Case Study – Universal Life Insurance for Estate Division

0 CommentsTuesday • March 23, 2010 • by marco

Universal Life Insurance can be used for dividing your estate equally as was done in this case. The same solutions apply for situations where other single major asset, such as property, forms the major part of your estate.

Mr Tan is approaching 65 and wishes to do some estate planning. His estate consisted of a business, valued at $8 million, a landed property worth $2.5 million and $2 million in cash. Mr Tan has a wife, two sons and a daughter. He is semi-retired from the business and handing the business over to the eldest son, who is the only one interested in running the business.

He is not worried about the wife, should he pass away, as she is close to the children and has ample savings. However, he is worried about how he can distribute the estate equally. The main worry is the business. Should he hand major ownership of the business to the eldest son, it will not be fair. Should he distribute the business equally, the two youngest children will be more interested to sell the business. This will dilute the ownership of the business and disrupt expansion plans the eldest son has. Secondly, it will be difficult to split the inheritance of the landed property.

This can be solved by Mr Tan having a Universal Life Insurance policy. An amount of $1 million is used to set up a Universal Life Policy. The policy has a guaranteed cover of $5 million upon Mr Tan’s passing. This will increase the proportion of cash in the estate to $6 million and facilitate a more equal division of estate.