Many advisors take part in business succession planning for their clients, but just as many fail to capitalize on the opportunity of including life insurance in that plan. Not only is this important for all business owners, but specifically for family-owned businesses.
WealthManagement.com recently addressed just that and provided some great tips on how to incorporate life insurance into business succession planning, and we’ve highlighted some of the best tips here:
- Combining with a Buy-Sell Agreement
- Although using life insurance in conjunction with a buy-sell agreement isn’t a new concept, it’s worth repeating because of the protection it provides for the business. It allows the business to pay the premiums and be the beneficiary, so if something was to happen to the owner the business receives the proceeds and provides the flexibility to redistribute the shares to remaining owners or to hold onto them.
- Using a Grantor Trust
- By using a grantor trust, it allows business owners to equalize the wealth transfer to its heirs, specifically when only certain family members are supposed to hold stock ownership in the company. Most importantly, adding life insurance inside the trust provides the owner with the ability to leverage or enhance the assets of the trust.
According to the Conway Center for Family Business, “Family-owned businesses are the backbone of the American economy. Studies have shown about 35 percent of Fortune 500 companies are family-controlled and represent the full spectrum of American companies from small business to major corporations. In addition, family businesses account for 64 percent of U.S. gross domestic product, generate 62 percent of the country’s employment, and account for 78 percent of all new job creation.”
Business succession planning should be a key element of any advisors strategy when speaking to entrepreneurial clients. By capitalizing on the opportunities presented in the tips above, you are not only diversifying your skill set, but improving the financial portfolio of your clients and protecting their legacy.