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03.15.16

Charitable Giving and the Business Owner: Phase Two

We previously introduced you to the Anderson’s, a successful business family with aspirations to create a meaningful legacy. As part of their tax and estate planning, we incorporated charitable giving and life insurance to both achieve these aspirations and help offset the taxes they would owe in their estate.

THE VISION

Now that John and Barb have set themselves up well, it’s time to shift the focus to ‘phase two’ of the planning, their children and grandchildren.

One of the common themes we discuss with clients is that of ‘cascading planning’. If you think of a waterfall or a stream cascading downward from its source to its ultimate destination, you can get a feel for what we mean. Cascading planning involves looking at multiple generations and focusing on ‘continuity’. This is how a family can truly create a lasting legacy.

In this second phase of planning for the Anderson family, we are helping them to get a head start on this planning that we know their children and grandchildren will eventually have to do and, in the context of their family’s legacy, would certainly want to do.

THE PLAN

To help execute on this planning, we will look at two key areas;

Firstly, we will review if all of the children (who are married with their own children) have up-to-date wills. These wills should not only outline the usual pieces of guardianship and distribution of assets, but also the family’s charitable legacy wishes. Wills are some of the most, if not the most, important documents we can have, given that they ‘speak for us when we can no longer speak’. Just as John and Barb have outlined their philanthropic wishes in their own wills, so too should their children. This will help ensure the continuity of the family legacy for generations to come.

Secondly, we are going to implement a permanent life insurance strategy, similar to John and Barb’s, for each of the children and grandchildren. At first, John and Barb were a little confused about why they would do this as most people really do not think about implementing life insurance for their children and grandchildren. However, in the context of cascading and continuity planning, it is the natural evolution of the family planning, given what John and Barb have just done themselves.

These policies will be owned by the family holding company and there are significant benefits to getting a head start on them for generation two and three.

Cost. Given that the heirs are much younger, the insurance premiums will be much less for the same, or potentially greater, long-term benefits.

Living Benefits. Within the policy, there is a tax-sheltered investment component called a cash value. Every year, the cash value (and the death benefit) grow through the reinvestment of what are called ‘policyholder dividends’. This growth occurs on a tax- sheltered basis and during their lifetime, the children and grandchildren can access these funds for any purpose, such as university tuition, purchasing a home, expanding the family business or even making charitable contributions.

THE RESULTS

Eventually, when they reach their life expectancy, John and Barb’s children will have these policies to help execute their own estate planning. Through the direction in their wills and as it was for their parents, there will be a donation(s) made utilizing the insurance, helping to offset or even eliminate the capital gains tax in their estate.

This helps to ensure that there is continuity of the wealth that the family has worked so hard to build and, equally as important, that the legacy that John and Barb created for the Anderson family will now be stewarded by their grandchildren.

This is how families create meaningful legacies that live on for generations.

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