Private Client Services by Mercer
Estate equalisation is specifically concerned with the equitable passing of family wealth to the next generation. The strategy involves advance planning by the business owner / parent to facilitate an equitable transfer of assets in a fair manner amongst his beneficiaries.
Estate equalisation is the process where one asset (e.g. the family business) is bequeathed to one child and an asset of equivalent value is bequeathed to the other(s). The method of providing this ‘asset of equivalent value’ using life insurance is a practical solution. The value of the insurance policy is realised on the demise of the parent insured (who is the business owner) and is the amount of insurance cover.
A life insurance policy is purchased to ensure that the estate is distributed equally while ensuring each member of the family is treated fairly.
The members of the family with an interest in the estate inherits the family business or family assets, while other members are bequeathed an equivalent value to the estate from the life insurance policy.
Hence to summarise:
This approach will ensure that each beneficiary gets a minimum amount equal to their share of the existing estate (i.e. the family business or family assets as applicable).
This approach will increase the total estate so that each beneficiary gets an identical amount based on an assumed future growth.
Insured: Parent / current business owner
Policy owner: Parent
Premium payer: Self
Beneficiary: Spouse / children not interested in family assets or family business
A pool of liquid asset is created at the time needed through the proceeds of death benefit of the life insurance policy. This promotes maintaining good relations amongst the beneficiaries while creating a stable estate planning goal.