The first three articles explained why affluent families should prepare legacy liquidity, where that cash may come from, and how life protection, participating life insurance and critical-illness cover perform different jobs. This article answers the practical question: what might the framework look like for a family with RMB 50 million in assets?
SCENARIO
The goal is not to park RMB 10 million in cash, but to build the capacity to obtain it
Assume Mr Chen’s family owns RMB 50 million in assets. Under an extreme stress test based on historical estate-tax proposals circulated in the market, the modelled tax on RMB 50 million of net taxable estate could exceed RMB 20 million. This is neither current Chinese law nor a forecast of future tax rates.
Set a more conservative planning target: RMB 10 million of future legacy liquidity. Keeping the full RMB 10 million in cash is simple, but succession may occur 20, 30 or more years from now. Permanently leaving that amount idle for an event of unknown timing can be highly inefficient.
The more useful objective is not “hold RMB 10 million in cash”, but “build the capacity to obtain RMB 10 million when required”.
FIVE-POOL FRAMEWORK
Give each pool of capital one clear job
Immediate liquidity pool
Cash, deposits and short-term liquid assets for needs that cannot wait.
Life protection pool
Life cover creates contractual leverage for death-triggered liquidity.
Long-term legacy pool
Participating life insurance supports growth, protection and continuity.
Health protection pool
Critical-illness and medical cover protect lifetime cash flow.
Long-term investment pool
Remaining capital stays invested across securities, funds and business assets.
01｜IMMEDIATE LIQUIDITY
Keep the liquidity the family genuinely needs
Maintain essential cash, deposits and short-term liquid assets for living expenses, medical needs, debt service and asset-administration costs. The objective here is availability, not maximum return.
02｜LIFE PROTECTION
Not merely cash for a tax bill—a newly created legacy asset
Subject to underwriting and product illustrations, part of the family’s capital may fund life insurance whose principal purpose is death protection. A comparatively limited funding commitment can establish a death benefit of several million renminbi or more. That benefit can perform two distinct jobs:
Legacy liquidity
Fund taxes, debts, administration and family needs while reducing the risk of a forced sale.
Directed inheritance
Pay beneficiaries under the policy and applicable law, allowing part of the wealth transfer to be pre-arranged.
Affluent families should therefore view life insurance as more than a contingency tool. Within genuine protection needs, affordability, health underwriting, insurer capacity and applicable legal limits, they can make fuller use of protection leverage, beneficiary designations and potential tax efficiency.
One portion of the death benefit supplies succession liquidity; another portion is itself the planned legacy.
03｜LONG-TERM LEGACY
Participating life: growth, protection and continuity
Another portion of long-term capital may be allocated to participating life insurance, building policy value while retaining death protection and legacy functions. Where a specific product permits, ownership, life-insured or successor-insured arrangements may extend certain policy interests.
Larger families may separate functions across several policies: a legacy liquidity pool focused on post-death cash needs, and a family asset pool focused on long-term value and intergenerational continuity.
Mainland China’s current Individual Income Tax Law lists insurance indemnities as exempt from individual income tax, while Mainland China currently has no estate tax in force. In the United States, life-insurance death benefits are generally excluded from a beneficiary’s federal taxable income. They may nevertheless be included in the insured’s gross estate when payable to the estate or when the insured retained incidents of ownership, such as the power to change beneficiaries, surrender or pledge the policy. Outcomes therefore depend on jurisdiction, tax residence, policy ownership, beneficiaries and trust structure. Income-tax treatment should never be treated as identical to estate-tax treatment.
04｜HEALTH PROTECTION
Prevent lifetime risks from disrupting the plan
Succession planning cannot focus only on death. A serious illness before retirement may consume substantial capital through treatment, recovery and living expenses. Critical-illness and medical cover therefore protect lifetime household cash flow first.
05｜LONG-TERM INVESTMENT
Keep the remaining capital working
Mr Chen need not leave the entire RMB 10 million idle. One portion can establish life protection and long-term insurance assets, another can remain in genuine emergency liquidity, and the balance can continue in equities, bonds, funds and business assets.
The family can therefore combine liquidity, protection leverage, long-term growth and legacy planning. The key calculation is not simply “how much cash should I leave?” but “how much capital is needed to build sufficient legacy liquidity capacity?”
Do not prepare one large pool of idle cash. Build a system designed to produce cash when it is needed.
The same RMB 10 million of cover—how should three roles be arranged?
Next: how the policyowner, life insured and beneficiary can produce different legacy outcomes from the same sum assured.
Read the structure guideAUTHORITATIVE SOURCES
This article is for general wealth-planning education only and is not legal, tax, investment or insurance advice. Mr Chen is a teaching scenario, not a client recommendation. Premiums, sums assured, death benefits, policy values and non-guaranteed benefits depend on age, health, product, underwriting and contractual terms; bonuses and other non-guaranteed benefits are not guaranteed. Insurer capacity, product limits and a U.S. estate-tax exclusion are not a universal “tax-free life-insurance limit”. Mainland China currently has no estate tax in force. The estate-tax figures are a scenario stress test based on historical proposals circulated in the market and do not represent current or future law. Cross-border families should obtain advice appropriate to their jurisdictions, tax residence, asset locations, ownership, beneficiaries and trust structures.