Posted On: JULY 2020
Many people, when planning their estates, simply divide their assets equally among their children. But “equal” doesn’t necessarily mean “fair.” It all depends on your family’s circumstances. Providing for grandchildren is one area where equal treatment can inadvertently result in unfairness.
Consider this example: Bob has two children, Ted and Carol. Ted has two children and Carol has four. Suppose Bob’s estate plan calls for his $8 million estate to be divided equally between his two children. When he dies, Ted and Carol each receive $4 million. But after they die, Ted’s two children receive $2 million each from their grandparents’ inheritance, while Carol’s four children receive only $1 million each. (This assumes, of course, that Ted and Carol each preserve the full amount of their inheritances.)
One way to resolve this inequity is through the purchase of life insurance. For example, Bob could purchase a policy on his own life, with the proceeds divided equally among his grandchildren. Alternatively, he could arrange policies on the lives of Ted and Carol designed to provide equal amounts to each grandchild. One advantage of this approach is that, because Ted and Carol are younger, the available death benefits would be greater. Bob could use gifts or loans to help Ted and Carol pay the premiums.
Life insurance allows Bob to provide more for his grandchildren, on an equal basis, while still dividing his other assets equally between his children. Depending on how Ted and Carol spend their inheritances, Ted’s children may still receive more than Carol’s on a per capita basis, but the additional assets provided by life insurance will likely make Bob’s estate plan appear “more fair” in the eyes of his grandchildren.