Business Succession Planning

The Role of Life Insurance

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.

When considering business succession planning, an established buy/sell agreement should be funded with the most cost-effective method for the company.  There are several funding methods to consider, but the preferred solution for many businesses is life insurance. 

Upon the unexpected absence of a shareholder, the remaining business owners and the family of the deceased both need liquidity.  Buy/sell funding is done through life insurance with discounted dollars by way of premium payments instead of extracting value from the business after an owner has passed away or left the company.  Without the proper amount of life insurance in place, the estate may have to sell the business in a rush to create liquidity, often resulting in a family receiving less than the fair market value. 

A business that has implemented the proper amount of life insurance to fund a buy/sell agreement typically continues operating as expected and will not need to regain any funds that were extracted from the value of the business.  This is why maintaining an appropriate amount of life insurance is essential to a successfully funded buy/sell agreement.  We recommend auditing a life insurance portfolio every two years to assess the amount of coverage in place versus the amount of coverage that is needed.

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.