Perrin is a widower with three adult children who live independently. Perrin’s oldest son wishes to inherit the vineyard; the two other children do not want to be involved. Perrin would like to accommodate his children’s wishes; however, he wants each child to inherit equal value from his estate. Blanc explains potential uses of life insurance to Perrin and suggests that one of these uses best meets Perrin’s immediate needs.

Q. Which of the following uses of life insurance best meets Perrin’s immediate needs?

A. Provides estate liquidity

B. Acts as a tax-sheltered savings instrument

C. Replaces lost earning power for dependents

I selected option B and did not understand the concept why it is A. Could you please give some insight. Justification is written as:

A is correct. Life insurance best meets Perrin’s immediate need for estate liquidity. A life insurance policy can provide liquidity without the delay involved in the legal process of settling the estate. This liquidity can be particularly valuable if the estate contains illiquid assets or assets that are difficult to separate and distribute equitably among heirs. Currently, it would be difficult to separate and equitably distribute Perrin’s financial assets to his three children such that the oldest son inherits the vineyard and winery while keeping the other two children uninvolved because the business is worth more than one-third of Perrin’s investment assets. The problem of separating and equitably distributing the estate exists presently regardless of the value of Perrin’s personal property.