Using financed life insurance to protect a family-owned dairy farm


A dairy producer is owned by several members of the same family.  The business has grown large enough to trigger a substantial Federal estate tax after each owner passes.

The value of the business is substantial and Federal estate tax payment by the heirs will be due within nine months after an owner’s death. The idea that taxes could significantly hamstring or even destroy the business was unthinkable.

Liquidity, however, is limited. The heirs would have to quickly sell assets and redirect significant cash flow from the business in order to pay the estate tax. And diverting funds from current cash flow to pay life insurance premiums to cover this liability would be challenging.


Action Steps:

Grant, Hinkle & Jacobs worked with the family’s attorneys to purchase sufficient life insurance inside a series of special tax-favored trusts to immediately cover the projected estate tax liability at death. We worked with the insurance company and the client’s bank to arrange for the premiums to be financed rather than paid out-of-pocket, with the policy itself serving as primary collateral.



The owners of the dairy and their families are relieved to know that their lives and the business will not be disrupted by having to sell valuable assets and constrict cash flow at the death of an owner just to pay Federal estate tax. They are thankful that, by financing the premiums, they were able to acquire the insurance they need without a significant impact to current cash flow.