Gifts that keep giving for grandchildren

As a grandparent, do you ever struggle to find a great gift for your grandchild? 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.

How does the cascading life insurance strategy 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 contingent owner and primary beneficiary. The cost of life insurance is lowest at younger ages, allowingthe 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.

The benefits of the cascading life insurance strategy includetax free accumulation of wealth, generational transfer of wealth with no income tax consequences and provides a significant legacy and protection against claims of creditors. The cascading life insurance strategy also allows access to the cash value to pay a child’s expenses such as education costs (withdrawal of cash value may have tax consequences) and is a cost-effective way for grandparents to provide a significant legacy.

Let’s consider an example of the cascading life insurance strategy. Grandpa Brian is 65 and has funds put aside for the benefit of his grandson, Ian. He purchases a participating Whole Life policy on Ian, age 11, for an annual premium of $5,000 for the next 20 years. Brian’s daughter, Kelly is named as contingent owner in the event of Grandpa Brian’s death and beneficiary in the event of Ian’s death.

If Grandpa Brian were to die at age 85, the policy now passes to Kelly with no tax consequence. The cash value of the policy (at current dividend scale) at that time isapproximately$133,000 and the death benefit of the policy isapproximately$672,000.

As a result of Grandpa Brian’s legacy planning, Grandchild Ian, now age 31, has a significant insurance estate that will continue to grow with no further premiums.By Brian’s age 45, the death benefit, at current dividend scale, would be $960,000 with a cash value of $304,000.

The best gifts to give are the ones that keep on giving. Cascading life insurance is a gift they will never grow out of and will make a difference in their lives long after you are gone.