If the life insurance is personally owned, depending on the circumstances, it can be includable in the estate. But from a federal estate tax point of view, the unified credit is over 5 million for individuals, 10 million for marries couples. So even with life insurance proceeds includable, you may not exceed the unified credit. However, most individual state exemptions are considerably lower than the federal unified credit, so you need to be aware of your state’s exemptions.
But you could consider creating an irrevocable life insurance trust (ILIT) to own the policy and eliminate the estate and state tax exposure. Consult an estate tax attorney before moving forward with any policy ownership decisions.
Insurance Adviser - Broker, SC Insurance Services, Oahu, Hawaii
Life insurance can become part of an estate, but not necessarily. If the named beneficiary is alive when the insured dies the death benefit is paid to the named beneficiary. On the other hand life insurance policies may be designed as part of an estate, and this can be beneficial when one wants to continue the benefits - say to the grandchildren - without causing the occurrence of taxation due to the benefit being paid to the insured's child then passed on to the grandchildren.
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But you could consider creating an irrevocable life insurance trust (ILIT) to own the policy and eliminate the estate and state tax exposure. Consult an estate tax attorney before moving forward with any policy ownership decisions.