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You have a great business partner, “what if” they didn’t make it back?


Background

Bill & his wife Maria went on a two-week diving excursion in the Caribbean, it was fabulous. Until, Bill ran out of air when exploring caves. Luckily, a quick-thinking dive master helped to get Bill relaxed after he had inhaled a bit of salt water and they buddy shared off of his spare tank to safety. It was a wake-up call.

When Bill got back to work, he told his long-time business partner Mark about what happened.  They realized how they had not put together provisions to take care of their respective families since they started the business over 12 years ago. They were no longer scrapping, in fact over the years they had grown the business to over $35M in revenue and recently began opening offices in other states.  They needed, to update their “Buy-Sell” agreement and make sure it was funded for their family peace-of-mind.

Challenge

Neither Bill nor Mark were keen on ‘wasting money’ on insurance but they felt it was a necessary evil.  They also knew they couldn’t even “deduct the premiums” without including them on their personal returns as phantom income.  They were frustrated but wanting a solution for their families.

The Strategist’s Recommendations & Implementation


Use a little-known solution that allows them to not only fund a cross-purchase buy-out, the premiums ARE deductible!  AND, both are guaranteed that their family will benefit – either by, god forbid, his passing before he retires, or as a future income benefit for the family, Tax-Free! The scenario became:

  • A fully funded Buy-Sell agreement using Restricted Property Trusts and 10-Year Term Insurance to complete the funding need.

Results

Their fully funded Buy-Sell agreement not only took care of their needs today, but also created a benefit for their futures using tax-efficient business dollars. What they received:

  1. Funded Agreement: If a Partner passes early, their family is taken care of. The associated family ‘share’ is paid off with the fully funded buy-sell proceeds.
  2. Tax-Efficient Dollars: The business legitimately ‘writes-off’ 100% of the contributions made to funding of the Restricted Property Trust policies, $200K in total.  Each owner of this S-Corporation has a 30% ($30,000) current income inclusion on contributions made each year.  (The Term Insurance premiums are not deductible.)
  3. Personal Pension: Each Partner plans to live past the term of the agreement, in this case 10 years. The policies used to fund the agreement will then roll out to be personally owned by each Partner. They each will have a fully paid-up policy for life that will create a tax-favored, Tax-Free, supplemental income for themselves and their family in retirement. (Along with a Tax-Free legacy benefit.)
Check the background of this firm on FINRA’s BrokerCheck.