Key Man for a small business
- Thread starter wcShaver
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- key man life
- 1,641
Ah so, point taken.
- 2,152
In Key Man, the business is the client and the insured is not.
G
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Guest
Just as a quick aside, Colonial trains agents to explain to clients who take a disability policy that if they decide to pre-tax it, should they file a claim the benefits will be considered taxable income. They don't tell us what to advise the client, only to present both options.
If they ask what I would do I tell them I'm not licensed to give tax advice but that most people that I know decide to post-tax it so as not to get hit with a big tax bill should they become disabled.
Off the record, I think it is best to pay a little tax now to avoid a lot of tax later should I become disabled.
YMMV.
Al
- 2,152
No, your dead wrong. I have yet to come accross a business that doesn't want the deduction, just simple math and odds. Simply take the tax of the DB in consideration when DB amount is choosen.
- 1,641
James,
Earlier in this thread you spoke of the unfairness in buy-sell and cross-sell agreements. How are these unfair if the company pays for them?
Thanks.
Earlier in this thread you spoke of the unfairness in buy-sell and cross-sell agreements. How are these unfair if the company pays for them?
Thanks.
- 4,132
James, a suggestion for you is simply don't sell buy/sell agreements if you personally dislike them or feel they are unfair... but really, you haven't presented a single bit of evidence that disproves the need for a buy sell in most situations.
A buy sell has a purpose. You may not agree with or think it's fair, but that's really not your role in the process as an agent. Your's is to present options to a client including letting the widow or kids be involved... it is then up to the partners while living to decide the best course of action for the business and their families, not you. Your job is to show the options, costs, pros and cons of the situation. Remember in most cases you will also have the company cpa, cfo and lawyer involved. While emotional reasons (fairness) are important, so's the math and skills of the postiion.
A widow may not be able to replace a partner and hold up their end of the bargin. For example a medical practice. Can the widow keep the spouse's skills active in the practice? So maybe in that case, a buy out works best.
As far as future valuations, some options might be guaranteed increase options for coverage or simply projecting business growth out 20-30 years and buying a bigger amount upfront. Lots of options, lots of decisions to make.
But simply if you don't like it, don't sell it.
A buy sell has a purpose. You may not agree with or think it's fair, but that's really not your role in the process as an agent. Your's is to present options to a client including letting the widow or kids be involved... it is then up to the partners while living to decide the best course of action for the business and their families, not you. Your job is to show the options, costs, pros and cons of the situation. Remember in most cases you will also have the company cpa, cfo and lawyer involved. While emotional reasons (fairness) are important, so's the math and skills of the postiion.
A widow may not be able to replace a partner and hold up their end of the bargin. For example a medical practice. Can the widow keep the spouse's skills active in the practice? So maybe in that case, a buy out works best.
As far as future valuations, some options might be guaranteed increase options for coverage or simply projecting business growth out 20-30 years and buying a bigger amount upfront. Lots of options, lots of decisions to make.
But simply if you don't like it, don't sell it.
- 2,152
It depends, I was basically speaking of small business with one or mutliple partners. Or in this case if their is a "Key" Person involved, the Key Person in small business is likely the "Owner" or Major Partner. Often referred to as a "Rain Maker".
Now sooner or later you have to concentrate on the vast reality of the enviroment in which you want to peddle your wares. While I'm a strong believer in "Buy/Sell" and "Cross Sell" between partners. Yet with that said, and I suggest you go out and start talking to business owners and not take my word on this, small business rarely has more then one dominant person or what I would call a "Rain Maker". He/She is the driving force of the company, if a owner, this person in short time will be a majority holder of the company. At least this is what I find in the majority cases, when peddling to companies that has been around for a while and actually succeeding.
Now this is where it gets dicey, as noted by someone else that Attorney's and CPA's will be involved? Sure, I rarely walk into a business of any note and not find a Buy/Sell Agreement. The only real question is funding, sure an Attorney and/or CPA may be involved in the planning, rarely do they (Attorney's and CPA's) take active roles in funding the plan, that is left up to the owner/owners and, rarely funded.
This can only happen if both sides are equal, yet that is rarely the case. I find most owners are rather bias towards their family when financial concerns of their passing is discussed. Sometimes you'll find business partners (usually family ran businesses) that the partnership supercedes the spouse relationship. Yet, others will tell you to go into selling the simple Buy/Sell (term or Ul) where the business or major partner funds the buyout with insurance dollars that could easily to diverted to the family or families with a swipe of the pen. Basically saying to the other owner, if you want my share of the business it has to come from you and your dollars.
The basic question is simple, if a partner or any key person or group of any business wants to purchase the business in the case of a death of another partner or majority partner why should the business fund it? I'm sorry it gets no more simple then that. Numbers will always be on my side in most cases.
Of course you have exceptions, in the case of a recently acquired Trophy Spouse or if a owner has a Airhead for a wife and spoiled children but, these or the exception and not the "Rule".
Okay let us make this simple since I have a sliding use of numbers in this thread. Each owner has a policy worth half of the business, let us use ART each year. Now each partner can give that policy to thier family or partner, simple question is it not. Remember we are talking about owners, the business pays it either way you look at it. Yet either family is looking at having half a business and the insurance policy or the insurance policy or just half of what is on the table that is held today by their spouse. Now some suggest it would be hard or impossilbe for a surviving owner to finance the purchase on their own, simply ask the majority owner or equal owners if they could finance it with some help (as in the will of the dead owner) by the surviving family. This way the family will recieve the insurance in whole plus the income or cash settlement of the surviving partner buy out, even if they have to finance it over time, as in a loan payment.
Listen, the Buy/Sell is a needed necissity, funding it is the only question here. Should the surviving partner be given a free ride or the family of the dead owner? Any partner of mine will have to pay the piper when I die, that would be my spouse!
Ps, please don't take my word for it, go out there and start asking questions to owners and partners. Not too many layers of the proverbial onion has to be peeled before insurance funded Buy/Sell start stinking the place up in most cases. As noted before, it may sound good within a Insurance Brochure but that is about it.
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