Many estate plans written for wealthy families over the past thirty years contain the same piece of machinery: an irrevocable life insurance trust, or ILIT, holding a large policy, often on both spouses. The trust had one job. At the second death, the policy would hand the heirs cash to pay the federal estate tax, so nobody had to rush a sale of the business or the building to satisfy the IRS.
Congress just took most of that job away. The One Big Beautiful Bill Act set the federal estate tax exemption at $15 million per person, $30 million for a married couple, starting in 2026, and made the increase permanent, with inflation indexing to follow. Under prior law the exemption was scheduled to drop by roughly half at the end of 2025, and an entire generation of insurance planning was built as a hedge against that cliff. The cliff is gone. A couple worth $20 million, squarely inside estate tax territory when their trust was funded, may now owe nothing at all.
The trust doesn’t know that.
The trustee keeps paying the carrier, the family keeps making the annual gifts that fund those payments, the Crummey notices go out on schedule, and tens of thousands of dollars a year keep flowing toward a problem the family may no longer have.
Why Nobody Notices
An ILIT is designed to be left alone. The word irrevocable does a lot of psychological work here: families assume that because the trust cannot be undone, the arrangement inside it cannot be questioned. Annual reviews focus on the portfolio, where the fees are, while the policy sits off to the side as a fixture. Many trustees have never ordered an in-force illustration from the carrier to see whether the policy is even funded well enough to last.
None of that is negligence, exactly. Call it autopilot. But a trustee’s basic job is prudent management of whatever the trust owns, and a policy with a seven-figure face amount is usually the largest thing the trust owns. Letting it run, letting it lapse, and cashing it in are all decisions, whether or not they ever feel like one.
The Menu Is Longer Than Keep or Cancel
A family that concludes the estate tax hedge is no longer needed is not stuck choosing between paying forever and walking away. The realistic menu has four items: keep the policy for its other uses, restructure it into a smaller policy that needs no further premiums, surrender it to the carrier for its cash value, or sell it on the secondary market as a life settlement. Comparing the routes to cash out of a policy before acting is the step families skip most often, usually because nobody told them the fourth item existed.
Tax and trust consequences differ sharply among these choices, and some require amending how the trust operates, so any move should be reviewed with the family’s estate attorney and tax advisor first.
Two Exit Prices, Far Apart
Surrender is the option people know, and it produces the smallest number on the table. Cash surrender values typically run 3 to 5 percent of the death benefit, which on a $5 million policy is $150,000 to $250,000. Policies sold as life settlements typically go for 10 to 25 percent of face value instead, or $500,000 to $1.25 million on that same policy, according to Life Insurance Settlement Association pricing data. Across the whole market in 2025, sellers averaged $212,066 per policy while the same policies carried an average of $24,360 in cash surrender value, per the association’s latest annual data. Call that nearly nine times the carrier’s exit price. Individual results vary. Some policies draw no offers at all.
What buyers want maps closely onto what these trusts tend to hold: insureds roughly 65 and older, face amounts of $100,000 and up, with larger policies drawing the most competitive bidding. Survivorship policies, the two-spouse contracts common inside ILITs, can qualify as well; buyers price them on both insureds rather than one, so eligibility depends on the specific case.
The price a trust gets depends on competition, and a lone buyer quoting a trustee is bidding against nobody. Life settlement brokers such as Citizens Life Group shop a trust-owned policy to a field of institutional buyers, then let the trustee weigh the bids that come back. The top of that 10 to 25 percent range tends to belong to policies that were bid on, not quoted once.
The Case for Keeping It
Selling is not the default answer, and for plenty of families it is the wrong one. More than a dozen states still levy their own estate or inheritance taxes with thresholds far below $15 million. Congress has moved the exemption repeatedly over the past three decades and can move it again. A permanent policy can also be repurposed rather than retired, as liquidity for a family business transition or as a legacy and philanthropy vehicle. And an insured who has aged or picked up health conditions since the trust was funded could not buy that coverage again at anything close to the old price. That is a real argument for keeping the policy. Ironically, it is the same fact that makes the policy valuable to a buyer.
These trusts were rational hedges against the law as it stood. The law moved. What changed in 2026 is that the policy inside the trust stopped being a fixture and became an asset with a market price, and assets get appraised. A trustee who learns what the policy is worth before deciding its future has done the job. A trustee who keeps paying out of habit is making the same decision every year without ever looking at the price tag.
photo by depositphotos
