Business Succession Planning

Policy Transfer Considerations

October is Financial Planning Month, which focuses attention on efforts such as estate planning, long-term care planning, determining familial goals for charitable giving, retirement planning, and our topic for the month, creating a business succession plan.  Financial Planning Month is a good time to take stock of the financial goals you have and work out a road map to achieve them.  We urge you to consider life insurance as a viable vehicle to take you down the path to complete your financial portfolio.

The US Supreme Court’s decision in Connelly v. US has caused many businesses to review their buy/sell agreement and succession plan.  There are a few details to consider when determining the best route for transferring any life insurance policies that were implemented to fund a buy/sell agreement on an income tax-free basis.  One such consideration is determining whether a transfer meets an exception for the transfer for value rule.  Another is to consider the reportable policy sale test as outlined in the Tax Cuts and Jobs Acts of 2017 and added to Code Sec 101.

Determining whether a policy will maintain its income tax-free status is an important step when deciding to sell or transfer an existing life insurance policy for valuable consideration, either while changing the structure of a succession plan or dissolving a buy/sell agreement to implement a new agreement that uses a different arrangement.  Some of these analyses will be straightforward but others can become complex.  In every case, it’s important to understand the specifications of the sale or transfer of each policy.  If a policy will lose its income tax-free status, other options should be explored before implementing any changes.

Click here to read more about Code Sec. 101:  Transfers for Value and Reportable Policy Sales

Since we spend much of our time working with advisors, many of our new client relationships come directly from attorneys, accountants, and wealth managers. We have gained the trust of these advisors, and in turn have earned the privilege to be of service to their clients.  Contact us with any questions or opportunities to help you or your clients achieve identified goals.  This is what we enjoy doing for only a select number of families, businesses, and charitable institutions each year, and we look forward to hearing from you.

This information is for general and educational purposes and is not intended as legal or tax advice. Nor is it intended to provide specific advice or recommendations for any individual or entity.