $10 million next year, they are grandfathered. The decision is locked in regardless of future policy changes—an important consideration given political uncertainty.
Complements Existing Planning
The couple’s $28 million in previous gifts is invested and compounding in their trust, providing long-term wealth accumulation. This additional $2 million used for insurance provides immediate leverage and guaranteed liquidity—a balanced, diversified trust strategy.
"But the invested trust eventually catches up and could even surpass insurance." True—if both spouses live past age 95-96, markets consistently deliver 7% annual returns for three decades, and there are no major corrections near death. But that's a 30+ year bet on longevity and exceptional market performance. During the first 25 years (the statistically most likely timeframe), insurance delivers $2.6 million to $7.1 million more to heirs. Most families don't optimize estate plans for the best-case scenario—they optimize for certainty.
"What if they live to age 100?" Even at age 100, assuming continued 7% returns with no significant market disruptions, the difference is modest. The invested trust would reach approximately $11.5 - 12 million while insurance remains at $9.7 million—an advantage achieved only after 35 years of above-average market performance. That's a 2% annual advantage in exchange for 35 years of market risk and uncertainty.
"Can't the trust hold assets indefinitely and avoid capital gains tax?" In theory, yes. In practice, trusts eventually distribute or liquidate positions for various reasons—death of beneficiaries, changing needs, trust termination. When liquidation occurs, the 28.8% capital gains tax applies. The trust doesn't get a step-up in basis at death.
"What if estate taxes are eliminated?" Then they have a $9.7 million tax-free death benefit in a protected trust. Given current federal debt levels ($36+ trillion) and political uncertainty around wealth transfer taxes, betting that estate taxes disappear permanently seems optimistic.
For clients who have already maximized their $28 million exemption and now have access to an additional $2 million, this is the discussion to initiate:
"On January 1st, you received an additional $2 million in estate tax exemption. This could be temporary—Congress could reduce it again. You've done excellent planning with your existing trust. Now you need to decide: what's the smartest way to use this last $2 million of exemption space?"
Walk them through all three scenarios:
Strategy 1 (Keep in Estate): At age 85, heirs receive $3.76 million after estate taxes—$5.95 million less than insurance.
Strategy 2 (Invest in Trust): At age 85, heirs receive $5.47 million after capital gains taxes—$4.24 million less than insurance. By age 95, this narrows to $556,000 less than insurance.
Strategy 3 (Insurance in Trust): At every age from 65 to 95, heirs receive $9.71 million, tax-free, regardless of market performance or timing.
For sophisticated planners, the analysis often clarifies quickly. They can see that:
The question becomes: Do you want certainty and maximum benefit during the most statistically likely timeframe, or do you want to bet on exceptional longevity and perfect market performance?
Your clients who maxed out their $28 million exemption are your most sophisticated planners. They understand proactive wealth transfer and have already demonstrated commitment to moving assets out of their estate.
This $2 million represents an opportunity under current law to leverage gifting exemptions. Given political uncertainty and federal debt levels, there's no guarantee this expanded exemption will remain available.
For clients with $50+ million in total wealth, this decision is about optimization and completing their estate plan. The difference between acting strategically and doing nothing could be $3-4 million in additional wealth transfer to the next generation.
For clients who previously maxed out their estate tax exemptions:
The $2 million planning opportunity is here for your most sophisticated clients. They've already done the hard work of establishing their trust and making substantial gifts. This is the final chapter—using that last $2 million of exemption space to create maximum benefit and certainty for their family.
The window may not stay open indefinitely. Don't let it close without having this conversation.
Contact your BSMG Wholesaler or the BSMG Advanced Markets Team at 800.343.7772 for more information or to discuss a case.
"Article written by Gonzalo M. Garcia, CLU, Chief Advanced Markets Officer, SPG Life & Annuity
Gonzalo can be reached directly at 301.910.1234 or gonzalo@agencyone.net
