FACTS FROM LINCOLN FINANCIAL GROUP ON BUY-SELL AGREEMENTS
Buy-Sell agreements Planning for the succession of your business may be one...
East Coast Financial is aware of the impact the Coronavirus (COVID-19) is having on not only families and businesses, but business partners too, as the number of terminally ill patients have and will continue to increase. If a business partner were to pass without a buy-sell agreement in place funded with life insurance, then you may not have the available funds to cover the purchase of your partners portion of the business. This means a part of your business may go to your partners spouse or children.Insurance coverage is always important to have, whether it’s for your family or your business, not before things go bad, such as a pandemic.
Our process is streamlined to be pandemic-friendly, with technology, virtual meetings, and electronic applications. East Coast Financial makes funding buy/sell agreements and insurance for families super simple. Leveraging experience, a 60+ carrier network of resources and technology, we can fund even the most complex buy/sell agreements without requiring business owners to leave their homes or offices.
Your information is 100% secure and encrypted.
We source the best policies and coverage from A-rated companies, then we handpick the perfect policy that fits your needs. As your nationwide-online business and family insurance provider, our volume allows us to provide the best rates on insurance policies for businesses and families based on your individual needs; opposed to using companies with high-commission incentive programs.
Buy-Sell Funding Made Easy!
Even if you do not qualify for life insurance, our experience agents can show you ways to use indexed solutions to achieve your buy-sell funding needs. Our experienced life insurance agents can walk you step-by-step through the process of setting up a buy-sell agreement for your business and properly funding it.
A buy-sell agreement is a legal document designed to ensure that the ownership of a company will continue to be held by the surviving owners if one of them passes away, retires, or becomes disabled. All of the members sign off on this agreement – so if such a triggering event occurs – they will sell their ownership interest to the other members or back to the company.
When you form a business with someone—regardless of the tax structure of the business—you are investing valuable time and money into a joint venture. Obviously as business owners, you are (or should be) loyal to each other and the business. Now, imagine one of your partners passes away and his ownership interest passes to his estate. In this example his will may pass his entire estate to his wife. Whether or not you got along with your partners wife, an event like this will force you to go into business with her. A buy-sell agreement helps prevent this scenario from happening.Buy-sell agreements are also known as “Business Continuity” agreements as they help ensure stable ownership of the company, keeping the surviving owners in charge if something happens to one owner.
With a buy–sell agreement that is funded by life insurance, the company or the individual co-owners buy life insurance policies on the lives of each co-owner.
At the most basic level, if a co-owner dies, the other co-owners or the business entity itself will use the insurance death benefit proceeds to buyout the families inherited business interest.
In a cross purchase plan, each co-owner purchases life insurance on the other co-owner(s). Each owner pays the annual premiums on the policy they own and each is the beneficiary of the policy. When the owner passes, the surviving owners use the death benefit proceeds to buy the business interest lost by the owner that passes. If there are many owners within the business, multiple policies must be purchased by each owner. In the following Cross Purchase Plan example, the business is valued at 2 million dollars, and has 2 owners, Angelica and Mark. Each owner holds 50% of the company.
In an entity redemption plan, each owner has an arrangement with the business for the sale of their interests to the business. The business entity purchases separate life insurance policies on the co-owners. The business pays the premiums. And the business is the owner and beneficiary of the policy. When an owner dies, his or her share of company stock will pass to his or her heirs or estate, and the company may purchase them with the proceeds from the life insurance policy. In the following Entity Redemption Plan example, the business is valued at 3 million dollars, and has 3 owners, Michael, John and Mary. Each owner holds 33% of the company.
A hybrid plan combines the cross purchase and entity redemption. Typically, the owner is required to offer his or her interest to the entity. If the entity declines or cannot make the purchase, however, other co-owners or partners can purchase the shares. This type of arrangement may also allow certain employees, like longtime company officials, to purchase the interest. In the following Hybrid Plan example, the business is valued at 1 million dollars, and has 2 owners, Lauran and Ted. Each owner holds 50% of the company.
In this type of agreement, you find a buyer for your business and agree that the buyer will have right of first refusal (ROFR) on the sale of the business. What does this mean? Well, it gives the buyer in the agreement priority or ‘first dibs’. The ROFR is what provides the ‘insurable interest’ that allows the buyer to take life insurance out on the seller. It gives the buyer in the agreement priority or ‘first dibs’.
The sale will become available when a specific event occurs, such as death, becoming disabled, or retirement. Usually the assets of the business are used to pay down outstanding debts of the business and the buyer then is purchasing the remaining value. The buyer often pays for a life insurance or disability insurance on the life of the business owner, with the policy proceeds payable to the buyer. If the owner dies or becomes disabled, the policy pays the buyer, who uses the life insurance funds to purchase the business.
Your information is 100% secure and encrypted.
Plus, the proceeds are usually paid quickly after your death. And if sufficient cash values are available within the policies, the funds can be accessed to purchase your interest in the business if you retire or become disabled. Additionally, the life insurance policy proceeds are typically free from income tax regardless of who owns the policy.
We Don’t Over Quote, Our Volume Allows Us to Provide the Best Rates and Service!
Feel free to review some of our content to help you on your journey!
Buy-Sell agreements Planning for the succession of your business may be one...
East Coast Financial of Central Florida have the retirement planning...
East Coast Financial of Central Florida have the retirement planning...
Your information is 100% secure and encrypted.