Leaving an inheritance

The equalisation problem

One child will take the business, or wants the family home, and the others should receive something comparable. Dividing the asset defeats the point; forcing a sale defeats it differently.

Insurance funds the other shares. The asset passes intact to the person who will use it, and everyone else receives value rather than a fractional interest they'd have to argue about.

Why insurance rather than the assets themselves

• It passes directly to named beneficiaries, generally outside probate — faster and more private
• It's a known amount, unlike a property or business whose value moves
• It's liquid, so nothing has to be sold under pressure
• It's generally free of federal income tax to the beneficiary
• It can't be argued about the way a valuation can

The ownership question

Whether the death benefit is included in your taxable estate turns largely on who owns the policy and whether you hold incidents of ownership over it. That's why trust-owned arrangements exist.

For most estates federal estate tax doesn't apply, and several states impose their own at lower thresholds. Whether it matters to you depends on figures that change — check current rules with a professional rather than any figure you read.

Structuring it well

• Name beneficiaries specifically and review after every family change
• Consider a trust where beneficiaries are young or where you want to control timing
• Don't name a minor directly — that generally requires a court-appointed guardian to receive funds
• Coordinate with your will so the two don't contradict each other
• Tell people the arrangement exists, which prevents most disputes

Say it out loud

Unequal arrangements are far better explained by you than discovered by them. The disputes that follow a death are usually about surprise and interpretation rather than about money.

A conversation now costs nothing and is worth more than the drafting.