By Elli Schochet, CFP and Sarah Brown, FEA
For families focused on preserving and transferring wealth, the starting point is not the insurance policy. It is the outcome of what you are trying to accomplish and how you will achieve it in a way that is tax-efficient and cost-effective. Without that clarity, insurance decisions are made in isolation. The policy may be sound, but the structure around it is not designed to hold over time.
As wealth grows, it is often built and held within corporate structures. The focus stays on accumulation. The harder question, often deferred, is how this value will be accessed and transferred. More simply: What matters is not what exists on paper, but the gap between what is on paper and what can actually be kept.
Here is an example: A policy was purchased within a medical corporation. Over time, the medical practice was wound down, but the policy remained in the corporation, where it continued to grow in value. Moving the policy out would trigger a tax liability. Leaving it in means the death benefit will be payable to the corporation, which can create complications if the entity is no longer active. Nothing about the policy itself changed. The surrounding structure did, and with it, the outcome.
In another case, a policy was structured within a corporation, naming two daughters as beneficiaries. At the time, it was straightforward. When the daughters moved to the United States, accessing those funds created new tax implications. Leaving the policy in place created one set of issues. Moving it created another, including U.S. tax implications related to exemption testing. What was once straightforward is now difficult to unwind without cost.
A different approach shows what alignment looks like in practice.
A policy was approved, but it took six months to implement because additional steps were taken to achieve the intended future outcome. The insurance provider collaborated with tax advisors to establish a trust and address how the value would be distributed among family members. The delay was not administrative. It reflected deliberate coordination to align the policy with the intended outcome and reduce future risk.
Ownership, structure, and timing all matter. Where a policy is held affects how funds can be accessed. How beneficiaries are designated determines how efficiently funds move. Corporate ownership, when paired with individual beneficiaries, can create adverse tax consequences, especially when future events such as a corporate sale or the wind-down of a business have not been considered.
The issue is not the product. It is whether the policy is aligned with the broader strategy it is meant to support.
Insurance can boost liquidity, equalization among siblings, and preserve value across generations. It can also create tax exposure, restrict access, or fail to deliver. The determining factor is whether it was treated as a transaction or as part of a broader plan.
If your insurance was put in place based on where you were at the time and has not been revisited as your structure, family, or jurisdiction has changed, it may no longer perform as intended. A focused review can quickly identify whether this is the case and ensure that the outcome you intended remains achievable. For more information, contact: info@algbrown.com
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