So how do you leave a legacy behind and not compromise your current financial situation? If you are a grandparent wishing to provide an asset for your grandchildren without compromising your own financial security, you may want to consider an estate planning application known as cascading life insurance. Because permanent life insurance is a high cost to purchase in your 60’s and 70’s a more viable option may be to fund a permanent life insurance policy on behalf of your grandchildren. This becomes another vehicle to transfer your wealth to the next generation in a very tax-efficient manner.
How To Leave a Legacy? How Does it Work?
- The grandparent would purchase an insurance policy on his or her grandchild and funds the policy to create significant cash value;
- The grandparent would own the policy and name their adult child as a contingent owner and primary beneficiary;
- The cost of life insurance is lowest at younger ages, allowing the grandparent to establish a plan that allows the cash value in the policy to grow tax-deferred;
- When the grandparent dies, his or her adult child becomes the owner of the policy.
What are the benefits of the Cascading Life Insurance Strategy?
- Tax-deferred or tax-free accumulation of wealth;
- Generational transfer of wealth with no income tax consequences;
- Avoids probate fees;
- Protection against claims of creditors;
- Provides a significant legacy;
- Access the cash value to pay child’s expenses such as education costs. (Withdrawal of cash value may have tax consequences);
- It’s a cost-effective way for grandparents to provide a significant legacy.