Estate Planning with Life Insurance: A Smart Solution for High-Net-Worth Families

As a second-generation life insurance brokerage firm and a Member Firm of M Financial Group, we understand the critical role life insurance plays in protecting and preserving wealth across generations. This client case study highlights how a successful real estate entrepreneur strategically used life insurance in his estate and wealth transfer plan to provide additional liquidity outside his taxable estate for his children and grandchildren.

Challenge

The client was the insured of a whole-life insurance policy owned in an irrevocable trust, with approximately $150,000 in cash surrender value and a fixed annual premium schedule. Given the limits on annual exclusion gifts, the remaining lifetime exemption available, and the client’s status as a widow, both the client and trustee required flexibility in managing the timing of gifts and the amount of premium payments.

Solution: Estate Planning with Life Insurance

After conducting a detailed cost-of-money and use-of-funds analysis, our firm recommended a proprietary fixed-interest flexible universal life insurance product with minimum year-to-year premium payments for the trust. This structure allowed the trust to efficiently leverage existing investable funds while securing $2,500,000 in tax-free liquidity upon the insured’s death — paid outside of his taxable estate.

The trustee understood that funding the policy with lower premiums in the early years would require increased premium payments later. However, given the high earnings rate of the client's real estate holdings, this phased funding approach was deemed the most financially prudent.

Policy Design: A 1035 Exchange with Minimum Year-to-Year Premiums

We used our Private Underwriting process to maintain control over underwriting, allowing both our firm and the client to manage the process strategically. Our firm's defined and controlled approach enabled us to assess product pricing based on real carrier offers — without exposing the client to potential negative entries in the Medical Information Bureau (MIB). As a result, we secured a preferred non-smoker risk classification for the new policy, despite the insured being age 72 at the time of underwriting.

To optimize the new policy design, we executed a tax-free 1035 exchange, seamlessly transferring the cash surrender value from the existing whole-life policy into the new fixed-interest flexible premium universal life policy. This strategy increased the trust’s death benefit coverage while providing essential premium flexibility, starting with significantly lower premiums in the early policy years.

Economic Results

The insured passed away in March 2025, shortly after the policy’s 17th year. Our firm worked closely with the trustee and family to ensure the smooth and efficient processing of the $2,500,000 death claim. In addition to delivering the death benefit, we provided a comprehensive premium history and economic analysis of the policy, illustrating its investment return for the trust.

The net internal rate of return (IRR) on (i) the 1035 exchange payment and (ii) premium payments, measured against the $2,500,000 death benefit, is 10.01%. Notably, when adjusted to a pre-tax equivalent IRR using a 35% blended tax rate, the return equates to 15.39%.

Below is a summary of the 1035 Exchange payment, the premium payments, and the return associated with the $2,500,000 life insurance policy death benefit:

Conclusion

For decades, TRC Financial has guided clients through the complexities of estate and wealth transfer planning using life insurance. We believe life insurance is more than just a policy — it’s a long-term asset that requires careful structuring upfront and ongoing proactive management. When integrated properly into an estate and wealth transfer plan, it becomes a powerful tool for providing liquidity exactly when it’s needed for future generations.

We welcome the opportunity to discuss how life insurance can play a vital role in your legacy planning. Contact us today to start the conversation about protecting and preserving your wealth for generations to come.

The above client case study is based on the economic results for one of TRC Financial's clients. The economics associated with each individual client are unique and impacted by the insurance product acquired, the performance of the life insurance policy, timing of premium payments, medical underwriting for the insured(s), and the actual life expectancy of the insured(s). The client case study is not intended to be opinion or advice on legal, tax, accounting or investment matters. Private counsel should be consulted prior to application of this general information to specific situations.

​These results are for illustrative/informational purposes only and may not reflect the typical purchaser's (client’s) experience and are not intended to represent or guarantee that anyone will achieve the same or similar results.