In many family-owned businesses, the commitment and contributions the children make is not equal. Sometimes this is because the older siblings come into the business earlier and carve out their place. They are often resentful of younger siblings who enter the business later expecting to be treated equally when they haven’t “earned their stripes.” Sometimes the resentment comes from children who went away and worked in different careers, but still expect to receive an equal share of the business. So, what is a parent to do?
Estate Equalization Solution
When parents find themselves in such a position, often the solution is to divide what they have equally, or at least fairly, among children. That might seem fair, but how can this be done if the business makes up the largest portion of the parent’s estate? Even if the business is not the largest portion of the estate, what happens if the assets intended to “equalize” the estate go down in value as has happened over the past several months? What will happen if something happens to the parent before the values are restored? It is not unusual for issues like this to break families apart.
Fortunately, the solution may be very simple . . . use life insurance to help “equalize” and stabilize the value of the assets going to the non-business heirs. Indeed, life insurance can be a strategic and valuable supplement to an overall business transition plan.
How do you Know if Estate Equalization is Right for your Clients?
- Business transition strategies are never one-size-fits-all. Estate equalization strategy may be appropriate for your business clients who answer yes to the following questions:
- Would you like your business to remain in the family, managed by a family member?
- Are younger generation family members active in the business?
- Do you have other family members who are not involved in the business? And do you want them to share in your estate?
- Is it your intent to have your heirs inherit “equal” shares of your estate?
- Would you need to split the business and pass part of it to heirs not active in the business to accomplish your goal of passing equal inheritances to your heirs?
- Would you like another source of funds, other than the business, to provide for your spouse or heirs who are not active in the business?
With proposed changes in estate tax legislation making planning for the future more challenging, life insurance continues to do exactly what it was designed to do . . . serve as the foundation of a family’s financial security.
How Can DBS Help?
DBS can help you approach your business owner clients and find ways to implement life insurance solutions. Not only do we have the in-house expertise, but we also have entered into strategic partnerships with consulting groups like Kalamath Consulting Group (KCG). KCG is the leading Exit Planning consulting firm focused on helping business owners benefit from their life’s work through the creation of an Exit Plan based upon their objectives. Contact us today to learn more!