Client Profile:
A multigenerational family with more than $50 million in operating businesses and prime real-estate holdings, managed collectively through a family office. The patriarch and matriarch were approaching retirement and wanted to formalize a transition plan. Of their three children, two were deeply involved in daily operations while the third pursued an independent career path. The family’s goal was simple in theory yet complex in practice: preserve control of the family enterprises while ensuring fairness among heirs and minimizing estate tax exposure.
The Challenge:
The family’s wealth was highly illiquid, tied to private company stock, partnerships, and long-term real-estate investments. Equal division by percentage ownership would have required either a sale or dilution of the company — both of which would trigger capital gains, valuation friction, and potential loss of operational control. Estate tax estimates showed that nearly 40 % of their projected taxable estate could be lost to taxation and liquidity costs if not properly planned. Moreover, existing wills and trusts were outdated and offered no clear method to balance value among heirs or provide liquidity without dismantling the family’s portfolio.
The patriarch sought a way to protect the enterprise for the next generation, avoid forced sales, and deliver equivalent value to the child not involved in the business — all while staying within the bounds of prudent tax and legal strategy.
Our Solution:
RM Legacy Group collaborated with the family’s legal and tax advisors to design a $15 million Indexed Universal Life (IUL) policy held inside an Irrevocable Life Insurance Trust (ILIT).
This structure accomplished multiple objectives simultaneously:
- Ownership Outside the Estate: Because the trust, not the individual, owned the policy, the future death benefit would be excluded from the taxable estate, immediately saving millions in potential estate taxes.
- Tax-Efficient Funding: Premiums were funded through annual gifting strategies utilizing the IRS gift-tax exclusion. The trustee issued Crummey letters to beneficiaries each year, preserving compliance and ensuring gifts qualified as present-interest transfers.
- Governance and Control: Trust provisions aligned distributions with the family’s governance charter, ensuring the proceeds could be used to equalize inheritances, buy back equity, or seed a philanthropic foundation if desired.
- Institutional-Grade Design: The IUL was engineered for long-term stability, balancing accumulation and protection through diversified indexed allocations and low-cost structure, so the trust’s liquidity would remain reliable for decades.
Beyond its technical benefits, the ILIT added a layer of asset protection and privacy, shielding policy proceeds from potential creditor claims and keeping family distributions confidential.
Outcome
The implemented plan established a tax-free $15 million liquidity pool positioned to fund estate equalization immediately upon death — without any disruption to the family businesses or real-estate portfolio. The two active heirs will retain full control and continuity of the enterprise, while the third heir will receive an equivalent legacy in liquid, tax-free proceeds.
In addition to resolving inheritance disparities, the structure reduced projected estate tax liability by more than $6 million, created intergenerational liquidity for future estate settlements, and aligned with the family’s long-term governance model. What began as a potential source of conflict became a strategic unification of wealth and purpose, preserving both relationships and enterprise value for generations to come.