Category: Life Insurance

Where You Are – Where You Could Be!

by YOUR BUSINESS WORTH, posted in Company Wealth, Estate Costs, Estate Planning, evaluations, Income from your business, Inside Sale, Life Insurance, One Big Beautiful Bill, Passive Ownership, retirement, Uncategorized, Value drivers, Working On Your Business

Why an Annual Review Is the Most Overlooked Step in Business Owner Planning

By Thomas J. Perrone, CLU, CIC | Founder, New England Consulting Group of Guilford, Inc.

Ask most business owners how their planning is doing, and they’ll tell you it’s fine. They’ll say it with confidence, too — the same way most of us would say we feel healthy on any given day. But ask that question in the middle of a CT scan, and the confidence tends to disappear. The difference isn’t your health. It’s what you can’t see.

Business owner planning works the same way. The plans you built years ago may have looked airtight the day you signed them. But time passes, tax law changes, your business changes, and your family’s needs change — and none of that shows up on the surface. The documents still sit in the drawer looking just as official as they did the day you filed them. What they don’t tell you is whether they still fit.

We get the documents completed and executed, feel good about it, and then one morning realize it’s been five years — or more — since anyone looked at them again.

A Familiar Story

This pattern shows up constantly — with my clients, and with the professional colleagues I work alongside every day. The planning gets done. Everyone feels the relief of finally having “taken care of it.” Then life takes over, and the plan quietly ages in place while the world around it keeps moving.

The real risk isn’t skipping the planning altogether — most owners eventually get that part done. The risk is discovering, years later, that Washington has rewritten the rules, your business has grown or changed shape, your family situation is different, and no one ever flagged it. If any of those shifts would have changed your strategy, the only real question worth asking is: when would you have wanted to know?

Building the Fix Into the System

This is exactly the problem I built the GWT Planning System® to solve. GWT stands for Growth, Wealth, and Transition — the three areas every business owner’s planning needs to work together, not in isolation. But good structure alone isn’t enough. A plan that’s well designed on day one and never revisited is still a plan that goes stale.

So, from the very beginning, the GWT Planning System® was built with an automatic annual review woven directly into it — not an optional add-on, but part of how the system runs. Every year, that review happens. Sometimes it’s in person. Sometimes it’s a phone call. Sometimes it’s a Zoom conversation. The format isn’t the point. The consistency is.

That built-in review does three things for every client:

  • It catches tax and legal changes coming out of Washington before they quietly undermine a strategy that used to work.
  • It keeps the plan aligned with the business itself, which rarely looks the same from one year to the next — revenue, staffing, ownership, and value all shift.
  • It accounts for changes at home — a marriage, a health event, a child’s changing role in the business, a shift in retirement timing.

The Most Critical Part of Planning

Over more than fifty years of doing this work, I’ve come to see this as the most important part of what I do — not just putting the right plan in motion but making sure it stays right as everything around it keeps changing. A plan is not a document you finish once. a relationship you maintain.

If you can’t remember the last time your plan was reviewed against today’s tax law, today’s business, and today’s family circumstances, that’s worth changing before it becomes a costly surprise. The goal isn’t to redo the planning every year — it’s to know, every year, exactly where you stand and where you could be.

The goal isn’t to redo the planning every year — it’s to know, every year, exactly where you stand and where you could be.

If it’s been a while since your plan had a real second look, let’s put one on the calendar.

tperrone@necgginc.com

Questions? Call me.  My Calendar

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The Insurance-Holding LLC: A Smarter Way to Fund Your Buy-Sell Agreement

by YOUR BUSINESS WORTH, posted in Buy and Sell Agreements, Estate Costs, Estate Planning, Funding your Buy and Sell, Key People_Or Group, Life Insurance, Life Insurance Types, Selling Your Business, Strategies of growing business, Uncategorized, Valuation, Working On Your Business

 

By Thomas J. Perrone, CLU, CIC

Every multi-owner business eventually asks the same uncomfortable question: what happens if one of us dies, becomes disabled, or wants out? A buy-sell agreement answers the “what” — it’s the legal contract that says the remaining owners (or the business) will buy out a departing owner’s interest. But a buy-sell agreement is only as good as its funding mechanism. Promises to pay are worthless if the cash isn’t there when it’s needed.

Life insurance is the most common way to fund a buy-sell agreement, because it delivers cash exactly when it’s needed most — at death. The harder question is *who should own the policies*. For businesses with more than two or three owners, a growing number of advisors are turning to a special-purpose LLC created solely to hold those policies. Here’s how it works, and why it might be the cleanest solution on the table.

The Problem With the Traditional Options

There are two classic ways to structure buy-sell funding:

Cross-purchase agreements** have each owner personally buy a policy on every other owner. This works fine with two owners (two policies), but the math explodes quickly. Four owners need twelve policies. Six owners need thirty. Every time an owner joins or leaves, policies have to be rewritten. It’s an administrative nightmare, and it often means owners of different ages and health statuses paying wildly different premiums for equal buyout rights.

Entity-purchase (redemption) agreements** solve the multiple-policy problem — the company itself owns one policy per owner — but they create a different issue: when the company redeems a deceased owner’s shares, the surviving owners don’t get a step-up in the cost basis of their own interests. That can mean a much bigger capital gains tax bill down the road when they eventually sell

The LLC Solution

An insurance-holding LLC splits the difference. The owners form a separate LLC — sometimes called a “special-purpose entity” or “insurance LLC” — whose only job is to own and administer life insurance policies on each business owner. The LLC is typically structured as a partnership for tax purposes, with each business owner holding a membership interest proportional to their stake in the operating company.

Here’s the flow:

– The LLC purchases one policy on each owner’s life (not one per pairing, so the policy count stays low no matter how many owners there are).

– Each owner (or the operating business) contributes cash to the LLC to cover premiums.

– When an owner dies, the LLC receives the death benefit tax-free.

– The LLC uses those proceeds to purchase the deceased owner’s interest in the operating business, distributing it to the surviving members according to the buy-sell terms.

Because the LLC — not the individual owners — is treated as the policy owner and beneficiary, and because it’s taxed as a partnership, the surviving owners generally receive a basis step-up in their LLC interests similar to what a cross-purchase arrangement provides, while avoiding the multiple-policy headache of a true cross-purchase.

Why Owners Like It

–Fewer policies, less administration. One policy per owner, held in a single entity, instead of a tangle of cross-owned contracts.

– Basis step-up preserved. Surviving owners’ tax basis generally increases, which can meaningfully reduce future capital gains taxes.

– Avoids the transfer-for-value trap. Because all owners are members of the same LLC from the outset, properly structured transfers among them typically fall within IRS exceptions that keep the death benefit income-tax-free.

– Built-in flexibility. New owners can be added as LLC members without rewriting a web of cross-purchase contracts.

– Creditor separation. Holding policies in a distinct entity can offer a layer of separation from the operating company’s business risks.

What to Watch Out For

This structure isn’t a free lunch. It adds a second legal entity to maintain — its own operating agreement, its own tax filings, its own bank account for premium payments. The IRS has scrutinized partnership-owned life insurance arrangements in the past, so the LLC operating agreement needs to be drafted carefully, with real economic substance and clear treatment of premium contributions as capital contributions rather than disguised gifts. It also requires everyone to stay disciplined about funding premiums on time, since a lapsed policy defeats the entire purpose of the plan.

Is It Right for Your Business?

The insurance-holding LLC tends to make the most sense once you have three or more owners, where cross-purchase becomes unwieldy but the tax advantages over a straight entity redemption still matter. For two-owner businesses, a simple cross-purchase or entity-purchase plan may be all you need.

As with any buy-sell funding decision, this isn’t something to set up from a blog post. Work with a business attorney and a tax advisor who can model the specific numbers for your ownership structure, confirm the entity is respected for tax purposes, and make sure the policies, the operating agreement, and the buy-sell agreement itself are all pulling in the same direction. Get it right once, and it’s one less thing your partners have to worry about when the unexpected happens.

This article is for general informational purposes only and does not constitute legal, tax, or financial advice. Consult a qualified attorney and tax professional before implementing any buy-sell funding strategy.

 

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Website: www.bpbpgrp.com/tom

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tperrone@necgginc.com

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The Cheapest Way to Fund a Buy-Sell Agreement

by YOUR BUSINESS WORTH, posted in Business Growth and Transition, Buy and Sell Agreements, Company Wealth, Estate Planning, Funding your Buy and Sell, Income from your business, Inside Sale, Life Insurance, Selling Your Business

By Thomas J. Perrone, CLU, CIC

Picture this: you and your business partner built something real together. Four million dollars in value, split fifty-fifty. Then, out of nowhere, your partner passes away. His widow now owns half your company. She doesn’t want to run it. She wants her money — now.

If that thought makes your stomach drop, you’re not alone. And here’s the uncomfortable truth: having a buy-sell agreement doesn’t mean you’re actually prepared for this moment.

Your Buy-Sell Agreement Is Only Half the Plan

Most business owners think a buy-sell agreement has them covered. It names a price. It names the terms. It says, in black and white, what happens when a partner leaves — through death, disability, divorce, or simply deciding to walk away.

But an agreement is only the what. It says nothing about the how. How does the money actually move from the surviving owner’s pocket into the widow’s hands? That question is where most buy-sell arrangements quietly fail — not in a courtroom, but at the bank, when it turns out the cash simply isn’t there.

Without a funded plan, owners are usually left with one of three bad outcomes:

– A fire sale — the business gets sold fast, often to a stranger, just to raise the cash.

– A forced partnership — you end up running the company with someone who never wanted to be your partner.

– The bank calls the loans — lenders get nervous about ownership uncertainty and tighten the noose.

None of that is good. And all of it is avoidable — if you fund the agreement properly, ahead of time.

The Three Ways to Fund a Buyout

Let’s use a simple example: a $4 million business, owned 50/50, with a $2 million buyout obligation. There are three real ways to cover that number.

Option 1: Cash

The instinct for a lot of owners is to just save up. Sounds responsible enough — until you run the numbers.

If your business generates $400,000 a year in distributable profit, split evenly, that’s $200,000 per partner. To fully self-fund a $2 million buyout, you’d need to set aside your entire share of profit for ten years. No raises. No reinvestment. No growth. Just money sitting there, doing nothing, in case the worst happens.

And here’s the problem nobody wants to say out loud: what if the event happens in year two? You’re $200,000 into a $2 million obligation, and your business has spent two years running on fumes because all its profit was parked in a savings account instead of working.

Cash funding only works in one scenario: if you never actually need it. The moment you do, it’s never enough.

Option 2: Borrowing

The next instinct is to borrow — a bank loan, or a note payable to the estate over time.

On a $2 million buyout, financed over ten years at 7%, you’re looking at roughly $28,000 a month. Over the life of that loan, total interest adds up to about $800,000 — money that leaves your business permanently and goes straight to the bank.

And the interest isn’t even the biggest problem. Borrowed money comes with strings: personal guarantees, the business pledged as collateral, and payments due no matter what — recession or not, lost customers or not. On top of that, a departing partner’s estate has little reason to accept a slow note when the agreement says they’re owed full value now. Notes get renegotiated. Disputes happen. And the business you’re trying to protect ends up in court anyway.

Cash starves the business. Debt mortgages it. Which brings us to the option that actually works.

Option 3: Life Insurance

Here’s the idea, and it’s refreshingly simple. You take out a life insurance policy on your partner. The business — or a properly structured trust — owns the policy and pays the premium. When your partner passes away, the death benefit arrives tax-free, within weeks. That’s your buyout, fully funded, on the spot. No fire sale. No note. No bank involved.

For a healthy partner in his fifties, a $2 million death benefit typically costs somewhere between $20,000 and $40,000 a year in premium, depending on how it’s structured.

Now compare that to the alternatives:

| Funding Method | Cost Profile | Key Risk |

  1. Cash (self-funded) | $200K/yr of profit for 10 years | Starves the business; badly exposed if the event happens early |
  2. Borrowing | ~$28K/mo; ~$800K in total interest | Collateral, personal guarantees, payments due regardless of performance |
  3. Life Insurance (trust-owned) | ~$20K–$40K/yr premium; full coverage from day one | Requires correct ownership structure and an insurable partner |

The number that tends to get people’s attention: a trust-owned life insurance approach runs roughly 74% less expensive than the next best option. And unlike cash, the coverage is fully in place from day one — not after a decade of saving.

How to Structure the Policy

Once you’ve decided insurance is the right tool, you still have to structure it correctly. There are two standard approaches.

Cross-purchase agreement. Each partner personally owns a policy on the other. When one dies, the survivor collects the death benefit and buys the deceased partner’s shares directly. Simple, clean, and it works especially well with two partners.

Entity purchase (stock redemption). The business itself owns the policies and buys back shares from the deceased partner’s estate. This tends to be easier to administer when there are three or more partners involved.

Which one is right depends on your entity type. C-corporations can run into alternative minimum tax issues under certain structures. S-corporations raise their own questions around ownership and basis. This is exactly the kind of decision that shouldn’t come from a template you found online — the structure you choose has tax consequences that can follow your family for a generation.

The Advanced Move: Trust-Owned Insurance and Key Person Coverage

If you want to do this the smart way, there’s a more sophisticated layer worth knowing about.

Irrevocable life insurance trusts. Instead of you or the business owning the policy, a trust owns it. Why bother? Two reasons. First, it keeps the death benefit out of your taxable estate — for owners with real net worth, that can mean millions in estate tax the family never has to pay. Second, the trust controls the timing and terms of the payout, so the proceeds go out exactly as the agreement says, instead of becoming a bargaining chip.

Key person insurance. This is a different tool entirely — it protects the business, not the ownership transfer. If you’ve got a key employee who runs operations or holds your most important customer relationships, their death would hit the business hard: lost revenue, lost relationships, a scramble to replace them. Key person coverage puts cash into the business to bridge that gap. It’s not for the buyout. It’s for survival. Any business with roughly five to fifty employees should have this on the radar.

Four Mistakes That Cost Owners the Most

1. Buying term insurance that expires. Buy-sell needs are permanent — you can’t predict the year something happens. Permanent coverage is the honest answer.

2. Getting the policy ownership wrong. If the person who owns the policy isn’t the same person who owes the buyout, the death benefit can trigger a tax problem and defeat the whole plan.

3. Letting the valuation go stale. The agreement says $4 million, but the business is now worth $9 million. That’s not a plan anymore — it’s a time bomb.

4. Assuming your partner is insurable. If there’s a health issue, you want to know now, while you can still get coverage — not after it’s too late.

What to Do This Week

You don’t need to overhaul everything today. Start here:

1. Pull your buy-sell agreement and ask the honest question: is this actually funded, or does it just look funded on paper?

2. Get a life insurance illustration on your partner. Just the numbers — no commitment required.

3. Have the conversation with your partner. It’s awkward, sure. But it’s a lot less awkward than the widow, the fire sale, or the bank calling your loans.

A buy-sell agreement is only as good as its funding. Of the three options — cash, borrowing, and life insurance — insurance, especially when trust-owned, is the one that’s cheapest, fastest, and most reliable when it actually matters. Get the funding question answered now, while everyone’s calm and thinking clearly, so the only thing left to work out later is the number.

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What Buyers Really Look For When They Buy a Business

by YOUR BUSINESS WORTH, posted in Buy and Sell Agreements, Company Wealth, Estate Costs, Funding your Buy and Sell, Income from your business, Key People_Or Group, Life Insurance, Life Insurance Types, Transfer Costs, Value drivers, Working On Your Business

 What Buyers Really Look For When They Buy a Business

It’s Not Just About Profits—It’s About Confidence

By Thomas J. Perrone, CLU,CIC

Many business owners assume that if their company is profitable, buyers will line up and pay top dollar when it’s time to sell. Unfortunately, that’s rarely how the market works AND how a transition of their business happens. Professional buyers don’t simply buy earnings—they buy certainty when purchasing a business. They want confidence that the business will continue to produce predictable profits after the current owner walks away. The less risk they see, the more they’re willing to pay. Whether you plan to sell in three years or twenty, understanding what buyers value today gives you the opportunity to dramatically increase the value of your business before you ever put it on the market.

Buyers Want Predictable Cash Flow The first question every serious buyer asks is simple: Will this business continue generating cash flow after the owner leaves? Businesses with recurring customers, consistent profitability, stable margins, reliable financial reporting, and strong cash flow command significantly higher valuations because they reduce uncertainty. The more predictable your financial performance, the more valuable your company becomes.

Buyers Want a Business—Not a Job One of the biggest reasons businesses receive lower offers is owner dependence. If every important decision requires you… If customers only trust you… If employees rely on you… If sales stop when you stop… Then buyers aren’t purchasing a business. They’re purchasing your job. The more independent your company becomes, the more attractive it becomes to buyers.

Strong Financial Records Build Trust Professional buyers expect financial statements they can rely on. They look for:

  • Accurate financial statements
  •  Clean tax returns
  •  Monthly reporting
  •  Normalized earnings
  • Organized documentation

Disorganized books create doubt, and doubt always lowers value. Great Leadership Creates Premium Value Businesses with strong leadership teams consistently receive higher purchase offers.  Why? Because buyers know the company can continue operating successfully without the owner being involved in every decision. Companies with defined responsibilities, accountability, low employee turnover, and future leaders already in place are viewed as lower-risk investments.  

Systems Are More Valuable Than Heroics Many successful businesses rely on talented people. Exceptional businesses rely on systems. Documented procedures, operating manuals, training programs, technology, and standardized processes allow a company to produce consistent results regardless of who is running the day-to-day operations. People eventually leave.  Systems remain.

Diversification Reduces Risk Imagine one customer accounts for 40% of your revenue. A buyer immediately sees risk. The same concern exists if your company depends on one salesperson, one supplier, or one product. Diversifying your customer base and revenue sources creates stability—and stability increases business value.

Buyers Purchase Future Growth Buyers aren’t just investing in today’s profits. They’re investing in tomorrow’s opportunities. They want to know:

  •  Can revenue increase?
  •  Can margins improve?
  •  Are new products possible?
  • Can technology improve efficiency?
  • Can the business expand into new markets?

Often, future growth potential is worth more than current earnings.

Eliminate Deal Killers Before Buyers Find Them Unexpected problems can quickly reduce purchase price—or stop a transaction entirely.

  • Common deal killers include:
  • Pending legal issues
  •  Poor contracts
  •  Tax problems
  •  Environmental concerns
  •  Employee disputes

The fewer surprises buyers uncover during due diligence, the smoother and more profitable the transaction becomes.

The Most Valuable Businesses Are Transferable Ultimately, buyers ask one question: **”Can I step into this business and continue operating successfully?”** If the answer is yes, buyers compete. If the answer is no, they negotiate. Transferability is one of the greatest drivers of business value. ## The Best Time to Prepare Is Years Before You Sell Increasing the value of your business isn’t something you accomplish six months before retirement. The most successful exits are planned years in advance.

Owners who prepare early enjoy:

  • Higher business valuations
  •  More negotiating leverage
  •  Greater financial security
  •  More retirement options
  •  Less stress during the sale process

How the GWT System Helps Business Owners Increase Business Value The GWT System was designed to help business owners move beyond simply operating their company to building a business that creates long-term wealth. By focusing on enterprise value, executive compensation strategies, retirement planning, succession planning, and owner independence, business owners can strengthen both their company and their personal financial future. The goal isn’t simply selling your business.  The goal is creating financial freedom.

Ready to Find Out How Valuable Your Business Really Is? If you’d like to learn how prepared your business is for a future sale—or discover the areas that could significantly increase its value—schedule a confidential conversation today. Thomas J. Perrone, CLU, CIC, New England Consulting Group of Guilford, Inc. **Building and Protecting Your Business Worth**,Helping business owners build wealth, increase enterprise value, and retire with confidence.

VIEWPOINT: To plan for the future you need to know where you are currently in your planning, This short 4 minute survey is enough information for us to complete and send you a report called the “Where You Are Report”.  This will help you plan for your future.   To take the survey CLICK HERE

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Life Insurance and Estate Costs: A Smarter Way to Create Liquidity

by YOUR BUSINESS WORTH, posted in Estate Costs, Estate Planning, Executive Benefits, Life Insurance, Life Insurance Types, One Big Beautiful Bill, retirement, Selling Your Business, Tax Efficient, Tax Free Income, Transfer Costs

Why pre-planning with properly structured coverage can help families avoid forced sales, costly borrowing, and value destruction when taxes come due.

By Thomas J. Perrone, CLU, CIC

If most of your wealth is tied up in real estate, a family business, or long-term investments, your estate can be “asset-rich but cash-poor.” The challenge is that estate taxes and transfer costs can come due quickly—often before heirs have time to sell assets thoughtfully or arrange financing

The overlooked question in estate planning

For many business owners and high-net-worth families, estate planning focuses on what will be transferred and to whom. Just as important is the practical question that determines whether a plan works in real life: Where will the cash come from to pay estate taxes and other transfer costs—on time?

The issue is rarely a lack of wealth. It’s a lack of liquidity—and a very real deadline.

One of the most effective ways to solve this problem is also one of the most misunderstood: using life insurance to fund estate taxes and transfer expenses efficiently, without forcing the sale of long-term assets.

The real problem: a deadline and a liquidity crunch

Estate taxes and transfer costs are not optional—and they don’t wait. In many cases, they must be paid within nine months of death.

That timeline can create a liquidity crunch when a large share of an estate is tied up in:

  • Real estate
  • Privately held businesses
  • Illiquid investments

When the calendar and the balance sheet don’t line up, families can be pushed into expensive decisions at exactly the wrong time.

Four ways estates typically cover the bill

Most estates end up using one (or a combination) of the following approaches to cover taxes and transfer costs.

1) Cash on hand

It’s simple—but it can be inefficient. Holding large amounts of cash can mean giving up long-term growth and flexibility. For many families, keeping millions in low-yield accounts “just in case” isn’t realistic.

2) Forced sale of assets

When liquidity isn’t available, families may have to sell assets quickly to meet the nine-month deadline.

Imagine being forced to sell:

  • A commercial property
  • A family business
  • Land or long-held investments

…all on a tight timeline.

That can lead to a fire sale—assets sold below market value—eroding wealth that may have taken decades to build.

3) Financing the tax bill

Another option is borrowing money to pay the estate taxes.

Borrowing can preserve assets, but it introduces new risks and costs, including:

  • Interest costs
  • Long-term debt obligations
  • Uncertainty around loan approval

Financing may preserve assets, but interest and repayment terms can drive the total cost well beyond the tax liability. And credit availability can tighten at exactly the wrong time.

4) Life insurance (a strategic liquidity solution)

This is where planning changes everything.

When life insurance is owned by a properly structured trust, it can create liquidity exactly when it’s needed—without disrupting the investment portfolio, the business, or the family’s long-term plan.

A real-world example

Consider this scenario:

  • Age: 59
  • Net worth: $15.5 million
  • Projected estate value: $46 million

The estimated tax bill: $18.6 million due within nine months.

Now compare the cost of each strategy:

  • Cash: forfeits future earning potential on the dollars held back
  • Forced sale: can exceed $20 million when assets must be sold at a discount
  • Financing: approximately $23 million over time, depending on rates and terms
  • Life insurance: about $4.8 million in total cost in this example

That’s roughly 74% less expensive than the next best option.

Why life insurance often comes out ahead

Life insurance stands out for several key reasons:

Cost efficiency

Properly designed coverage can provide required liquidity at a fraction of the cost of holding idle cash, selling assets under pressure, or borrowing.

Tax advantages

  • Death benefits are generally income tax-free
  • Can be structured outside the taxable estate

Predictability

Unlike market-based holdings, a policy’s death benefit is designed to be available on a known event, with no market-timing risk.

  • No volatility
  • No timing risk
  • Guaranteed payout when needed

Potentially strong effective returns

Depending on age, underwriting, and product design, the internal rate of return on a death benefit can be attractive (often cited at 10%+ in illustrations), with a potentially higher tax-equivalent return depending on your bracket.

The power of pre-planning

One of the most important insights is this:

Life insurance isn’t just an expense—it can be a pre-funded liquidity solution.

With current tax laws, individuals may have the ability to:

  • Gift funds into a trust
  • Avoid gift taxes within certain limits
  • Systematically fund a future tax obligation

This transforms a reactive problem into a proactive strategy.

Final thoughts

Estate planning isn’t just about transferring wealth—it’s about preserving it.

Without proper planning, families may be forced into:

  • Selling valuable assets
  • Taking on debt
  • Losing a significant portion of their legacy

Life insurance offers a smarter alternative:

  • Lower cost
  • Greater certainty
  • Minimal disruption to your estate

Bottom line

If you expect your estate to face taxes or transfer costs, the real question isn’t if you’ll pay—it’s how.

And as the numbers clearly show:

For many families, life insurance is often the most efficient way to do it.

Work with your estate planning attorney, CPA, and insurance advisor to model the expected estate tax exposure, test different liquidity strategies, and determine whether a trust-owned policy fits your objectives and timeline.

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