Life Insurance & Business Succession Planning

One of the reasons why it is important to consult with a professional when you are planning your estate is because each situation is unique. The extent of your assets, the dynamic of your family, the nature of your wishes, and how you want to spend your retirement years all factor into the equation. When you see “do-it-yourself” estate planning kits you have to ask yourself how one marketer could somehow account for myriad possibilities and countless different jurisdictions in one handy-dandy kit.

This being said, partners in small businesses have some things to consider that those who work or have worked as employees do not, and one of them is succession planning. Though a co-owner can leave a business for any number of reasons, we will be focusing on succession as it applies to estate planning here. The matter of succession is important to your heirs of course because they will be inheriting your share, and it is also very important to the partners who will remain. Buy-sell agreements are often used to provide a solution that serves the interests of both parties.

The two types of buy-sell strategies we will look at here involve the purchase of life insurance. One of them is called the cross-purchase plan, which is employed when all of the partners purchase life insurance policies on one another. The total value of the policies is calculated to equal the value of one of the ownership shares. When a co-owner passes on, the remaining partners use the proceeds from the policies to buy the interest that was held by the deceased from his or her estate.

The other way to use insurance to fund a buy-sell agreement would be the equity plan. With this method the business entity itself takes out a life insurance policy on each co-owner. When one of them dies, his or her share is purchased from the estate at a previously agreed upon price using the policy proceeds.

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Alan Augulis, Estate Planning Attorney

Mr. Augulis founded his Warren, New Jersey law firm so that he could focus his practice in the areas of advanced estate planning and tax law. Mr. Augulis has invested considerable time and energy helping to educate others on the topic of estate planning and has become a sought-after speaker in the tax and estate planning arena because of his informative and entertaining seminars.

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