You're probably familiar with the concept of estate equalization
. It comes up most often with business owners who have some children who want to run the business and some children who don't. Estate equalization uses life insurance to provide for those children who won't be inheriting the business.
The product of choice in that scenario is usually guaranteed survivorship
universal life (GSUL). This type of product is used most often with the typical mom-and-pop shop, where the surviving spouse will continue to run the business or the family farm (the transfer usually happens on the second death). GSUL premiums are likely lower than what the cost of separate policies might be and, more importantly, each of the children will receive his or her portion of the inheritance when the time is right.
Sometimes the equalization should occur at the first death. In those cases, we typically use single coverage for the parent who is in control of the business, and the beneficiaries are usually the spouse and the children, depending on who is in the business and who is not.
Sometimes this can leave a hole in the estate plan when the second death occurs. What if:
- things haven't worked out as planned for the heirs?
- they want to help grandchildren who weren't even born yet at the first death?
- they want to make a charitable donation at that time, when they will no longer have to worry about needing the money?
GSUL still has a place in that scenario, as it gives the family a second opportunity to put insurance funds to the best possible use. Even if they don't need an equalization do-over, the money can be used to pay settlement costs, replace wealth lost at the end of Mom's and Dad's lives, or just to provide a little more inheritance
than was expected.
When planning for future estate equalization, the most important thing to keep in mind is providing options. Even if there is only one parent leaving the business behind, a GSUL policy could give them additional options in the future.
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