If you’d like to pass an asset that represents a significant portion of your wealth to a particular beneficiary, Life insurance could be used to ensure your other beneficiaries are treated fairly.
What are the benefits?
By using this strategy, you could:
• provide additional funds to equalise your state in the event of your death, and
• ensure all your beneficiaries receive sufficient assets to achieve your estate planning objectives.
How does the strategy work?
When planning the distribution of your wealth, you may want to pass an asset of significant value to a particular beneficiary. This could occur if you would like to leave, for example, an investment property or the family home to one of your children. But what if this asset represents a large portion of your total wealth and you are unable to ensure your other children benefit equally?
One solution is to take out a suitable amount of Life insurance. In the event of your death:
• the asset of significant value could be passed on to one of your children, and
• the proceeds from the Life insurance policy could be added to your other assets to ensure
all your children receive the same amount.
This could enable you to equalise your estate and treat your children (or other beneficiaries) fairly.
Lucinda is a widow and has three adult children Harry, Kate and Angus who she would like to share her wealth equally to, in the event of her death.
She has $800,000 in assets, consisting of the family home worth $400,000 and $400,000 in shares and superannuation.
While Harry and Kate have already bought their homes, Angus is still renting. So, Lucinda would like Angus to receive the family home if she passes away. The problem she faces is that her children will not benefit equally if the property goes to Angus and the other assets are split between Harry and Kate. This is because Angus will receive an asset worth $400,000, while her other children will receive $200,000 each.
Distribution of wealth – before seeking advice
After assessing her goals and financial situation, her adviser recommends she take out $400,000 in Life Insurance and make arrangements so that this additional money will be paid to Harry and Kate in the event of her death.
By using this strategy, Lucinda makes sure that Angus will receive the family home and all three children will receive assets of equivalent value.
Distribution of wealth – after seeking advice
Note: this case study highlights the importance of speaking to a financial adviser about using Life Insurance to equalise your estate. A financial adviser can also address a range of potential issues and identify other suitable protection strategies.