Global Financial Distributors

As a successful business owner, your business is likely to be one of your most valuable assets.   If you or your partner unexpectedly dies or becomes disabled you might be forced into a number of unwanted consequences like a lack of operating cash; a forced sale or a new IRS generated higher valuation of the business.  A buy-sell agreement is often used to mitigate potential problems and provide for a secure transition.

A buy-sell agreement is a contract among business owners. At the loss of an owner, the business interest is transferred according to the terms of this contract. The other owner(s) are obligated to purchase the deceased's business interest and the deceased's heirs are obligated to sell protecting your investment and the family’s financial future.  Buy-sell agreements frequently benefit family, surviving owners and creditors of the business.

Different methods of funding these agreements such as using cash at the death of a co-owner or waiting until death to borrow funds, usually bank loans, are available but have risks.  What if there is no ready cash or unforeseen expenses have depleted the fund set aside to fund the agreements? 

Insurance
One option could include the purchase by the business of an annuity to be available in case the need arises.  If no need develops, the money can be converted for business assets or retirement planning.  Organizations without ready cash or other cash deployment needs can look to GFD’s Leveraged Planning^® programs to assist in the plan creation and implementation.

Purchasing life insurance is also a cost effective funding option for a buy-sell agreement. Using life insurance as a funding vehicle will provide the following benefits:

• Immediate availability of proceeds when death or disability occurs.
• The funds used to buy the deceased's share are purchased for pennies on the dollar.
• Death benefit proceeds are generally income tax free.

Once again, GFD’s Leveraged Planning^® programs provide an alternative to the business and business owner to full fund a plan today when cash is better utilized for other purposes such as growing the business or not currently available at all.

Example: A Corporate/Entity Plan
In this plan, owners enter into an agreement with the business. The business applies for, owns, and pays the life insurance premiums on each owner.

When an owner dies:

• The business will receive the life insurance proceeds.
• The business uses the proceeds to purchase the deceased's business interest.
• Heirs receive an agreed-upon price for their business interest.

A variation on this plan occurs when the business secures leverage through GFD and allows the owners to own the policy (or an ILIT) with the beneficiary designations structured to cover the agreement and possibly more for the business or heirs.  This option, when structured properly, could also provide the opportunity for tax deductions to the business.