R&R Insurance Blog

If you retired, died, or became disabled yesterday, who would own and manage your business today? Would you want your business interest retained for a family, sold, or liquidated? According to The Virtual Assistant, there are four ways to fund a buy-sell plan at an owner's death:

1. Cash Method

The purchaser(s) could accumulate sufficient cash to buy the business interest at the owner's death. Unfortunately, it could take many years to save the necessary funds, while the full amount may be needed in just a few months or years.

2. Installment Method

The purchase price could be paid in installments after the owner's death. For the purchaser(s), this could mean a drain on a business income for years. In addition, payments to the surviving family would be dependent on future business performance after the owner's death.

3. Loan Method

Assuming that the new owner(s) could obtain a business loan, borrowing the purchase price requires that future business income be used to repay the loan PLUS interest.

4. Insured Method

Only life insurance can guarantee that the cash needed to complete the sale will be available exactly when needed at the owner's death, assuming that the business has been accurately valued.

Click here to learn more about the Buy-Sell services provided by R&R Insurance Services.

If you retired, died, or became disabled today, who would own and manage your business tomorrow? Would you want your business interest retained for a family, sold, or liquidated?

A Buy-Sell Agreement controls what happens to the company stock upon the occurrence of a triggering event such as the death, retirement, or disability of a shareholder. A Buy-Sell Agreement, which is a contractual agreement between shareholders and their corporation or between a shareholder and the other shareholders of the corporation, is the center of a business continuation plan.

There are 4 key factors to consider when creating a buy-sell agreement with your stockholders:

1. Type of Business (S-Corp, C-Corp, LLC, Partnership, Sole-Proprietorship)
   A properly funded Buy-Sell Agreement uses life insurance as a funding vehicle to pay the deceased/disabled business owner's family their share of the business interest. Who owns this policy depends on how many business partners you have and what type of corporation you have (S-Corp, C-Corp, LLC, Partnership, Sole-Proprietorship). Setting this up incorrectly can result in additional tax issues, step-up in basis issues and can even result in the need to liquidate the business immediately whether you want to or not.
2. Type of Agreement - Cross Purchase vs. Entity Purchase
   In a Cross Purchase Agreement, each shareholder owns the life insurance on each other shareholder. In an Entity Purchase Agreement – the life insurance funding vehicle is owned by corporation.
3. Value of Your Business
   Your business’ value is extremely important when establishing a Buy-Sell Agreement. This value should be reviewed every 3-5 years to ensure your family receives the correct amount for your interest in the business. In today’s changing economy, it is important to review your current Buy-Sell Agreement regularly to ensure it is aligned with the value of your business.
4. Funding of Buy-Sell Agreements
   Most businesses don’t have enough excess cash in reserve to buy out a shareholder's spouse upon a unfortuneate demise. The life insurance is earmarked to pay (buy out) a deceased business owner’s business interest, with the funds going to the family. Purchasing life insurance can be a relatively inexpensive way to fund your Buy-Sell Agreement. Knowing that the funds are available when the circumstance arises, reduces anxiety about a family's livelihood and guarantees the proper payout for a spouse.

Any business owner who hasn't had a proper valuation on their business is leaving the fate of the business and the livelihood of their family to chance. R&R offers free business valuation plans as a complimentary service to any business owner wanting more information about their business and how to ensure it’s longevity, and adequate funds for their family’s well-being. The service is provided by attorney resources R&R contracts with – again at no charge to you. Wisconsin businesses should contact Tom Driscoll for more information about business valuation, Buy-Sell Agreements and estate planning.

If you died tomorrow, how would your loved ones fare financially? It’s not a pleasant scenario to think about your own death, but not doing so can have serious consequences.

If someone depends on you financially, you need life insurance. It’s that simple. Unfortunately, roughly 70 million adult Americans have no coverage at all, and most of those who do have far less coverage than financial experts recommend. Life insurance provides cash to your family after your death. Known as the death benefit, it can help your family pay for the funeral and other final expenses, eliminate credit-card balances and car loans, and provide loved ones with income to live on for a period of time. Whether a person needs life insurance depends on his or her particular situation and financial objectives. Coverage needs to be an important consideration for the following scenarios:

1. You’re Married. Married people share a life with one another, but also share financial obligations. If you died suddenly, would your surviving spouse have enough money to pay for your final expenses and buy time to adjust to a new way of life? Life insurance can help ensure that these financial goals will be met. Life insurance can be considered mortgage protection. Protect your spouse's ability to keep the home that you live in. Life insurance would offer the funds necessary to keep the home and the mortgage intact.
2. You’re Married With Kids. Having kids is the most obvious reason to own life insurance. If you and your income were suddenly gone, would your spouse and kids be okay financially? Life insurance helps replace lost income to help make sure those who depend on you will be provided for, no matter what life throws your way.
3. You’re a Single Parent. As a single parent, you're the caregiver, breadwinner, cook, chauffeur, and so much more. You need to make doubly sure that you have safeguarded your children’s future in case you are no longer there to care for them. Make sure you have enough life insurance and designate who will take care of your children in case the unthinkable were to happen.
4. You’re a Stay-at-Home Parent. Just because you don't bring home a paycheck doesn't mean you don't make contributions to your family that would be expensive to replace. If you were no longer there, could your spouse afford to pay someone to provide the childcare, transportation, cleaning, cooking and other household responsibilities that you handle every day?
5. You’re Approaching Retirement. The kids may be gone and the mortgage paid off, but that doesn't mean Social Security or your savings will necessarily take care of everything that lies ahead. If you died tomorrow, would your financial strategy, without insurance, enable your spouse to maintain the lifestyle that the two of you worked so hard to achieve?
6. You’re a Small Business Owner. Life insurance can help protect your business in a number of ways in the event you, your partner, or a key employee dies prematurely. A buy-sell agreement funded with life insurance allows surviving business owners to buy the company interests of a deceased business owner at a previously agreed-on price. Key-person insurance can provide business owners with the flexibility to hire a replacement when the key employee dies.

You can get a general sense of your life insurance needs by going to www.lifehappens.org/lifecalculator and using the online calculator offered by the LIFE Foundation, a nonprofit insurance education group. Or, you could contact me and we can have a quick discussion to help you determine the right coverage for you and your family or your business - products that fit your lifestyle and your budget.