| Bar Bulletin |
February, 2003 |
|
|
CHILDREN, GRANDCHILDREN AND TOMORROW
By David M. Morris
Speak to us of
Children...
So opens one of the
essays in The Prophet by Kahlil Gibran. The “Prophet” responds:
“Your children are not your children…They are the sons and daughters of
Life’s longing for itself.” And later, “You may house their bodies but not
their souls, for their souls dwell in the house of tomorrow, which you
cannot visit, not even in your dreams.”
Many of us,
individually and on behalf of clients, seek to do the kind of estate
planning that allows us to visit the “house of tomorrow.” Although it
can’t be done, as Gibran so eloquently points out, there are some simple
things that can be done to provide family members with something
approaching perpetuity tomorrow.
Living and
testamentary trusts allow for long-term accumulation of assets to maintain
interest income streams to family. They are not, however, something to
execute for simple gift-giving. They should be done in conjunction with
other planning (including taxation issues) and have carrying costs that
don’t justify small contributions to “tomorrow.”
One simple
technique, used favorably by many clients, is a life insurance policy that
is structured so that there is an income in perpetuity to children or
grandchildren that reminds them of you without the formal structure of
trusts or other more sophisticated and complicated techniques.
The methodology is
simple. A parent or grandparent buys a permanent life insurance policy on
the child’s life. It is funded by either one contribution of a single
premium or some short payment method, so the funding is completed quickly
(before the donor dies). The child (or guardian, if the child is under the
age of majority) is the owner and so the premium is a gift – outside of
the estate of the parent or grandparent. (Make certain to coordinate with
any other gift-giving programs.) The accruals in the policy can be such
that, during the child’s lifetime, premiums are covered by the donor’s
contribution and cash dividends begin to become payable to the child.
Hopefully, it is a
long time from the gift to the death of the donor. But whenever the
accruals reach the level of generating dividends of significance, the
child will receive a check each year until their own death, when the
proceeds of the insurance will be available to their children, achieving
quite a long reach into the “house of tomorrow.”
This can be done
without a trust, with an amount of contribution easily handled by the
donor, and with gift and estate tax efficiencies and on a selected,
individualized basis.
Gibran later
writes, “You are the bows from which your children as living arrows are
sent forth.” With the properly structured life insurance policy, these
arrows will be an affectionate reminder of us as they fly to the tomorrow
we cannot visit.
