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 typical product of choice in that scenario is usually Guaranteed Survivorship UL (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. (ie: the transfer happens on the 2nd death). GSUL premiums are likely lower than what the cost of separate policies might be and more importantly each of the children will receive their portion of the inheritance when the time is right.
Sometimes, the equalization should occur at the 1st 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 2nd 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 1st 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 2nd opportunity to put insurance funds to their 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 and dad’s lives, or just to provide a little more inheritance than was expected.
When planning for the future the most important idea is to have OPTIONS. Keep that in mind when planning for estate equalization as even if there is only one parent leaving the business behind, a GSUL policy could give them additional options in the future.