LIFE INSURANCE
Many families of significant net worth underutilize insurance believing they do not need it. Most do not need it - in the sense that the family has enough assets to pay death taxes and to benefit the younger generations. Insurance for planning rarely focuses on need but rather upon the cost efficiency and transfer of financial risk. 

The cost of paying death taxes with family assets is about $1.75 for each $1 of death tax.  This is due to the fact that the funds to pay taxes are not themselves deductible (i.e. an estate of $10 million would generate a $5 million tax and the family earns and sets aside an additional $5 million to fund the tax, however the tax fund is itself taxable and generates another $2.5 million in tax). 

Life insurance typically costs about ten to forty cents on the dollar and is used as a tool to discount taxes. As taxes are due in cash, and few families remain highly liquid, the liquidity of insurance can avoid the forced sale of assets to fund taxes.

Premiums for larger policies can be a significant financial burden and premium financing strategies have emerged which reduce cash flow impact. Essentially a loan is taken out against the policy with the policy as collateral thus the family is only paying interest on the premiums without using any gifting credit. It can serve as an additional tool to leverage true cost to pennies on the dollar.

CAPTIVE INSURANCE COMPANIES
Families with business interests can create and utilize their own insurance company to manage risk and insulate and transfer wealth. A captive is usually designed to cover claims not usually covered by traditional insurance policies and/or to supplement existing coverage. Premiums are often income tax deductible and the insurance company reserves accrue tax deferred and can eventually be transitioned to younger generations in a tax efficient manner.

CONCLUSION
There are dozens of strategies that can be used to preserve family wealth from the perils of litigation, taxation, and family disputes. This summary aims to point out some of the opportunity available and that few techniques are universally applicable. Knowing the effort it takes to produce existing wealth, it behooves us to become informed as to means to preserve it.

The Family Office Association would like to thank contributing editor Adam Chodos.