[Graphic of a man standing on a stack of coins on the left and a woman standing on a stack of coins on the right with “Life Insurance for Estate Equalization” in between them]

Most family business owners wish to see the business continue on for generations. Unfortunately, this may be more the exception than the rule.

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Only 30% of family businesses in the United States pass to the second generation.¹

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Only 12% make it to the third generation, and just 3% will be around by the fourth generation.^2,3

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Family quarrels are among the most common reasons that 70% of family businesses won’t make it to the next generation.⁴

How Can Children Be Treated Equitably Without Jeopardizing the Future of the Business?

[Graphic of mother, Jane, and her two children, Rob and Sally]

Meet Jane:

52 years old

100% owner of Doan Enterprises, Inc.

Business valued at $3 million

Non-business assets valued at $1 million

Meet Rob:

Janes’s 29-year-old son

Active Business Partner

Meet Sally:

Jane’s 27-year-old daughter

MA in Fine Arts

No interest in business

The Solution: Life Insurance for Estate Equalization

[Graphic of son, Rob]

Jane updates will. 100% of Doan Enterprises, Inc passes to Rob upon her death

[Graphic of daughter, Sally]

Jane’s other assets of $1 million are to pass to Sally

[Graphic of daughter, Sally]

Life insurance in the amount of $2 million is purchased on Jane’s life to benefit Sally

[Graphic of son, Rob]

Rob and Jane receive assets equaling $3 million

What are the Estate Equalization Life Insurance Ownership Options?

Parent (Jane) Owns

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Parent has complete policy control

Parent has access to policy values for supplemental income needs

No premium payment-related gift tax concerns⁵

[Graphic of a hand giving a thumbs down with “disadvantages” on the sleeve]

Policy death benefit may not be subject to estate tax

Child (Sally) Owns

[Graphic of a hand giving a thumbs up with “advantages” on the sleeve]

Policy death benefit may not be subject to parent’s estate tax

[Graphic of a hand giving a thumbs down with “disadvantages” on the sleeve]

A spendthrift child may use the policy’s cash value and/or death benefit quickly

Potentially a marital asset if child gets divorced

Premium payment-related gift tax considerations⁶

Irrevocable Trust Owns

[Graphic of a hand giving a thumbs up with “advantages” on the sleeve]

Policy death benefit may not be subject to estate tax

Terms of trust dictate when proceeds distributed to child

Potential for professional trust management

Strong protection from creditors⁷

[Graphic of a hand giving a thumbs down with “disadvantages” on the sleeve]

Premium payment-related gift tax considerations³

Speak with your financial professional who can help you find the right resources for you and your business

LIVING CONFIDENTLY^TM

1. Family Business Facts, Conway Center for Family Business
2. How To Win Where 70 Percent Of Family Businesses Fail, Grow Wire, June 12, 2018
3. Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59½, any taxable withdrawal may also be subject to a 10% federal tax penalty
4. Family Feuds Are a Wealth Management Nightmare, Wealth Management, August 2018
5. Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.
6. If parent pays premiums that exceed annual gift tax exclusion, parent is using lifetime gift tax exemption, which may be needed for estate tax purposes
7. State creditor protection for life insurance policies varies by state. Contact your state’s insurance department or consult your legal advisor regarding your individual situation.

The foregoing information regarding personal, estate, charitable and/or business planning techniques is not intended to be tax, legal or investment advice and is provided for general educational purposes only. Neither Guardian, nor its subsidiaries, agents or employees provide tax or legal advice. You should consult with your tax and legal advisor regarding your individual situation.

All scenarios and names mentioned herein are purely fictional and have been created solely for educational purposes. Any resemblance to existing situations, persons or fictional characters is coincidental. The information presented should not be used as the basis for any specific investment advice. The Guardian Network® is a network of preferred providers authorized to offer products of The Guardian Life Insurance Company of America (Guardian), New York, NY and its subsidiaries.

Pub9619 (09/22) 2022-141942 (Exp. 08/24)