Top 10 Uses of Life Insurance in a Family Business Succession Plan

A key part of estate planning for business owners who want to keep their business in the family is deciding when and to whom to transfer the names of business ideas. The particular tools and techniques used in a business succession plan will vary based on the goals and objectives of the four groups affected by the plan: the senior generation business owner, the junior generation family members involved in the business, key non-family employees, and family members not involved in the business. It is important to examine how life insurance plays an essential role in the typical family business succession plan.

While there is a present lapse in the estate and generation-skipping transfer taxes, it’s likely that Congress will reinstate both taxes (perhaps even retroactively) some time during 2010. If not, on January 1, 2011, the estate tax exemption (which was $3.5 million in 2009) becomes $1 million, and the top estate tax rate (which was 45% in 2009) becomes 55%. However, it is the author’s opinion that the estate tax exemption will be at least $3.5 million once Congress acts.

Some business owners will wait until death to transfer all or most. Their business interests to one or more of their children. If the business owner has a taxable estate, life insurance can provide. The recipients of the business with the cash necessary to pay estate taxes. Using life insurance to pay estate taxes is particularly useful for business owners. Because their ownership interests cannot be readily liquidate. The children receiving the business may also need life insurance to pay estate taxes. Usually, the insurance policy will be own by an irrevocable life insurance. Trust so that the beneficiaries will receive the death proceeds both income and estate tax-free.

A properly designed buy-sell agreement guarantees a market and fair price for a deceased, disabled or withdrawing owner’s business interest. It also ensures control over the business by the surviving or remaining owners. And can set the value of the business interest for estate tax purposes. Life insurance is the best way to provide the cash necessary. The business or the surviving owners to purchase a deceased owner’s interest. In many instances, the cash surrender value in a life insurance policy can also be use (tax-free) to help pay for a lifetime purchase of a business owner’s interest.

A business owner can use life insurance to provide the children. Who are not involve with the business with “equitable” treatment. Leaving the business to the active children and life insurance to the inactive children equalizes the inheritances among them. In addition, it avoids the need for the active children to purchase. The interests of the inactive children, perhaps at a time. When the business may be unable to afford it. Depending on the particular facts and circumstances. The insurance may be own by an irrevocable trust for the benefit of the inactive children. And the insured may be the names of business ideas owner or the business owner and his or her spouse.

Leave a Reply

Your email address will not be published. Required fields are marked *