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Home » Estate Planning » Life Insurance Aids Succession Planning

Life Insurance Aids Succession Planning

May 15, 2020 by Pamela Potter

buy-sell agreementsThe ideal estate plan will depend upon the circumstances, and this is one of the reasons why it is important to discuss your options with a licensed attorney. Some situations are more challenging than others, but there is an effective strategy to address just about any scenario.

With this in mind, we will look at a couple of different ways that life insurance can provide solutions for small business people.

Buy-Sell Agreements

If you are planning your estate as a partner in a small business, succession is a major issue. After a partner dies, how will the succession be handled? The partner’s heir would inherit the share, but how would the business be conducted going forward?

To account for this, you and your partner could enter into a buy-sell agreement called a cross purchase plan. First, you would decide on the value of an ownership share in the business. Each partner would take out a life insurance policy on the other that is equal to that amount.

After the death of a partner, the survivor uses the proceeds from the policy to purchase the deceased partner’s share from the estate. This type of arrangement can also be used when there are more than two partners.

Another common type of buy-sell agreement is the entity purchase or stock redemption plan, and it is very similar. The major difference is that the business as an entity would purchase the life insurance on each partner.

Inheritance Balancing

Life insurance can provide a solution to another estate planning challenge. The best way to explain is through a simple example.

Let’s say that you are the owner of a restaurant that has been firmly established for decades. The property itself is very valuable, and the business is a huge money maker.

You have a son and a daughter, and your son started working at the restaurant full-time after graduating from college. He has helped the business grow, and he is committed to running the operation after you pass away.

Your daughter took a different career path. She does not have any interest in the business at all. The business is your most valuable possession by far, and you do not want to divide it in any way. At the same time, you do not want to shortchange your daughter when you are planning your estate.

Under these circumstances, you can determine the value of the business and take out a life insurance policy that is equal to that amount. You can make your daughter the beneficiary, and after you are gone, she would receive the proceeds.

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There is no charge for this valuable tool, so you can grab it right now with no hassles whatsoever. Simply visit our worksheet page and follow the instructions to get your copy.

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Our doors are open if you would like to put a solid estate plan in place. You can schedule an appointment at our office in Charlotte, North Carolina, or Huntersville, North Carolina, if you call us at 704-944-3245. The number for our office in Kentucky is 606-324-5516 (Ashland, KY) or 859-372-6655 (Florence, KY), and there is a contact form on this website you can use if you would like to send us a message.

  • Author
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Pamela Potter
Pamela Potter
Owner and founder of the Ashland, Kentucky based Potter Law Firm, Ms. Potter concentrates her practice in the area of estate planning, estate administration, and elder law. Mrs. Potter’s goal is to help her clients plan secure financial futures for themselves and their families. To achieve that goal, her firm offers a wide range of estate planning services, including wills, trusts, and powers of attorney in addition to probate, estate administration, elder law, and Medicaid Planning services.
Pamela Potter
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Filed Under: Estate Planning Tagged With: Business Succession Planning, buy sell agreements, inheritance balancing

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About Pamela Potter

Owner and founder of the Ashland, Kentucky based Potter Law Firm, Ms. Potter concentrates her practice in the area of estate planning, estate administration, and elder law. Mrs. Potter’s goal is to help her clients plan secure financial futures for themselves and their families. To achieve that goal, her firm offers a wide range of estate planning services, including wills, trusts, and powers of attorney in addition to probate, estate administration, elder law, and Medicaid Planning services.

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