Inheritance Equalization Insurance Strategy


“Inheritance Equalization” is an insurance strategy used in estate planning.  In the arena of business planning, this strategy can help business owners whose assets are tied up in their family business leave an equal amount of their estate to their children upon their death.  Most business owners believe that their children who work in the family business should be justly rewarded. However, they also do not want to leave out the children that aren’t involved in the family business.  


The solution is the Inheritance Equalization insurance strategy.  Basically, the owner of the business purchases life insurance on himself or herself.  The policy (typically a permanent insurance policy) is usually held in an Irrevocable Life Insurance Trust (ILIT) to be kept outside of the taxable estate.  Upon the death of the business owner, the children who were involved in the family business gain their ownership portion of the business. While the children who were not involved in the family business, will get an equal inheritance in the form of life insurance proceeds.  


On the personal estate planning side, the Inheritance Equalization insurance strategy can be used if the parent’s assets are tied up in various real estate investment properties. Upon their death, they may want to leave all of their investment properties to one of the children who actively was involved in the upkeep and maintenance of the properties (and who they believe won’t immediately sell off the properties, unlike their other two children). The parents (or even the other two children) can purchase a life insurance policy to equal-out the inheritance for the two children that are not receiving the investment properties.  


For both situations, a permanent policy makes the most sense.  However, the issue is the cost factor. Most cash-value whole life policies are very expensive, especially as you get older. Also, the purpose for this policy in this particular situation is for the permanent death benefit, not for the cash accumulation feature (which most likely will not be used, as it will reduce the death benefit if ever accessed). The best alternative is the cost-effective “Guaranteed-No-Lapse" Universal Life (GUL) policy. This version of permanent insurance is the most affordable type - about half the cost of a cash value policy.  There is no cash accumulation in these policies and you are covered for life, typically to age 100 through 121. If both spouses work full time in the family business, then the second-to-die version of this policy - the "Guaranteed-No-Lapse Survivorship" Universal Life (SGUL) policy would be a good choice.


We at Malleo Financial Services can work together with your attorney to create estate & legacy plans that will best suit your needs. 



For a free consultation, please contact us for an appointment.





  *This blog is strictly the opinion of Michael A. Malleo and not those of

ASH Brokerage Corp., nor any of our affiliates.


Malleo Financial Services LLC cannot and will not give any specific tax or legal advice.

Please consult your tax professional or legal professional for such advice.