The Sunset Is Gone. Income Tax Remains: The PPLI – PPVA Solution.

For the better part of a decade, every estate planning conversation my colleagues had with a high-net-worth family started with the same clock: the 2017 Tax Cuts and Jobs Act exemption was set to sunset at the end of 2025, and attorneys, advisors and trustees were racing to get gift programs, spousal lifetime access trusts (SLATs) and irrevocable trusts funded before it reverted to pre-2017 levels. The race is over, at least for now. The One Big Beautiful Bill Act (OBBBA) made the increase permanent, setting the federal estate and gift tax exemption at $15 million per individual ($30 million per married couple) starting January 1, 2026, with no sunset date and built-in inflation adjustments. For most clients under that $30 million combined mark, the federal estate tax just moved off the top of the priority list.

That is genuinely good news. It's also created a problem that I don't think the planning community has fully caught up to yet: once estate tax risk recedes, income tax becomes the thing fundamentally eroding wealth over time. And income tax doesn't wait for a legislative deadline. At a 37% top rate, which rises to approximately 55% when taking into consideration state, local and ancillary taxes in certain jurisdictions, it takes its cut of every dollar of ordinary income and short-term gain, every single year, indefinitely.

Run the Numbers

Take a simplified example: $25 million allocated to hedge fund strategies generating a blended 9% return, with a meaningful share taxed as ordinary income. Layer in federal income tax, Obamacare tax, state local tax and the lack of deductibility of miscellaneous itemized deductions, and that 9% becomes closer to 2.5%. Run the 9% gross versus 2.5% net-of-tax out over 20 years, and you're not talking about a rounding error in a financial model. You're talking about a materially different number showing up at the end for the next generation.

This is exactly the gap private placement life insurance (PPLI) and private placement variable annuities (PPVA) are designed to close. Structured properly, a PPLI contract lets earnings accumulate free of current income tax, and death benefit proceeds pass to beneficiaries income-tax-free. PPVA offers the same tax-deferred compounding for clients who care more about growth than about a death benefit or estate transfer. In both cases, the underlying portfolio sits inside insurance-dedicated funds (IDFs) or, increasingly, in bespoke insurance-dedicated separately managed accounts (ID-SMAs) instead. Either way, the structure must satisfy the IRS's diversification and investor-control rules. Run the 9% again after deducting PPLI/PPVA expenses, and in my experience, a positive return delta can emerge as early as year one and compounds over time.

What Advisors and Family Offices Should Be Asking

Fewer people are still asking me whether PPLI and PPVA are worth a look, as the answer to  that question is well settled. What registered investment advisors (RIAs) and family office advisors are asking now is more granular: how do you actually evaluate the IDF and ID-SMA manager universe with any rigor, how do you become an ID-SMA manager, how do these structures fit into a broader allocation strategy rather than sitting off to the side, and what does the current regulatory and compliance posture actually require, especially with the scrutiny this space has drawn in recent years. 

None of that has a tidy answer, which is exactly why it is worth seizing the opportunity to sit in a room listening to industry experts who deal with these topics daily.

Join Me on September 9 in New York

This is the conversation we'll be having at Katten's 14th Annual Tax-Efficient Investing Forum on September 9, 2026. I will be moderating panels of IDF managers, independent RIAs, insurance carriers, bank platform teams, and tax and regulatory practitioners. We'll cover the regulatory landscape, IDF manager strategies, ID-SMA structuring and distribution, and the questions advisors and family offices are actually raising right now.

If income tax has moved to the top of your clients' agenda — and for most high-net-worth families, it should have — this is worth an afternoon of your time. Register here or contact Kristen Sidebottom at Katten with questions.