Estate Equalisation

Estate equalisation is a situation whereby the Will maker wants to ensure that the assets left to the beneficiaries (eg. children) are evenly distributed in value.

Situations include:

  • One child has built up the business and you would like to leave this asset to that child. Other children may miss out in a valuable asset and receive assets worth less in value.
  • A family member is involved in the farm and you would like to leave the farm to that person. Other assets are not of similar value, therefore you would like to distribute an estate that is equal to all beneficiaries.

An Estate Equalisation strategy is the solution to this problem.

Rather than having to sell the business, farm or other valuable assets, a simple method can be to take out life insurance. An example is shown below:

Bill is divorced and has a son and a daughter. Bill operates an engineering business and the son is involved in the business, while his daughter is not. Bill would like his son to take over the business if he were to pass away.

However, he would also like the daughter to receive a fair value of the estate, without his son having to sell the business to do so.

So Bill increases his life insurance cover to the value of his business (less any other valuable assets that the daughter may receive). Upon his passing, the business could be passed to his son, while the insurance benefit and any other assets are paid to his daughter.

Both children receive an estate equal in value and it eliminates any risk of court disputes in the future. John enjoys peace of mind that his estate will be passed on equally to his children.

It may be the case that upon death, capital gains tax implications arise for the business or farm. In this event, a buy / sell strategy could be implemented. This may entail either a tax component included in the estate insurance policy to cover this expense, or alternatively, the insurance policy could be a lesser amount including the ‘net value’ of the business or farm.

We are happy to discuss all options available to you to equalise your estate.