Estate Equalization Case Study

 

Purpose

Mr. and Mrs. Jones came to Nicol Sanchez Wealth looking for ways to provide a fair inheritance to their two (adult) children.

The Jones’ are very successful business owners but are looking to move on and start to enjoy their retirement. They have amassed enough personal savings to enjoy a comfortable retirement but expect that they will spend the majority of their personal savings, leaving insufficient liquid assets with which to pass down to their children. Sometimes equal and fair are not the same thing.

Their son, Tommy, is a Teacher and has never shown any interest in being part of the family business. Their daughter, Lee, has always been actively involved in the business and has expressed a desire to take over ownership once her Parents decide to retire. Mr. and Mrs. Jones would love to hand the business over to Lee, however they don’t have the assets to equalize the estate. They also don’t think it’s fair for Tommy to become a shareholder of the business if Lee is running the business.

Mr. and Mrs. Jones had a third-party appraisal of their business and could likely sell it for $10 million to a third-party purchaser.

 

Direction

Insurance can be an excellent way to equalize the estate.

Mr. and Mrs. Jones can buy an insurance policy with a $10mm face value, marking Tommy as the irrevocable beneficiary. They can either choose to have this pay out on first-death or on a last-to-die basis.

Other features that may be possible:

  • Set ownership in the Corporation, so that Premiums can be paid using Corporate retained earnings. Similarly, the death benefit of the policy will payout up to the capital dividend account amount tax free. This is a very tax-efficient way of funding the policy.

  • The policy can be over-funded in the early years, so that it will be fully paid up at the end of that term or the payments can be stretched over their lives.

  • Adding a feature where the death benefit has the potential to increase, adding to Tommy’s inheritance value.

 

Alignment

Work extensively with Mr. and Mrs. Jones to ensure that they select the appropriate options.

Estate Equalization can be a very complicated topic and choosing the right types of insurance features can be a daunting task. The alternative to insurance would be for Mr. & Mrs. Jones not to spend their liquid assets and pass those to Tommy.

With no internal biases, we can work with any third-party Tax and Legal Professionals to develop an integrated strategy designed to provide the optimal result for the Jones Family. If Insurance is identified as a viable strategy, we can receive quotes from a wide range of Insurance Companies to ensure that the Jones’ receive the combination of cost and features that should help them achieve their financial goals.

 

Our goal at Nicol Sanchez Wealth is to understand our clients’ unique goals and continually provide unbiased advice designed to help them achieve those goals.

 

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