The death of an individual whose services are important to a
business will almost always generate considerable losses and
costs to the business. Some customers or clients with whom
the deceased had a close relationship may not stay with the
business, or they may be retained only after expenditures of
substantial amounts of effort and money. When the death
of a key person is unexpected or sudden, it also creates the
significant expense of evaluating and ascertaining the status
of works in progress, pending negotiations, and incomplete
projects, as well as preparing other individuals within
the business to assume responsibility.
There also may be significant costs and commissions associated with searching for, finding, and hiring a successor. In the most dramatic situation, the death of a key person may create a void that cannot be competently filled, and the business may fail entirely, leaving life insurance as the only means of replacing the other investors’ capital.
Business Succession is all about exit strategies. Whether the plan is to keep the business in the family, pass it to a key employee or sell it on the open market, proper planning is critical to identify potential buyers, realize a fair market value and protect the surviving owners. The questions of how to structure and fund the agreement are essential aspects of this process, and are frequently given too little attention until it is too late.
In addition to securing the ultimate transfer of the business to the new owner, it is essential to structure the executive benefits package to Recruit, Reward, and Retain the right candidates as well as protect the business from the unexpected loss of a key team member. The PenFacs Group Wholesaling team makes sure the right questions are asked and answered, resulting in more efficient management of these three critical areas: Protection, Employee Retention and the ultimate transfer of the company to the new ownership structure.
Executive Retirement Planning
More and more small businesses are using executive benefit plans to provide life, disability and health insurance to their owners and key employees. This highlights the fact that owners are opting for more cost-efficient ways to offer benefits to a select group of employees. In many cases, the executive benefit is intended to supplement qualified retirement plan benefits that are limited because of the participation and discrimination rules imposed on higher paid employees.
As economic recovery continues, an increasing number of small-business owners are saving for retirement. Because they rely heavily on personal investments for retirement funding, the popularity of supplemental executive retirement plans (SERPs) is on the rise.
Employee Benefit Planning
Planning strategies featuring life insurance not only protect an owner’s business investment, but also provide the owner with a supplemental retirement income source. Life insurance can be used to create powerful employee recruitment and retention incentives. It is frequently used to facilitate business continuity by funding buy-sell agreements, equalize estates for family wealth transfer, and provide funds to pay estate taxes.
With appropriate income tax structuring, a business owner may use business assets to provide valuable fringe benefits to the business owner and key employees. Learn more how PenFacs can help you.