Buy- Sell Agreement Funding | Business Owner Solutions
What happens if one of the owner or partners dies untimely or gets totally disabled, not only that business looses a working hand (in some cases decision maker) but can also prove to be liability for business. A key component of an integrated financial plan is planning for business succession. The business interest often accounts for a substantial portion of the wealth the business owner has accumulated. Ensuring that a plan is in place for the eventual transfer of the business interest will help the owner realize full value for the business interest and it will also help the business and the remaining owners survive the transition. This is particularly true if one of the owners dies prematurely.
Changes in ownership may create financial obligations for the remaining owners. Ownership changes can also have income tax implications for the withdrawing owner and the owners who remain. An integral part of any succession plan is to ensure that financing is in place to fund the purchase and sale of the business interest if an owner dies. The succession plan should also provide the business owner with sufficientliquidity to fund the related income taxes and, where possible, take advantage of any tax deferral or tax minimization strategies that may be available.
For closely held corporations or partnerships, one of the
most important tools for implementing a business
succession plan is the shareholders’ agreement or
partnership agreement. Once the business succession plan is
developed, an agreement can be drafted to reflect the
needs and wishes of the various parties.
Life insurance is generally an efficient way to fund the
obligation that results from a buy/sell agreement when a
shareholder or partner dies. There are numerous possible ways
to structure a buyout on death and life insurance funding
plays an important role in ensuring the buyout occurs.
In considering the various methods for structuring a buy/sell agreement, you need to keep in mind that there is no “right way” to proceed. Each method has its own pros and cons and must be considered in light of the circumstances of a given situation. An important consideration is whether to fund the buy/sell arrangement with ‘corporate owned’ or ‘personally owned’ life insurance. Ensuring that the ownership is properly arranged from the onset will avoid a transfer of ownership in the future, which would result in a disposition of the policy and could possibly trigger a tax liability.
Options:Each business has unique needs, call us and one of our licensed experienced Insurance Advisor in the field of developing solutions for business owners shall be happy to assist; or simply have a quick quote by clicking on one of the options as under:-
1. Term Life Insurance (Online Quote) - If the need is temporary, Its best way to start, where premiums for coverage are least.
2. Permanent Life Insurance (Online Quote) - If the need is permanent, you feel there will be need of payout one day sooner or later.
3. Executive Disability Insurance plan to fund a buy sell agreement in the case of total disability.
4. Critical Illness coverage to buyout shares in the event of one of the partners diagnosed with critical illness.
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