Planning Strategies to Help Business

Transcription

1 Planning Strategies to Help Business Using Cash Value Life Insurance to Help Accomplish Goals for Retirement, Sucessful Business Transition and Estate Planning 17-92A 17-92B Page 1

2 1. 2. a. Entity Purchase Buy-Sell ( Stock Redemption ) b. Cross Purchase Buy Sell c. One-Way Buy-Sell d. Wait-and-See Buy-Sell Planning for the succession and future continuity of the business is an important strategy for all business owners that can personal or business sponsored retirement 1 from non-retirement accounts 2 3 and less than 30% 4. Your business may not be able to 1 Many Small-Business owners aren t prepared for Retirement, Laura Petrecca, USA Today, March 1, Gen X and Y Investors Worry Retirement Savings Won t Be Enough, Michael S. Fischer, AdvisorOne, March 9, Page 2

3 The sudden death of the business owner lacking a properly structured business continuation plan may: future direction and ownership of the business. A properly structured business continuation plan (i.e., a buy-sell agreement) which uses life insurance may help to minimize the impact caused by the sudden death of a business owner for both the business and the business owner s family. 2 A properly structured business continuation plan may help answer the question of what happens to a business after the death or retirement of a business owner. A business continuation plan can also allow for continuity of management, a source of income for the business owner or his or her family, and a clear direction for the future ownership of the business. A business continuation plan is usually structured in one of three ways: a stock redemption, a cross purchase or a waitand-see buy-sell. The basic difference between these three structures is who purchases the shares. In a stock redemption, shares. features: Continuity of management and control for the remaining owners A source of income for the decedent business owner s family 5 A fair return to the decedent s estate for his or her business interest 3 The Succession Planning Group, Business Owner Succession Planning for Death, Divorce or Disability, available at ticles/ item/33-succession-plan-death-divorce-disability? tmpl=component&print=1 (last visited March 25, 2013) 4 Tannette Johnson-Elie, Succession Planning for Small Business Owners. Market Wire (February 7, 2013) Page 3

4 A Stock Redemption or entity purchase plan is a type of business continuation plan which may be best suited for a business with three or more business owners. The entity purchase plan requires the business to purchase a departing or deceased business owner s interest in the business at an agreed upon price. The agreement can apply to one or more of agreement. The agreement will require the business to purchase the participating business owners interests in the - A cross-purchase arrangement is a type of business continuation plan best suited for a business with few business owners. The cross-purchase arrangement requires departing business owners or the estates of decedent business owners to sell their interest in the business to the remaining business owners at an agreed upon price. The agreement can apply to business owner s death or departure from the business, the other participating business owners can use the life insurance interest. A one-way buy-sell arrangement is designed either for (1) an owner of a business who wants to sell to someone who does - helps ensure that the business owner can sell his or her business interest to an appropriate buyer. The wait-and-see buy-sell arrangement allows business owners to postpone the choice between an entity purchase and a cross-purchase buy-sell until the death or departure of a business owner. This arrangement requires that both the business and the business owners agree to purchase a decedent or departing business owner s interest in the business at an agreed upon or determinable price. sell agreement. The agreement will require the business and the participating business owners to purchase a decedent or departing business owner s interest in the business for an agreed upon or determinable price upon the occurrence of a to purchase the decedent or departing business owner s interest in the business, and a second option to the remaining participating business owners to purchase any portion of the business interest not purchased by the business. 5 According to the American Taxpayer Relief Act of 2012, the federal estate, gift and generation skipping transfer (GST) tax exemption amounts are all $5,000,000 (indexed for Page 4

5 Advanced Planning Strategies Cash Value Life Insurance Provide a Family Legacy Secure Retirement BUSINESS Ensure the Business Continued Success Transition the Business The implementation of a business continuation plan using life insurance is often quite simple. With the assistance of the appropriate for their needs. The attorney then drafts a buy-sell agreement which contains the parameters for the arrange- the purchase price will be determined. 6 on the business owner s life. If the arrangement is structured as a stock redemption, the business will generally be the owner and - 6 Page 5

6 Some business owners may initially consider term insurance to fund their business continuation plan. While using term than term for a buy-sell agreement. compared to term life insurance: owner s retirement. If the arrangement is a cross purchase or wait-and-see buy-sell, the policy owners/business owners may access any 3 skills and abilities. A disruption or slowdown in sales or business production A weakening of the company s credit rating 7 8 The business may use Page 6

7 ferred compensation plan 4 business planning strategies. By arranging a business continuation plan (buy-sell agreement) using life insurance, the policy owner (usually a co-owner of the business or the business itself) can use the policy proceeds to help buy out Page 7

8 company. Look to the strength of the life insurance company with regard to such guarantees as these guarantees are not backed by the broker-dealer, A 17-92B 17-92A 17-92B Page 8