Key Person

Life insurance is a key component of the overall personal financial plan for many business owners and entrepreneurs. 

Succession Planning

Have you planned for your company's future after you're gone? Business succession planning is proving to be one of the most neglected areas facing business owners. Some studies have shown that only 26% of business owners have a written continuation plan. Of owners over age 60, only half have put their plans in writing.

Developing a succession plan

In its most basic form, a succession plan provides a road map for your partners, heirs and successors in the event of your death, disability or retirement. It can also be used to orchestrate the sale of your business. Your plan can include:

• The distribution of business stock and other assets.
• Debt retirement schedules.
• Life & disability insurance policies.
• Buy-sell agreements between partners and heirs.
• The division of responsibilities among successors.
• Determination of the value of the business.

Getting started

Business succession planning is often a complicated process involving numerous legal and tax issues as well as family relationship matters. Consult a lawyer, accountant or financial planner to help you evaluate your options for creating a strong plan.
Your personal and professional goals are determining factors. Some important questions you need to answer are:

• Is there someone capable of running the business once you've stepped down?
• How much control of the business do you want to maintain?
• Are there key employees you want to retain?
• Are there sufficient assets to pay the estate tax, equalize the estate and keep the business?
• How much money do you need to reach your financial goals?

Bottom line: If you have not considered developing a succession plan, there's no time like the present.  Call Paul now.

Succession Solutions

The following business succession strategies could serve as viable options for your succession plan. To determine the best strategy for your situation, consult a financial advisor and attorney.
Buy-sell agreements
Stock redemption
Cross purchase
Wait and see
Gifts of corporate stock
Life insurance
Private annuities
Self-canceling installment notes (SCIN)
Family partnerships
Management control

Buy-sell agreements
This is a contract between two or more business owners that outlines the terms of ownership transfers in the event that an owner retires, divorces, becomes disabled, dies or experiences other changes in circumstances.

Stock redemption
This is a type of buy-sell agreement that occurs when the corporation buys back stock from the shareholder or a deceased shareholder's estate. Typically, the estate receives cash in exchange for the stock.

Cross purchase
This type of buy-sell agreement calls for the remaining shareholder(s) to buy the stock of the departing or deceased shareholder. To fund such a plan, stockholders typically buy life and disability insurance policies on each other. The surviving shareholder(s) (not the corporation) purchases stock from the decedent's estate.

Wait and see
This is a hybrid agreement designed to give the individuals the flexibility to determine the best possible buy-sell plan at the exact moment needed — at the death of the business owner.

Gifts of corporate stock
This is a lifetime gift, either outright or through a trust, and is often the most effective way to reduce estate taxation.

Life & disability insurance
The advantage of life and disability insurance is that premiums are priced relative to policy proceeds. The insurance is typically used to fund buy-sell agreements.

Private annuities
This may be effectively used for family situations where a parent wishes to transfer an asset such as a business interest to the next generation free of estate taxes while receiving an income for life.

Self-canceling installment notes (SCIN)
This is an installment debt obligation that by its terms is extinguished at the death of the seller. It is similar to a private annuity in that an asset is sold on an installment basis (however with a SCIN the installments are usually shorter than the seller's life expectancy.).

Family partnerships
This is used to shift both the income tax burden and the appreciation of assets from parents to children or other family members.

Management control
A business owner may wish to transfer the equity in a company to family members by gift, bequest or sale, yet the owner may remain uncomfortable with the business insight of the new shareholder. A number of management techniques are available to deal with such concerns:

• Voting agreements — This is one of the easiest and least expensive options in accomplishing management control. The contract specifically identifies the scope and duration of the agreement and can control the shareholder's vote by creating a voting block.
• Proxies — This is another management control tool. A written authorization is given by a shareholder to another person to vote on shareholder matters.
• Voting trusts — Parties to the voting trust agreement surrender their stock to trustees who represent the parties to the trust and vote the stock.
• Public offerings — When you have no family members to carry on a successful privately held business, you can "go public." This option poses numerous benefits as well as drawbacks. A financial advisor can help you determine if a public offering is your best solution.
• Employee Stock Ownership Plan (ESOP) — This is also used when succession by a family member is not an option. An Employee Stock Ownership Plan is a way to transfer the business to employees with significant tax advantages.
  

Executive Benefits

In order to attract, retain, and motivate top quality executives, successful companies implement properly designed and maintained compensation programs. We design, implement, and administer supplemental plans for key executives, to provide benefits and income security, beyond their current compensation, qualified retirement and group insurance plans. We also help companies and executives make estate planning an integral part of their business and personal plans, to ensure both the company’s ongoing success and the executives’ personal needs. These plans include, for example:

• Supplemental Executive Retirement Plans (SERP’s)
  

• Elective Deferral Plans
  

• Split Dollar Plans
  

• Group Term Carve Out Plans
  

• Bonus Plans
  
• Death Benefit Plans
  

Through us, you have access to proprietary products, valuable guaranteed issue and simplified underwriting. In conjunction with your other professional advisors, we assist with:

• Plan Design
  

• Documentation
  

• Enrollment
  

• Accounting Treatment and Earnings Impact
  

• Asset/Liability Management
  

• Security Devices
  

• Cost Recovery Funding
  

• Reporting and Compliance (special requirements for financial institutions)
  

• Benefit Tracking
  

You benefit from our creative plan designs and policy service. Executive compensation planning can be combined with wealth transfer planning, assuring executives that their executive benefits and personal assets are appropriately coordinated.

Guaranteed Issue

The Downey Group, Inc. specializes in the design, negotiation, and administration of guaranteed issue life and disability insurance programs for large U.S. based professional firms.

Currently, we service over 40 firms with from 50 - 1,000 partners. This array is made up of over 6,100 insureds and $6.1 billion in face amount. Approximately 4,250 are active partners and 2,000 are "portables" - partners who have retired or changed firms. We offer cutting edge products and responsive, high quality service, specifically tailored to your needs.

• All policies are individually owned, portable, and adaptable to your funding and ownership goals. Through us, you may obtain, in specific cases, special policy terms unavailable through other brokers, favorable pricing, and guaranteed issue underwriting.
• We provide streamlined, complete enrollment and administration, and if desired, on-site education.
• We are advocates for you, to keep the life insurance carrier responsive to your needs. We have long experience with many life insurance carriers, leverage, and credibility in obtaining policy and service improvements for you.
• Before our involvement, many clients were unimpressed with the service provided by their insurance carrier. We provide that high quality service at no additional cost to you, and often we are able to secure sponsor premium savings.
• Our clients are always served by the “first team” -- by the key professionals who have thorough knowledge and expertise in this specific type of life insurance program. We are not a brokerage providing commoditized planning and products. The field of executive life insurance planning is relatively vast. Many firms purport to have expertise in the areas in which we specialize, but in reality are much less expert, efficient, and personalized in their service. There are substantial and important differences between subsets of this general field.
• We also provide excellent ongoing service to thousands of "portable" policyholders who have left their firms and continue their coverage. This speaks not only to the value of the policies acquired at the firm, but also to the quality of our service after they leave.