A $30 million estate, $2 million in cash and nine months to pay

Two siblings inherit a packaging company. One runs it and wants to keep the plant open. The other lives across the country and has never drawn a salary from the business. Both agree that selling shares to an outsider in a hurry would be a bad deal. Then the executor shows them the balance sheet: $28 million in company shares, $2 million in cash, and a projected federal estate tax bill of $5.81 million.

The siblings are fictional, but the tax figure uses the numbers the IRS released on November 5. The federal estate and gift tax basic exclusion rises to $15.48 million in 2027, up from $15 million in 2026. For this family, the extra exclusion buys some room. It doesn't settle whether the plant will have to help pay a bill that belongs to the estate. IRS Revenue Procedure 2026-35

What an extra $480,000 of exclusion buys

In our example, the founder is a U.S. citizen who dies in 2027 with the full basic exclusion available. Assume no adjusted taxable gifts, deductions, other credits or state estate tax. At a 40% marginal federal rate, the estimated bill is $5.808 million, leaving a $3.808 million gap after the executor uses the $2 million in cash. With the 2026 exclusion and the same assumptions, the bill would have been $6 million. The new exclusion saves this estate $192,000. Even after the adjustment, raising the remaining cash could mean a distribution the company cannot afford or a sale on the buyer’s timetable. IRS Form 706 instructions and rate table

The normal deadline for Form 706 is nine months after death. The IRS can grant a filing extension, but the executor should establish separately when payment is due. And the $2 million in this example assumes the whole balance is free to spend. If $400,000 has to stay available for administration and other obligations, the working shortfall grows to about $4.21 million.

When the insurance goes to somebody else

Say a trust is named to receive $5 million under a private placement life insurance policy (PPLI). The family has been treating the benefit as the answer to its estate tax bill. The executor needs a more specific answer: can the trustee lend the estate $4 million, or buy assets from it, on terms the trust permits and the trustee can justify to all beneficiaries?

Suppose the trustee can lend $4 million once the insurer pays, and the whole $2 million of estate cash remains available. The gap is covered with about $192,000 to spare. If the claim is still pending at month nine, the executor still has to find the full $3.808 million. If the claim pays but the estate needs the $400,000 reserve, even a timely $4 million loan leaves roughly $208,000 to raise. The same policy can produce three very different outcomes depending on the payment date and who has authority to move the money.

The ownership review comes before that arithmetic. Section 2042 generally brings proceeds payable to the executor into the gross estate. It can also include proceeds payable to someone else if the insured held certain rights over the policy at death. An adviser should read the actual policy, beneficiary designation and trust deed together. The label PPLI does not determine who gets the money or whether the proceeds enter the estate. Any inclusion could change the tax bill in the example. 26 U.S.C. § 2042 · PPLI.com estate planning research

What the siblings can decide while the founder is alive

Start with the amount the business can distribute without cutting into payroll, working capital or a loan covenant. Then ask counsel whether an election under Section 6166 might defer the part of the federal tax attributable to a qualifying closely held business. The business interest generally has to exceed 35% of the adjusted gross estate, and passive assets and other conditions can affect eligibility. The executor should budget for any tax that cannot be deferred. IRS guidance on Section 6166

Put that question to the two siblings separately. The one running the plant may prefer borrowing to giving an outside investor a say in the company. The other may already have most of her inheritance tied up in a business she cannot sell or manage. If the founder wants both to keep their shares, the time to negotiate borrowing limits, a sale process and who can approve either is while all three can still sign the agreement.