Life Insurance as the Great Equalizer

What do you do with estates of any size, holding substantial hard assets, such as a business or real estate, that must be split equally among heirs with disparate interests? We are sure you know that life insurance can become the great equalizer, ensuring each of the heirs gets equal treatment. Here are 2 ideas/examples that may interest you.

For Continuing the Family Business

A husband and wife own a jewelry store with one of their children participating as a key employee. The child has been helping his parents build the store into a successful enterprise and would be a natural successor to run the business. The business is worth about $8 million. The two other children have no interest in participating in the business.  The parents want to treat all the children equally when it comes to an inheritance. They have about $5 million in other assets that could be split between the other children however that would only provide them each with a $2.5M inheritance, far short of the $8 million value of the jewelry business being left to their sibling.

To equalize the inheritance, a very clean solution would be for the parent’s business to buy an $11 million insurance policy that would effectively give the 2 siblings not in the business $8M each and the sibling in the business 100% of the company valued at $8M.

For Preserving the Vacation Home

Another prevalent example is when real estate is involved. In this case, a husband and wife own a beach house in addition to their residence, worth about $2,500,000. Their home is worth about $1,500,000. One of their children loves the beach house as a place to bring her family several times a year. Their son lives on the other side of the country and has no use for the beach house. The parents would like to see the beach house remain in the family, so they could leave it to the daughter and give their son their personal residence to own, rent, or sell.

To make up the difference between the value of their residence and the beach house, they could purchase a $1,000,000 life insurance policy naming their son as the beneficiary.

For any of your clients with estates comprised substantially of hard assets, having a conversation about how to equalize the estate among children would be welcomed. Especially if it can keep the harmony and show their children they are equally loved.

FAIU has the resources and expertise to help you create a solution for an estate equalizer issue. We do the work and you become a true advocate for your clients’ legacy.

— By Tony O’Kussick, Director of Operations & Peter Kaplan, Vice President