Unequal Business Asset Distribution Among Children

What if your business represents the majority of your estate, but you do not wish your business assets to be distributed equally among your children? There is an alternative to accomplish your objective.

You can create additional liquid assets in your estate at the time of your death which could be used to equalize the assets of the children who are outside the business, with those assets of a child who will inherit your business.

This strategy is accomplished through the use of life insurance held in a trust. The life insurance proceeds are first used to equalize the assets to the three children, and any additional funds can be utilized to pay any death settlement costs, estate taxes, or other expenses.

Often the best vehicle to own and distribute the life insurance proceeds is an Irrevocable Life Insurance Trust, which would hold the insurance death benefits outside of the estate (free of estate tax). This strategy avoids potential family conflicts which might occur if business assets must be divided equally among the children or even sold to equalize the inheritance to the children. Either strategy could dilute your chosen child’s ownership to the point where he or she could not function adequately as the majority leader of the business.

Since most small businesses are not liquid and not easily marketed, a forced sale could be financially disastrous and foil your goal of having one child continue the business. The additional influx of liquidity from your Irrevocable Life Insurance Trust, at the exact time it will be needed, can accomplish your objectives.

Jeffery J. McKenna is a local attorney licensed in three states and serving clients in Utah, Nevada, and Arizona. He is a partner at the law firm of Barney, McKenna and Olmstead, with offices in St. George and Mesquite. He is a founding member of the Southern Utah Estate Planning Council. If you have questions or topics that you would like addressed in these Wednesday articles please email him at jmckenna@www.barney-mckenna.com or call 628-1711.