Business Continuation
The Need
Any closely held business faces the possibility of an owner dying, retiring or becoming disabled. A business owner’s death or disability can create major problems, jeopardizing a lifetime of hard work and investment, leaving beneficiaries in the difficult position of sorting things out. The remaining business owners are faced with difficult questions:
Benefits
The benefits of a buy-sell agreement funded with life insurance include:
Who May Benefit
It’s not unusual for the business owner to take on an uncomfortable amount of debt to finance the growth of the business. So death or disability can jeopardize a lifetime of hard work and leave the business owner’s heirs in the unenviable position of trying to negotiate with creditors as well as meet the needs of customers.
Implementing a buy-sell agreement, or “business will,” for these individuals may provide a cost-effective means of assuring both business continuity and family security.
How It Works
Designing a business continuation plan is a crucial step to ensure your business remains in-tact at your retirement, death or other triggering event. Whether you leave your business by choice or by chance, you’ll leave your business on track and help provide for your family’s future. By arranging a buy-sell agreement using life insurance, you can help protect yourself, your business co-owners and your family.
When a buy-sell agreement is funded with life insurance, the policy owner (usually a co-owner of the business or the business itself) uses the policy proceeds to buy out the business interest of another owner who retires, becomes disabled, or dies.
Or, if your client chooses to retire, the cash value of the life insurance policy can be accessed by the use of partial withdrawals and policy loans to provide a down payment to help fund the buyout of his or her share of the business. Cash values may be accessed by taking loans and withdrawals from the policy. Loans and withdrawals may generate an income tax liability, reduce available cash value and reduce the death benefit or cause the policy to lapse.
A well-constructed buy-sell agreement anticipates how the value of a business may change over time and provides for appropriate adjustments in the amount of the buyout price. The amount of life insurance can be designed to vary with the buyout price, so you are always properly covered.
The Need
Any closely held business faces the possibility of an owner dying, retiring or becoming disabled. A business owner’s death or disability can create major problems, jeopardizing a lifetime of hard work and investment, leaving beneficiaries in the difficult position of sorting things out. The remaining business owners are faced with difficult questions:
- How will the business continue?
- Who will control the business?
- Can/will family members of the deceased or disabled owner get involved?
- How will the continuing owners finance the buyout of the owner who is no longer there?
Benefits
The benefits of a buy-sell agreement funded with life insurance include:
- Creating a market for a shareholder’s closely held stock when it is needed (frequently at the owner’s death).
- Establishing the purchase price of the deceased owner’s interest and possibly the value of the stock for estate tax purposes.
- Maintaining closeness of the business by restricting transfer of stock to other owners, family members, or a preapproved group of non-owners.
- Providing liquidity to pay estate taxes to the IRS and pay other estate settlement costs.
- Providing funds for a down payment on a buyout at the retirement of an owner.
- Possibly making the business a better credit risk because the probability of continuation is enhanced.
- Preventing transfer of S-corporation stock to an ineligible shareholder.
- Providing for an owner’s family in the event of death or disability.
Who May Benefit
- Any business can benefit from a buy-sell arrangement including sole proprietorships, partnerships, and closely-held corporations.
- Someone who runs a business in which he or she has invested, and from which he or she earns a living. In many cases, the investment in the business represents that person’s only significant asset besides their home.
It’s not unusual for the business owner to take on an uncomfortable amount of debt to finance the growth of the business. So death or disability can jeopardize a lifetime of hard work and leave the business owner’s heirs in the unenviable position of trying to negotiate with creditors as well as meet the needs of customers.
Implementing a buy-sell agreement, or “business will,” for these individuals may provide a cost-effective means of assuring both business continuity and family security.
How It Works
Designing a business continuation plan is a crucial step to ensure your business remains in-tact at your retirement, death or other triggering event. Whether you leave your business by choice or by chance, you’ll leave your business on track and help provide for your family’s future. By arranging a buy-sell agreement using life insurance, you can help protect yourself, your business co-owners and your family.
When a buy-sell agreement is funded with life insurance, the policy owner (usually a co-owner of the business or the business itself) uses the policy proceeds to buy out the business interest of another owner who retires, becomes disabled, or dies.
Or, if your client chooses to retire, the cash value of the life insurance policy can be accessed by the use of partial withdrawals and policy loans to provide a down payment to help fund the buyout of his or her share of the business. Cash values may be accessed by taking loans and withdrawals from the policy. Loans and withdrawals may generate an income tax liability, reduce available cash value and reduce the death benefit or cause the policy to lapse.
A well-constructed buy-sell agreement anticipates how the value of a business may change over time and provides for appropriate adjustments in the amount of the buyout price. The amount of life insurance can be designed to vary with the buyout price, so you are always properly covered.
6950 Squibb Road, Suite 200
Mission, KS 66202
913-529-1130 phone
913-529-1137 fax
Mission, KS 66202
913-529-1130 phone
913-529-1137 fax
