There are a multitude of estate planning strategies when using permanent life insurance. In this article, I will examine just one technique that can be effective in building, maintaining, and passing on family wealth. As always, I encourage you to consult with your advisor to determine whether this strategy, or perhaps another, would be most beneficial for your unique situation.
The combination of permanent life insurance and a multigenerational trust allow grandparents to use assets efficiently, maintain control of assets and meet desired distributions. This strategy consists of grandparents (generation 1) purchasing a permanent life insurance policy insuring one or more of their adult children (generation 2) and the use of a multigenerational trust. The adult children receive increased financial security with the possibility of supplemental retirement income, education funding and other financial planning goals. The legacy for the grandchildren (generation 3) is providing financial protection, improving financial well-being and a potential source for education funding.
HOW THE PLAN OPERATES
Upon the death of the grandparents (generation 1), a multigenerational trust is created and becomes the owner and beneficiary of the life insurance policy. The income beneficiaries of the multigenerational trust can include the adult children (generation 2) and/or the grandchildren (generation 3). The trustee can access the policy cash value as outlined in the trust, based upon the planning goals, or wishes of the grandparents. The trust will receive the policy death benefit at the death of the insured adult child, providing a legacy that is designed to have an enduring impact for the grandchildren.
Key benefits of permanent life insurance as a legacy planning strategy include an income tax-free death benefit, tax deferred growth of cash value, and potential tax-free access to cash value (through policy withdrawals and loans) that can be used to help meet financial needs.
Regardless of where you are with your estate planning, it never hurts to check-in with your advisor to ensure you’re funding that plan in the most efficient manner. You may want to consider how using life insurance to enhance a multigenerational plan can make it possible to leave a legacy for generations to come.