Insurance Adds Liquidity to an Estate

Many estate planning attorneys know that life insurance can be a great way for a client to add liquidity to the estate. Let’s look at a typical estate planning problem and how life insurance can solve the problem.


  • Bob and Betty have a successful manufacturing business that they’ve built over the years, while they raised their four children. 
  • One of their children, Bobby, is involved in the business and has been running it successfully for the past couple years. Their other three children are not involved in the business. 
  • Bob and Betty’s estate consists of:
  • The business worth $2 million,
  • Their home worth $1 million, and
  • Other investments worth $1 million. 
  • Goals:
  1. Split their assets equally among their four children, and
  2. Leave the business to Bobby.


The problem is that the two goals conflict. If they divide their estate equally, as provided in the first goal, this would leave $ 1 million to each child. This would conflict with the second goal because the business is worth $2 million.


One simple solution is for Bob and Betty to buy a $4 million second-to-die life insurance policy on their lives. Their estate would now total $8 million and their goals are no longer inconsistent. Now ¼ of the estate equals the value of the business.

Of course, it would be prudent for Bob and Betty to have the life insurance in a life insurance trust. Bob and Betty should be neither trustees nor beneficiaries of the trust to avoid inclusion in their taxable estate.

Call me to discuss.