The Buy-Sell Triple Play

Transcription

1 Advanced Markets The Buy-Sell Triple Play Planning Perspective Life Insurance Products: Are Not a Deposit of Any Bank Are Not FDIC Insured Are Not Insured by Any Federal Government Agency Are Not Guaranteed by Any Bank or Savings Association May Go Down in Value AXA Equitable Life Insurance Company MONY Life Insurance Company of America (MLOA)

2 Advanced Markets The Buy-Sell Triple Play As a business owner, you know that the continued existence of your business is tied into the lives and well-being of its owners. Even when successor management exists, when an owner leaves, the business and any remaining owners need to settle up with the departing owner, their family or their estate. If your plan involves the continuation of the business even after you re gone, there s often a triple threat that needs to be addressed by proper planning and adequate planning: Death Disability Departure Properly designed and planned, in most situations, life insurance can be part or all of an effective solution, regardless of the reasons as to why a partner needs to be bought out. Does this sound like you? You re a business owner looking for a way to continue your business even if you die or decide to leave the company Concerned with consequences of disability of a co-owner Concerned with funding an installment buyout at retirement Seeking an efficient solution to address all buyout events In good health 1

3 The Buy-Sell Triple Play The Problem: Bill, Bob and Brian Larson are brothers that have been in business together for over 10 years. Each brother s value in the business has been appraised at $1,000,000. Bill is 45, and Bob is 43 and Brian is 39. The brothers finally sat down with their Financial Professional to discuss their business continuation plan. They discussed how the business would be transferred at death, as well as other life events that might trigger a buyout of a brother s interest. They intend to purchase life insurance of $1,000,000 on each brother s life and are looking for help in deciding between the value of permanent insurance versus the low cost of term insurance. A Possible Life Insurance Strategy: Life insurance might offer a solution for each of the brother s three business continuation issues death, disability, or the most likely scenario, departure due to retirement - and their interests need to be bought out. A life insurance policy with us can offer a Triple Play strategy: Tax-free death benefit to cover a buyout in the event of death Cash surrender value that can accumulate tax-free and is available to help support a buyout due to a disability or retirement An optional Long Term Care Rider can be added for an additional cost that offers an acceleration of death benefit in the event of a triggering event that impairs one of the Larson brothers How Can Life Insurance help? Event Life Insurance Feature Planning Objective Threat #1: Death Policy Death Benefits $1,000,000 Threat #2: Disability Policy Cash Values Long Term Care Services Rider As available in the year $1,000,000 total Up to $19,800 per month in 2014 Threat #3: Departure Policy Cash Values $100,000 per year for 10 years The policy premium and death benefit amounts used for this case are intended only to help demonstrate the planning concept discussed and not to promote a specific product. The values are broadly representative of rates that would apply for a policy of this type and size for the insured s health and the ages noted in the example. To determine how this approach might work for you, individual illustrations based on your own individual age and underwriting class, containing both guaranteed charges and guaranteed interest rates as well as other important information, should be prepared or requested from your Financial Professional. 2

4 Let s explore the Larson s situation and how life insurance is able to solve their business planning needs. Threat #1: Death of an Owner It s clear that life insurance can play a critical role in buying out an owner interest if an owner were to die. Term life insurance can be a simple solution, as long as the insured owner doesn t outlive the policy s term. Term insurance is also limited in that it only addresses the financial need that occurs at death. Permanent insurance can provide for cash value accumulation potential, and optional policy riders may be available to provide additional benefits. Initially to fund the Larson Brothers buy-sell, a policy for $1 million would be purchased on each brother s life. Threat #2: Disability of an Owner If one of the owners were to become disabled, the other owners may decide it best to trigger a buyout of that owner s interest. There are special disability policies that may be available to address all or part of the purchase price. However, where such coverage is either not available or too expensive, a properly planned and designed permanent life insurance offers two potential tools to support part or all of this financial need: Access to policy cash values. Policy cash values can grow over the life of the policy. With enough time and proper funding, life insurance cash values can grow and provide funding to assist with buyout costs triggered by a disability. 3

5 The Buy-Sell Triple Play Long Term Care Services Rider SM. In situations where separate disability coverage is not part of the planning solution, our Long Term Care Services Rider SM may offer an efficient strategy, limited to the specific health condition required to trigger the benefit. The rider offers an acceleration of the policy s death benefit if the insured in unable to perform two activities of daily living or is suffering from a cognitive impairment and is subject to a plan of care. For a modest addition to policy premium, this rider can offer a potential solution, especially as the owner s age and are no longer eligible for or covered by traditional disability policies. What s more, the Long Term Care Services Rider is an indemnity rider that can be owned by a third party, such as a business. If the Long Term Care Services rider is added to a UL or VUL product on the Larson brothers, and an insured s health condition triggers the benefit, the policy will allow access to the policy death benefit to allow the brothers to begin a buyout of their brother s business interest and provide his family the cash flow they need. Threat #3: Departure (Retirement) Departure covers a list of events, the most obvious of which is retirement. Here is another instance where policy cash values can be part or all of the strategy. Properly funded and designed, permanent life insurance cash values can be used to help fund an installment buyout or even a lump sum buyout. The Larsons may wish to use an installment sale, assume Bill s retirement at age 65 and a plan to draw $100,000 each year from the life insurance policy values for 10 years. If Bill were to die during the term, the policy death benefit would allow them to complete the purchase at death. If the Long Term Care Services Rider had been elected and Bill s health triggers the benefit, those rider benefits could be applied to the installment buyout purchases instead of policy withdrawals. 4

6 What Life Insurance with AXA Equitable or MLOA May Offer: Age Cumulative Contributions Cumulative Withdrawals Non-Guaranteed Cash Value LTCSR Maximum Benefit Death Benefit 45 $24,030 $0 $19,000 $1,000,000 $1,000, $240,300 $0 $280,000 $1,000,000 $1,000, $480,600 $0 $915,000 $1,000,000 $1,745, $0 $100,000 $875,000 $900,000 $1,630, $0 $1,000,000 $342,000 $675,000 $785, $0 $1,000,000 $585,000 $675,000 $890,000 The policy premium and death benefit amounts used for this case are intended only to help demonstrate the planning concept discussed and not to promote and specific product. The values are broadly representative of rates that would apply for a policy of this type and size for the insured s health and the ages noted in the example. To determine how this approach might work for you, individual illustrations based on your own individual age and underwriting class, containing both guaranteed charges and guaranteed interest rates as well as other important information, should be prepared or requested from your Financial Professional. After reviewing their various options, the brothers elected to use a cross purchase buy-sell plan using a trustee to manage the terms of the buy-sell and to hold life insurance purchased. They elected a Universal Life Insurance solution and included the purchase of the Long Term Care Services rider. Why AXA? At AXA, we know that one size does not fit all. That is why we have a portfolio of life insurance products specifically designed to work with your unique needs in mind. You can choose from variable universal life or an indexed universal life policy, each with features that are engineered to help meet your goals best. Working with your Financial Professional, we can design a Buy-Sell Triple Play strategy presentation customized just for you and help you break down your decisions into small, manageable steps. Your Financial Professional can show you how. A suite of other Built In features including riders that can further customize your insurance policy to your needs, including a Charitable Legacy Rider 1, which offers an additional death benefit to the charities of your choice. Some riders have an additional cost and all have restrictions and limitations. Be sure to review the details with your Financial Professional. To learn more, contact your Financial Professional or visit today. 1 The Charitable Legacy Rider is available on policies over $1,000,000 and offers an additional 1% death benefit to the charity(ies) of your choice. This is already included in the price of your insurance and only requires the completion of paperwork when you apply for your policy. The charities can be changed at any time. 5

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8 For more information on how The Buy-Sell Triple Play could help you, contact your Financial Professional today. S&P, Standard & Poor s, S&P 500 and Standard & Poor s 500 are trademarks of Standard & Poor s and have been licensed for use by AXA Equitable. BrightLife SM Grow is not sponsored, endorsed, sold or promoted by Standard & Poor s and Standard & Poor s does not make any representation regarding the advisability of investing in the product. The Russell 2000 index is a trademark of Russell Investments and has been licensed for use by AXA Equitable. BrightLife SM Grow Is not sponsored, endorsed, sold or promoted by Russell Investments and Russell Investments makes no representation regarding the advisability of investing in the product. The product referred to herein is not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such product or any index on which such product is based. The policy contains a more detailed description of the limited relationship MSGI has with AXA Equitable and any related products. AXA is a brand name of AXA Equitable Financial Services, LLC and its family of companies, including AXA Equitable Life Insurance Company (NY, NY), MONY Life Insurance Company of America (AZ stock company, administrative office: Jersey City, NJ), AXA Advisors, LLC, and AXA Distributors, LLC. AXA S.A. is a French holding company for a group of international insurance and financial services companies, including AXA Equitable Financial Services, LLC. This brand name change does not change the legal name of any of the AXA Equitable Financial Services, LLC companies. The obligations of AXA Equitable Life Insurance Company and MONY Life Insurance Company of America are backed solely by their claims paying ability. BrightLife Grow is issued in New York and Puerto Rico by AXA Equitable Life Insurance Company (AXA Equitable), New York, NY and in all other jurisdictions by MONY Life Insurance Company of America (MLOA), an Arizona Stock Corporation with its main administrative office in Jersey City, NJ and is distributed by AXA Network, LLC and AXA Distributors, LLC, 1290 Avenue of the Americas, New York, NY Life products are issued by AXA Equitable Life Insurance Company (New York, NY) or MONY Life Insurance Company of America and co-distributed by affiliates AXA Network, LLC and its subsidiaries and AXA Distributors. Please be advised that this document is not intended as legal or tax advice. Accordingly, any tax information provided in this article is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed, and you should seek advice based on your particular circumstances from an independent tax advisor. Neither AXA Equitable, MLOA, AXA Network nor AXA Distributors provide legal or tax advice. GE (4/14) (Exp. 4/16) Cat# (3/14) axa.com Life Insurance Products: Are Not a Deposit of Any Bank Are Not FDIC Insured Are Not Insured by Any Federal Government Agency Are Not Guaranteed by Any Bank or Savings Association May Go Down in Value AXA Equitable Life Insurance Company MONY Life Insurance Company of America (MLOA)