Wealth Transfer Through Life Insurance

Wealth transfer within families, to make life better for the next generation, is very much an American ethic.

Our history is filled with stories of determined, new immigrants struggling so their children won’t have to struggle as much. They worked hard to put food on the table – and to put their children through college – giving their children golden opportunities they themselves could only dream about.

Preserving and securing this hard-earned family wealth should be a high priority. Indeed, it is of utmost concern to the wealthiest families in America – the dynasties of wealth forged by early captains of business, finance, and industry. Here again we see the ethic of securing the most fruitful future possible for our children, grandchildren, and great-grandchildren.

Life insurance plays an important role in wealth transfer. It is used across the board – by families with modest estates to families with famously large dynasties – to secure wealth for the next generation.

Wealth transfer through life insurance

Here are some of the reasons for why life insurance is ideal for wealth transfer:

  • Thinking of others. First, life insurance requires thought and caring about heirs and survivors. People make investments, start businesses, and build financial portfolios for themselves – but when life insurance is bought, it is for the benefit of others. And that is the underlying principle of wealth transfer, as well.
  • Making a significant impact. Second, life insurance provides a significant sum of money for survivors. Providing one dollar of life insurance benefit Tomorrow, typically costs mere pennies Today. A significant insurance benefit can enable survivors to attend the best schools… start or buy a business.. or settle in the community of their choice.
  • Optimizing the benefit. Third, life insurance benefits are treated very favorably by estate and tax laws. With proper legal advice and planning, the taxation of the proceeds can be minimized. Also, controls can be implemented so that the intended desires and directives of the insured are accommodated.

Wealth transfer planning at any age

Life insurance is often purchased for the purpose of wealth transfer by those in their 60s, 70s, and even 80s. Although, some people begin planning for wealth transfer as early as their 40s or 50s. They know they will carry the wealth transfer policy for the rest of their lives, and they want to lock in the lowest rate possible.

Wealth transfer and concerns

In our professional experience in helping clients plan their legacies, parents generally share common concerns regarding the effect of wealth transfer upon their children.

Children and responsibility

For example, one common concern is, “Well, I don’t want to make my kids rich and spoil them. They have to earn what they get in life.”

Certainly, an overriding factor in parenting is the character development of our children. Parents know their children best. If they’re not yet ready for the responsibility of wealth, then it shouldn’t be given to them.

By the same token, if you’ve successfully grounded your children in your family values, then a gift of life insurance would be quite appropriate, appreciated, and put to good use.

Children and greed

Another common concern is the fear of making children appear greedy – creating the appearance that the children want to “profit from the death of their mother or father”.

Here again, it is the character of the children that should be the overriding basis for your decision.

If the children are responsible and decent people, striving for the right values in life as you taught them – then the money is going for a good cause. And you should never mind the false appearance. Providing your children with a secure financial legacy is a sincere expression of love and caring.

Wealth Transfer in the Future

In 2003, the Center on Wealth and Philanthropy boldly proclaimed, “The Largest Intergenerational Wealth Transfer in History is Still Valid.”

“Despite the economic downturn and the fall of the equity markets, the nationally noted projection that a wealth transfer of at least $41 trillion will take place in the United States by the year 2052 remains valid.” (Wealth Transfer Report)

Hard working Americans increasingly recognize the importance of wealth transfer. Indeed, the ethic of hard work is evolving into a sound tradition of hard work plus Financial Legacy – the backbone of expanding private wealth from one generation to the next.

Summary

Wealth transfer is a strong and growing American tradition, leaving a legacy of love and caring. Life insurance plays an important role – at any age – in proper planning, in order to minimize the taxes and maximize the benefit. Parents know their children best – and you should use your own good judgment when providing for your own children’s future.