The IRS recently announced that the increase to the lifetime exemption in 2025 will be $380,000 per person, which represents a 2.79% increase from the 2024 total of $13,610,000. In 2025 the lifetime exemption will be $13,990,000.
Do you have clients who have already utilized their full lifetime exemption in 2024? Here is a simple strategy for them to implement using the 2025 increase.
Assume that a couple has a combined $760,000 available to gift in 2025 ($380,000 each). They make a gift to an ILIT and use the full amount as a single pay premium on a second to die life insurance policy guaranteed to age 100, assuming standard non smoker ratings.
| Ages | Single Premium | Second to Die Death Benefit Guaranteed to Age 100 | IRR at Age 90 | 40% Income Tax Adjusted IRR at Age 90 | Current US Treasury Yields as of 10/31/2024 |
|---|---|---|---|---|---|
| 50/50 | 760,000 | 4,900,000 | 5.16% | 8.60% | 4.50% - 30 Year |
| 60/60 | 760,000 | 3,300,000 | 5.59% | 9.32% | 4.50% - 30 Year |
| 70/70 | 760,000 | 1,900,000 | 5.28% | 8.80% | 4.66% - 20 Year |
| 80/80 | 760,000 | 1,200,000 | 5.03% | 8.38% | 4.28% - 10 Year |
At all ages, the internal rate of return from the life insurance exceeds the current U.S. Treasury yield of a similar duration. This is a great solution for leveraging the additional gifting exemption that will be provided to clients in 2025 in a tax efficient manner.
*Note that a single pay will MEC the contract. A 5-pay could be used which would provide a slightly lower death benefit, and lower IRR, but in most cases still exceeds current treasury rates.
If you have any questions, please contact your PartnersFinancial Advanced Sales team.
