Right Policy. Wrong Owner. Wrong Year.

Right Policy. Wrong Owner. Wrong Year.

The two questions nobody asks at the kitchen table, and why they might matter more than the one everybody does.

"How much coverage do I need?"

I've heard that question more times than I could count. It's a good question, and it's usually the only one people ask. Which is a problem, because there are two more that sit quietly behind it: who owns the policy, and when did it get put in place? Those two questions end up deciding how much of the money actually reaches your family.

Get the first one right and fumble the other two, and you can own a $5 million policy that delivers something closer to $3 million. Same policy. Same premiums. Very different check.

"Tax-free" has an asterisk

Back in Issue 2, I told you life insurance death benefits pass to your heirs income-tax-free. Still true. I stand by it.

Income tax isn't the only tax in the room, though.

If you own the policy on your own life, the death benefit is generally counted in your taxable estate. The same goes if you hold what the IRS likes to call "incidents of ownership," such as the right to change the beneficiary or borrow against the cash value. So the policy you bought to protect your estate ends up inside the estate getting taxed. There's a certain irony to that. I don't think anyone finds it funny.

For scale, the federal estate and gift tax exemption is $15 million per person in 2026, and $30 million for a married couple. Those are generous numbers, the most generous we've ever had. Yet life insurance is one of the quickest ways to wander over that line without noticing. A death benefit can add millions to your estate in a single afternoon, specifically the worst afternoon your family will ever have.

Here's how it plays out. Picture a business owner who's single (or a surviving spouse, since married couples usually push this to the second death) with a $20 million estate and a $5 million policy in their own name.

• Leave the policy out of the estate, and $5 million sits above the exemption.

• Put it in, and now it's $10 million.

• At roughly 40%, that one policy adds about $2 million of estate tax.

The family was told $5 million. After the IRS takes its share, they're looking at about three.

Nothing broke. The carrier paid in full, and the product did exactly what it said it would. The structure is what failed the family.

The fix isn't new, and that's a good thing

The standard solution has been around longer than most of the people reading this: have an irrevocable life insurance trust (an ILIT, if you like acronyms) own the policy instead of you. When the trust owns it from day one, the death benefit is generally kept out of your taxable estate. Your family still gets the money. It simply comes by the side door rather than through probate and the estate tax return.

How do the premiums get paid? You make gifts to the trust. In 2026 you can give $19,000 per recipient without dipping into your lifetime exemption, or $38,000 if you're married and splitting gifts. For a lot of families, that covers the premium, and then some.

Now for the part that trips people up, and it's pure timing. Say you take a policy you already own and move it into a trust. If you pass away within three years of that transfer, the IRS pulls the whole death benefit right back into your estate, like it never left. If the trust buys a new policy from the start, that lookback doesn't apply.

The paperwork is the same and the intentions are the same. The outcome depends on what order you did things in.

Why December is the worst month to do this

It's October here in New Orleans. We're still side-eyeing the Gulf, the humidity hasn't gotten the memo, and year-end tax planning season is about to start, whether any of us feel ready for it.

The rhythm is predictable. October and November are for projections, December is for decisions, and January is for "we really should've started in September."

Insurance doesn't do sprints. Underwriting commonly takes six to ten weeks, sometimes longer if your health history or finances have a few wrinkles. The trust has to be drafted and signed before anyone applies for the policy, not after. Gifts count in the calendar year you make them, full stop.

Meanwhile, some of the moves already on your list are insurance decisions in disguise:

• Selling the business, or any big liquidity event. Your estate can jump past the exemption the day the wire clears. The planning belongs before closing, not at the celebratory dinner afterward.

• Funding a Cash Balance Plan or a 412(e)(3). Those contribution and insurance decisions are tied to the plan year, and the plan year doesn't care how busy your Q4 was.

• Annual exclusion gifts. They expire December 31. Unused ones don't roll over. Think of it as use-it-or-lose-it.

• Your insurance age. For pricing purposes, it usually ticks up about six months before your actual birthday. Your health doesn't wait on your calendar either.

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Insurance bolted on after the tax plan is reactive. Insurance built into the tax plan is strategy. It's one shift in timing, and the difference in outcome can be surprisingly large.

Why this matters for you: Add up your net worth and the death benefit of every policy you own. If that total is anywhere near $15 million ($30 million for a couple), or a business sale could get you there, the ownership decisions you make this year will shape what your heirs actually keep.

One policy, three owners

Who owns the policy	In your taxable estate?	Your access to cash value	How much hassle
You	Yes	Full	Next to none
Your spouse	Deferred, then generally in the survivor's estate unless planned around	Indirect	Low
An irrevocable trust (ILIT)	Generally no, if the trust bought it or three years have passed	None directly; the trustee holds the keys	Real: drafting, gifting, yearly upkeep

Wait, didn't you just tell us to use the cash value?

Yes, I did, and you caught it.

Issues 3 and 4 were all about putting cash value to work while you're alive: as a private bank, as a buffer in a down market, as a source of retirement income. A traditional ILIT trades away most of that direct access in exchange for keeping the death benefit out of your estate. On paper, those two goals look like they're arm-wrestling each other.

In practice, you often don't have to pick a winner. Some families split the job across two policies, one engineered for living benefits and one built purely for legacy. Others use trusts drafted so a spouse can still benefit, which keeps a door cracked open to that value. Which route makes sense depends on how big your estate is, how much income you'll need, and which risk actually keeps you up at 2 a.m.

This is a design choice, not a product choice. It should be made on purpose, not by default.

The fine print I'd want to know about

Irrevocable really does mean irrevocable. Once that trust is signed, changing it ranges from difficult to impossible. Go in with your eyes open.

Trusts need care and feeding. Gifts, beneficiary notices, and records have to be handled right every single year. Neglect it, and the trust can lose the very benefits you set it up for.

Maybe none of this applies to you. With the exemption where it is today, plenty of families will never owe a dime of federal estate tax. Some states run their own estate taxes with much lower thresholds, though, and "permanent" tax law is only permanent until Congress decides otherwise. I wouldn't bet the farm on it staying put.

Nobody should do this alone. Your estate attorney drafts the trust. Your CPA owns the tax picture. My job is making sure the insurance is designed, owned, and timed so it fits what they're building, and doesn't quietly undermine it.

So here's my real point

A life insurance policy is an asset, full stop. It has an owner, a beneficiary, a tax profile, and a spot on your balance sheet. Still, most people look at their brokerage statement every month and haven't glanced at who owns their policy since the day they signed it, which might've been a decade or two ago.

Treat your risk management like the economic asset it actually is. Review it on the same calendar as everything else.

One question to chew on:

If something happened to you this year, who would receive your life insurance, and how much of it would they get to keep?

If you had to pause before answering, that's worth a conversation, and ideally one that happens before the December scramble starts.

Schedule a complimentary strategy session. No obligation, no jargon.

Sequence Asset Management | Fiduciary Wealth Management | sequenceam.com

Everflow Insurance Advisory | Independent Life Insurance & Tax-Free Wealth Strategies | everflowinsurance.com

shep@sequenceam.com | (202) 409-4550 | 6073 Louisville Street, New Orleans, LA 70124

This newsletter is for informational and educational purposes only and does not constitute investment, insurance, tax, or legal advice. It is not a recommendation to buy or sell any product or security. Estate and gift tax rules are complex, subject to change, and vary by state; the treatment of life insurance in an estate depends on ownership, trust drafting, and individual circumstances. Hypothetical figures are simplified and illustrative only. Life insurance products, riders, and guarantees vary by carrier and policy; guarantees are subject to the claims-paying ability of the issuing insurer. Policy loans and withdrawals reduce cash value and death benefit and may have tax consequences. Everflow Insurance Advisory is an independent life insurance advisory firm. Sequence Asset Management provides advisory services through Rossby Financial LLC, a Registered Investment Adviser with the U.S. Securities and Exchange Commission. Rossby Financial LLC and its affiliates do not provide tax or legal advice. Consult your own tax, legal, and licensed insurance professionals regarding your specific situation.