Strategies for Businesses
Business PlanningDevelop a strategy to preserve your business and your net worth. Effective business continuation is both an "art" and a science. First and foremost, it is an art. Because the best business plan always considers your unique financial goals and objectives, creativity and customization is required to select and tailor those strategies best suited to meet your specific business continuation and benefit needs. However, business continuation and benefit planning is also a science. The best business plan should take into account the tax and legal ramifications of the various financial strategies adopted. A Financial Advisor or Registered Representative will incorporate both the art and science of business planning in a program recommended to you. Using business dollars for personal expenses These valuable concepts can help:
How to use employee benefits to increase income and improve retention of key employees These concepts can help you get the most out of your benefit dollars:
The Art and Science of Business Planning can help ensure the ongoing success of your business. Key Person Life InsuranceProtect your business against the loss of one of your most vital assets: key employees Key people are vital to the success of your business. A Key Person Life Insurance Plan can provide the funds you need to keep your business running smoothly after you've lost a key employee through death or employee turnover. How Key Person Life Insurance works: The employer pays premiums for a life insurance policy on the key employee's life. The employer is the owner and beneficiary. The employer can arrange an Exchange of Insurance Agreement to reduce losses if a key employee leaves prior to retirement. This allows the employer to transfer coverage to a successor. If a key employee dies, the employer receives the policy's income tax-free death benefit* and can apply it towards business expenses or losses caused by the employee's death.
If you employ anyone whose sudden, unexpected absence would significantly impact your business, consult with your life insurance agent and financial professionals about Key Person Life Insurance. * Subject to the corporate alternative minimum tax for C corporations. Business Estate PlanningHow to preserve your life's work You've spent a lifetime building your business. Take a moment to make sure that your hard work will survive the death of you or one of your partners. As the owner of a closely-held business, much of your wealth is probably tied up in the business. While returning earned income back into the business helps finance growth, it can cause severe liquidity problems for your estate when you die. After paying probate and estate taxes, your estate and surviving family members also may encounter liabilities that become payable upon your death. They may also face the potential of decreased business earnings, due to your absence. There are ways to overcome these liquidity problems. Business-oriented planning tools can help reduce estate taxes and make the best use of the cash available. The most common business estate-planning tools are buy-sell agreements, Section 303 stock redemptions, Section 6166 estate tax deferrals and the qualified family-owned business exclusion. Business-owned life insurance can be used to fund each of these planning methods. Buy-Sell Agreements Buy-sell agreements can establish the value of your business for estate-tax purposes and improve your estate's liquidity by assuring a ready market for your business upon your death. These agreements also protect business partners from sharing ownership with a deceased stockholder's family. There are two main forms of buy-sell agreements: cross-purchase and stock redemption. In an insurance-funded cross-purchase arrangement, each business owner buys an insurance policy on the other, naming themselves as beneficiary. At the death of one of the owners, the surviving owner receives tax-free insurance proceeds to use in purchasing the deceased owner's stock from his or her estate. In an insurance-funded stock-redemption arrangement, the corporation purchases the stock of a deceased shareholder. Here the business is the owner and beneficiary of life insurance policies on each shareholder. A partnership looking for a business continuation plan may use a similar arrangement called an entity purchase. A buy-sell agreement that is funded with life insurance will benefit: Your Family:
Your Business:
Section 303 Redemptions Section 303 of the Internal Revenue Code gives your estate a one-time opportunity to remove cash or other property from your business, at little or no tax cost, through a partial redemption of your stock. This can provide the liquidity your survivors need to pay funeral costs, estate and administrative expenses, and state and federal death taxes. To be eligible for a Section 303 redemption, the stock value must exceed 35 percent of your estate. The maximum amount that can be paid under such a plan equals the total amount of the federal estate tax, state death taxes, funeral and administrative expenses. Corporate-owned life insurance can be used to fund the redemption. Under this arrangement, your business purchases an insurance policy on your life and at your death uses the tax-free proceeds to buy enough stock from your estate to cover death expenses and taxes. Section 6166 An estate tax burden can force the liquidation of a closely-held business. Internal Revenue Code Section 6166 was designed to prevent this liquidation. If the business interest constitutes more than 35 percent of your adjusted gross estate, under Section 6166 the executor may elect to pay the estate tax attributable to the value of the business in 10 annual installments, beginning no later than five years after the date of your death. There are a number of requirements you'd have to meet to be eligible for the Section 6166 extension. If your estate qualifies, life insurance offers an economical way to pay these installments. Qualified Family-Owned Business Exclusion If your business qualifies as "family owned," you may be able to exclude part of it from estate taxation. The amount you can exclude is $675,000 if the death of the estate owner occurs in 1998. That qualifying amount gradually decreases over time to $300,000 if the death occurs in the year 2006 or later. Your business qualifies as family owned if the business comprises more than 50% of your total estate and you pass the estate on to a "qualified heir." A qualified heir is generally defined as a spouse, child, grandchild or other descendent. Your heirs, however, should realize that they have to hang onto the business for at least 10 years following such an estate transfer. If they don't, they may have to pay the full estate taxes that were avoided. Life insurance can provide your heirs with the cash necessary to pay estate taxes whether or not you qualify for this exclusion. Business Valuation for Estate Planning No matter what technique you select for your company, determining the value of the business is a key step in the estate planning process. Why? First, in the case of a buy-sell agreement, you need to know the value of the business to determine the price and fund the agreement. Second, because the business is part of your estate, the valuation is needed to estimate the estate taxes; this helps you calculate the cash or liquidity needed to administer the estate. Finally, the value of the business must be reported on the estate tax return when the owner dies. Business Continuation PlanningPrepare for the continued success of your business after you're gone. Business continuation planning tools can help you avoid the problems that can occur when a business owner dies. A life insurance funded business continuation plan provides a wide variety of benefits for your family and the business. For your family:
Several business continuation plans are available:
Consult your financial Advisor,attorney and other financial professionals for more information about creating a Business Continuation Plan that's right for you.
Executive Bonus PlansReward key employees with life insurance paid with deductible business dollars Your key employees are an important reason that your business is profitable. Employers often use selective, discriminatory fringe benefits to reward those employees whose work is more responsible for creating profits. An Executive Bonus Plan is one of these selective benefits. How an Executive Bonus Plan works:
Benefits for the company and key employees
Advantages for key employees include:
An Executive Bonus Plan can be an excellent low-cost method to reward employees whose hard work helps make your business profitable. The Golden Executive Bonus AgreementA compensation tool designed to reward select executives with cash value life insurance Attracting, motivating and retaining key executives takes a competitive compensation package that includes more than a salary and a bonus. Until recently, government regulations made it almost impossible to single out and reward those employees you value most. The Golden Executive Bonus Arrangement (GEBA) can be a solution for rewarding and retaining your most valued executives. This tool gives your company a current income tax deduction through the purchase of cash value life insurance, while maintaining control to encourage an executive to stay with your company. Other advantages of life insurance funded GEBA include:
If you're looking for an executive compensation tool that helps you retain one or more key executives, consider using life insurance in a GEBA. Planning for Changes in OwnershipYou can prepare for the problems that can come with a change in ownership by using these techniques:
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Newark, DE 19713
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Phone: (302) 366-0366
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Diamond State Financial Group is independently owned and operated, and offers its own suite of products and services entirely independent of Securian. Certain individuals associated with Diamond State Financial Group are registered with and offer securities and investment advisory services through Securian Financial Services, Inc. ("Securian"), a registered broker-dealer and investment adviser, member FINRA/SIPC. Individuals registered with Securian are authorized to offer only those securities and investment advisory services that have been specifically approved by Securian. Additional information about individuals registered with FINRA can be found on FINRA’s BrokerCheck. For information about which individuals associated with Diamond State Financial Group are registered with Securian, as well as information about which securities and investment advisory services such individuals are authorized to offer on Securian’s behalf, please contact Securian at 1-800-820-4205.
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