Successful Business Owners
Business Succession - More than 75% of wealthy individuals typically own
all or part of a closely held family business. Sooner or later, every
family business must be transferred. Unfortunately, many advisors are
putting off dealing with this issue for a variety of reasons, not the
least of which is family relationship dynamics. Nevertheless, an
unplanned transfer, especially if caused by death, can be an economic
and tax disaster. The business itself is usually jeopardized! There are
many viable business succession strategies and lots of planning
material available to the advisor, so we've decided not to provide that
material here. It would fill volumes. Suffice it to say that this
issue is not being adequately addressed by most advisors to the wealthy.
The death of a major shareholder in a closely-held corporation can seriously interrupt continuity and profitability of the business. Surviving shareholders must struggle with how to continue the company as a profitable business with the loss of a key player. Heirs must concern themselves with how to replace the income that the shareholder had earned and how to extract their inherited portion of the company value while often dealing with federal and estate tax liabilities. To minimize the areas of conflict and to realize a smooth transition, company owners should enter into an agreement while the parties are still living. This is called a buy-sell agreement. Shareholders agree to sell their stock interests in the event of specific triggering events such as death, disability or retirement. Stock purchase plans are generally classified into three categories: stock redemption plans, cross purchase plans and hybrid plans.
Several strategies can be used to fund a variety of important business planning needs, such as:
* Executive Golden Handcuff Arrangements
* Key-Man coverage
* Buy-Sell coverage
The informal use of Premium Financed COLI (Company Owned Life Insurance) is now drawing the attention of successful companies, Law Firms, Accounting Firms and Medical Groups across the country. These policies provide the means to produce Supplemental Income to the firm and its employees. Our program replaces the need for the company to formally fund a separate long-term plan producing annual cash payments. With Company Group Premium Finance, the focus shifts from maximizing death benefits to producing future long-term cash flow to be enjoyed while the insured employees are living! This cash flow is designed to last for decades and can satisfy variety of company and employee needs.
Similar to the "Individual" Premium Finance chassis you may be familiar with, Group Premium Finance requires collateral to secure lender financing, which funds rapid cash value growth life insurance policies. Each company has the same high probability of "no out-of-pocket cost". The company always has the option of paying into the program as well, thus redoing or eliminating the need for collateral. These life insurance policies, with a typical loan exit strategy within 20 years, produce death benefits and future cash flow.
CashStreamTM is another possible answer. The program uses financed or partially financed insurance to build cash within the insurance contract. The appropriate insurance policies build up sufficient cash to pay off the loan and generate an income flow using excess cash value. The death benefit, if the insured donor should die prematurely, will create additional cash flow to the company. BUT most importantly, if there are no premature deaths then cash is generated anyway. Deciding on the degree of leverage (either full or partial premium financing) comes down to how much cash, if any, the company wishes to contribute to the strategy; and collateral, if any, the company wishes to post. Note, the more cash the company contributes to the program, the less collateral is required, and the sooner the bank loan exit occurs.