Tag: BUSINESS OWNERS

The One-Way Buy-Sell Agreement: An Often-Overlooked Strategy for Business Owners

by YOUR BUSINESS WORTH, posted in Buy and Sell Agreements, Estate Planning, Funding your Buy and Sell, Key People_Or Group, Transfer Costs, Uncategorized, Valuation, Value drivers, Working On Your Business

Thomas J. Perrone, CLU, CIC

A Different Way to Protect a Business, Its Key People and the Owner’s Future

Business owners spend a great deal of time thinking about how to grow their companies. They hire employees, develop customers, build vendor relationships and continually look for ways to increase profitability.

But there is another question that deserves just as much attention:

What happens to the business if a key owner or key person dies unexpectedly?

A traditional buy-sell agreement can provide an answer when there are multiple owners. But there are situations where a different approach may be more appropriate—particularly when the objective is to create a mechanism for the company to purchase an owner’s or key person’s interest upon death.

One strategy discussed in this podcast is the one-way buy-sell agreement.

The concept can provide a business with a predetermined method for handling an ownership interest when an unexpected death occurs, while also potentially creating financial security for the business and the surviving family.

What Is a One-Way Buy-Sell Agreement?

A one-way buy-sell arrangement is essentially an agreement in which one party agrees to purchase an ownership interest from another party upon a specified triggering event, most commonly death.

The arrangement can be particularly interesting when a company has an important owner or key person whose continued involvement is critical to the business.

Instead of leaving the family, the business and the remaining owners to negotiate what happens after a death, the agreement establishes a process in advance.

That can provide something every business owner needs:

certainty.

The goal is not simply to create a legal document. The objective is to establish a coordinated strategy for:

  • Protecting the business

  • Providing liquidity

  • Creating a method for transferring ownership

  • Helping the deceased owner’s family receive value

  • Retaining important employees or key people

  • Avoiding a forced or poorly timed sale

  • Providing continuity for customers, vendors and employees

Why Key People Matter So Much

The podcast discussion begins with a real-world situation involving a company and a particularly valuable key person.

The individual was considered extremely reliable and important to the organization. The company initially considered an executive-benefit arrangement as a way of retaining that person.

That raises an important point:

Key-person planning and business-transition planning are often connected.

A business may have an employee or owner whose knowledge, relationships, production ability or leadership makes that individual extremely difficult to replace.

If that person dies unexpectedly, the financial consequences can extend well beyond the person’s salary.

The company could lose:

  • Customers

  • Revenue

  • Specialized knowledge

  • Leadership

  • Vendor relationships

  • Employees

  • Business value

That is why business owners should think about both retention and transition when evaluating their most important people.

The Connection Between Executive Benefits and a One-Way Buy-Sell

One of the interesting aspects of the strategy discussed in the podcast is the relationship between executive benefits and a one-way buy-sell arrangement.

An executive-benefit strategy may be used to help attract and retain an important employee.

But when the planning is coordinated with ownership and transition objectives, the same overall strategy can potentially address additional business concerns.

The key is to avoid looking at each financial strategy as an isolated transaction.

Instead, business owners should ask:

How does this strategy fit into the overall plan for the company?

A business may need to simultaneously:

  1. Retain an important person.

  2. Protect the company from the economic consequences of that person’s death.

  3. Provide an orderly transition of an ownership interest.

  4. Create liquidity for the person’s family.

  5. Maintain control of the business.

  6. Continue building business value.

A properly designed arrangement can bring these objectives together.

What Happens When an Owner Dies?

Without a plan, the death of an owner can create a difficult situation.

The deceased owner’s family may suddenly own an interest in a business they know little about.

The remaining owners may want to continue operating the company but may not have the cash to purchase the family’s interest.

The family may need liquidity.

The business may need time.

And everyone may have different ideas about what the ownership interest is worth.

That is a recipe for conflict.

A one-way buy-sell arrangement can establish the basic framework before the crisis occurs.

Rather than asking, “What do we do now?”, the parties have already determined what is supposed to happen.

Funding Is Just as Important as the Agreement

One of the most important lessons for business owners is that having a buy-sell agreement is not necessarily the same thing as having a funded buy-sell agreement.

An agreement can establish an obligation to purchase an ownership interest.

But where does the money come from?

This is where life insurance and other funding mechanisms may become important.

The podcast discusses arrangements involving life insurance, premiums, cash value and other planning considerations.

The basic concept is straightforward:

The funding should be designed at the same time as the agreement—not years afterward.

Otherwise, a business could have a perfectly drafted agreement but discover that it does not have the financial resources to carry out the transaction when the triggering event occurs.

The Family Has an Interest Too

Business owners sometimes focus almost entirely on what happens to the company.

But the owner’s family is also an important part of the equation.

Suppose an owner dies and leaves a substantial business interest to the family.

The family may now own an asset that is difficult to sell, difficult to value and difficult to manage.

The remaining owners, meanwhile, may need control of the business to continue operating it.

A properly structured buy-sell arrangement can potentially solve both problems.

The family receives value for the ownership interest.

The remaining owners or the business receive the ownership interest.

The company can continue operating.

That is the fundamental objective of transition planning:

Turn a potentially disruptive event into an orderly transaction.

The Importance of Starting Before There Is a Crisis

One of the recurring themes in business planning is that the best time to solve a problem is before it becomes a problem.

A death, disability, retirement or other unexpected event is not the time to begin discussing ownership.

The parties should already understand:

  • Who buys?

  • Who sells?

  • What triggers the transaction?

  • How is the value determined?

  • How will the purchase be funded?

  • What happens to the family?

  • What happens to the business?

  • What happens to the remaining owners?

  • How will the arrangement be reviewed as the company grows?

These questions should be addressed while everyone is healthy, the relationships are good and the business is operating normally.

Business Value Changes Over Time

Another reason these arrangements need to be reviewed is that businesses change.

A company that is worth $2 million today might be worth considerably more several years from now.

Key employees change.

Ownership changes.

Debt changes.

The company’s cash flow changes.

The owner’s personal objectives change.

The insurance funding may change.

Therefore, a buy-sell agreement should not be treated as a document that is created once and placed in a drawer.

It needs to evolve with the business.

The Bigger Lesson for Business Owners

The one-way buy-sell concept illustrates a much larger principle:

Business planning should be integrated.

Growth planning, key-person planning, executive benefits, protection planning, retirement planning and transition planning should not necessarily be viewed as separate subjects.

They can be different pieces of the same business-planning puzzle.

A successful business owner needs to build value.

But building value is only one part of the equation.

The owner also needs to protect that value and eventually determine how that value will be converted into personal financial security.

That is why transition planning should begin long before retirement.

Questions Every Business Owner Should Ask

If you own a closely held business, consider asking yourself:

  1. What happens to my company if I die tomorrow?

  2. Who would purchase my ownership interest?

  3. Does my family know what would happen?

  4. Is there a written buy-sell agreement?

  5. Is the agreement properly funded?

  6. Has the value of the company been updated?

  7. Would the business have enough liquidity to complete the purchase?

  8. What happens to our key people if they die?

  9. Could the loss of a key person significantly reduce business value?

  10. Does our current plan coordinate business protection with ownership transition?

If you cannot answer these questions clearly, your business may have a transition-planning gap.

Conclusion

A one-way buy-sell agreement is not simply a legal document. It can be part of a broader strategy for protecting a business, providing liquidity, retaining key people and creating an orderly transfer of ownership.

The most important point is that the agreement and the funding need to work together.

Business owners work for years to create valuable companies. The next step is making certain that an unexpected event does not destroy the value they worked so hard to create.

The objective should be simple:

Build the value. Protect the value. And have a plan to transition the value.

That is what effective business transition planning is designed to accomplish.

About the Podcast

This topic was discussed on Building and Protecting Your Business Worth, hosted by Thomas J. Perrone, CLU, CIC, of New England Consulting Group, Inc. The podcast focuses on strategies and ideas designed to help business owners build, protect and transition their businesses while creating greater financial security for their future.

tperrone@necgginc.com

Website: 

Comprehensive Business Planning Guide

click to download your free “Comprehensive Business Planning Guide”

INTERNAL VS. EXTERNAL SALES

by YOUR BUSINESS WORTH, posted in Uncategorized

BY; Thomas J. Perrone, CLU,CIC 

Choosing the Right Path to Exit Your Business

A Business Owner’s Guide from the GWT Planning System®

Every business owner will exit their company one way or another — the only real questions are when, on what terms, and to whom. Of all the decisions in a transition plan, few shape the outcome more than the choice between an internal sale and an external sale. Each path carries distinct implications for valuation, timeline, taxes, financing, and the legacy you leave behind. This report walks through both paths so you can weigh them clearly, in the context of your own Growth, Wealth, and Transition goals.

What Is an Internal Sale?

An internal sale transfers ownership to people already inside the business — a family member, one or more key managers, a broader group of employees through an Employee Stock Ownership Plan (ESOP), or some combination of these. The buyer already knows the company’s operations, culture, and customers.

Common Internal Sale Structures

  • Family succession — passing the business to a child or other relative, often paired with an estate plan and a multi-year transition of leadership.
  • Management buyout (MBO) — one or more key employees purchase the company, frequently financed in part by the seller.
  • Employee Stock Ownership Plan (ESOP) — a qualified retirement plan purchases company stock on behalf of employees, offering the seller potential tax advantages and a built-in buyer.
  • Partner or co-owner buyout — an existing partner buys out a retiring or exiting owner’s interest, often under a pre-existing buy-sell agreement.

What Is an External Sale?

An external sale transfers the business to a buyer outside the company — a strategic buyer (often a competitor or company in an adjacent market seeking synergies), a financial buyer such as a private equity firm, or an individual entrepreneur buying their way into ownership.

Common External Sale Structures

  • Strategic acquisition — a buyer in your industry purchases the business for its customers, talent, technology, or market position, often paying a premium for synergy.
  • Financial buyer / private equity — an investment group acquires the business primarily for its cash flow and growth potential, typically with a plan to scale or resell it later.
  • Individual or search-fund buyer — an entrepreneur purchases the business to run it directly, often using SBA or other acquisition financing.

Key Differences at a Glance

Factor Internal Sale External Sale
Typical buyer Family member, key manager(s), or employees (via ESOP) Strategic buyer, competitor, or private equity/financial buyer
Valuation & price Often below full fair market value; frequently seller-financed Usually the highest achievable price, especially with strategic/synergy buyers
Timeline to close Can be structured over years (gradual transition) Often 6–12 months once a deal is in motion
Confidentiality High — deal stays inside the company Lower — due diligence exposes financials to outside parties
Financing Seller financing, SBA loans, or ESOP debt are common Buyer typically arranges its own financing or uses cash/PE capital
Cash at closing Partial upfront, balance paid over time Larger lump sum at closing is more common
Legacy & culture Preserves culture, brand, and relationships with staff/clients May result in integration, rebranding, or workforce changes
Owner’s post-sale role Often a gradual, mentoring exit Usually a clean, faster exit (sometimes with an earn-out)
Risk to seller Buyer’s ability to repay over time is a real risk Deal risk is concentrated in due diligence and negotiation, then resolved at close
Tax treatment Can sometimes be structured favorably (e.g., installment sale, ESOP rollover) Structure depends on asset vs. stock sale; often subject to negotiation

Weighing the Trade-Offs

Why Owners Choose an Internal Sale

  • Preserve the company culture, brand, and relationships built over decades
  • Reward and retain loyal employees or family members who helped build the business
  • Maintain a gradual, mentoring transition rather than a sudden exit
  • Keep the sale confidential, without exposing financials to outside parties

Why Owners Choose an External Sale

  • Maximize sale price, particularly when a strategic buyer will pay for synergy
  • Receive more cash at closing rather than relying on a buyer’s future payments
  • Achieve a cleaner, faster exit with less ongoing financial or operational risk
  • Access buyers who bring capital, infrastructure, or expertise to grow the business further
A Note on Value

An internal sale and an external sale rarely produce the same number on the closing statement. Internal buyers are usually financing the purchase from the business’s own future cash flow, which caps what they can pay; external buyers — especially strategic buyers — can sometimes pay for value the internal team cannot. Knowing your business’s true worth, and the gap between internal and external value, is the starting point for choosing a path with confidence.

Questions to Guide Your Decision

  • How important is it that the business stay in the family or under existing leadership?
  • Do you need maximum cash at closing, or can you accept a phased payout over time?
  • Is there a capable internal buyer — and can they realistically finance the purchase?
  • How much risk are you willing to carry if you finance part of the sale yourself?
  • What matters more to you: the highest possible price, or the legacy of who runs the business next?
  • How much time do you have before you need or want to exit?

Bringing It Together with the GWT Planning System®

Deciding between an internal and external sale isn’t a decision to make in isolation — it’s one piece of a broader Growth, Wealth, and Transition plan. The right path depends on where your business stands today, what your personal and financial goals require, and how much runway you have to prepare. A well-built transition plan builds real, transferable value into the business long before a specific buyer — internal or external — is identified, so that whichever path you choose, you are negotiating from strength rather than necessity.

If you’re weighing your own exit options, the most valuable next step is an honest assessment of where your business stands today against both paths — so the choice is one you make deliberately, not one that gets made for you.

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3 Let have a conversation

4 ARTICLE THE ONEWAY BUY AND SELL AGREEMENT

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.

WordPress notes (optional): Meta description: Estate taxes can be due within nine months, creating a liquidity crunch for families with illiquid assets. Learn four common strategies—and why trust-owned life insurance can be a cost-efficient solution.

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Download your free report:  The Big Beautiful Bill Tax Change Guide – this guide will help you understand all the opportunities this tax bill has offered to business owners.

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tperrone@necgginc.com

 

Business Owners Essential Planning Tools! Part 2!

Featured by YOUR BUSINESS WORTH, posted in Business Growth and Transition, Buy and Sell Agreements, Company Wealth, evaluations, Executive Benefits, Funding your Buy and Sell, Income from your business, Inside Sale, Key People_Or Group, Life Insurance Types, Passive Ownership, Selling Your Business, Team, Valuation, Value drivers

Good planning can often begin with owners transferring ownership interest to family members, without giving up control of the business. This type of planning sets the stage for the future passing of the baton and can be highly effective.

The long-term plan of business transition can also focus on who can run the business operations once the senior guard leaves the business. Just because a family member has worked in the business, it does not mean they can run the business effectively.

Business Transition And Succession Planning requires many years to develop the right plan. It starts with finding the right employees to train for the job, and the right people to run the business (this includes family succession situations).  

I have found that “Passive Ownership” can be a particularly good possibility for many business owners. They stay in control and slowly give away the duties over time while running the business, but at the same time slowly disengaging from the business. It gives them time to help prepare the junior successor for the job.

The procedure for “Transition Planning” is critical for a long-lasting understanding amongst the family members, both in and out of the business. Without clear communication to the family members, conflict and bad feelings may occur. 

Business Succession Planning  (Click to receive full report and guide; R-1)

  • What would happen to the business if one of the partners died? 
    • Who will buy your interest in the business?
    • Will the company, shareholders, or the heirs keep the right to own the shares. Are the party’s mandated to buy your shares? 
    • Where will the capital to buy the shares come from? 
    • Do you want the deceased shareholders/beneficiaries to have the choice to run the business? 
    • What is the funding mechanism to buy the business? 
    • How is the life insurance structured to help fund the purchase price?
    • Is the same true for a disability? If so, what is the definition of a disability to trigger the sale. Is the disability funded?
    • What are the rules if a partner wants to sell to a 3rd party? 
    • Is there a “put” right; to have the company buy the shares of a disputed share holder? 
    • What are doing concerning incentives to key employees?
    • How are you supporting retirement through the company? 
    • What are you providing in executive compensation to the key people active owners, and officers of the business?

There are many more questions that need to be answered. The elements of your business succession plan will normally be in your business succession agreement and incorporated in the operating or stockholder’s agreement.

CLICK TO Request our Full White Paper and Business Guide Free request (R-1)

Operating Agreement:  

An agreement which regulates the company and manages the relationships between the members of the company.

Buy-Sell Agreement

An agreement between the business owners to buy and sell interest in the business at a specified price upon a “triggering event”, such as death, disability, divorce, voluntary withdrawal, non-voluntary withdrawal, bankruptcy, and retirement.

This document is important and serves to obtain a fair price for the stockholder and a path for a smooth transition for the parties involved.

Type of Buy and Sell agreements:

  • Cross purchase: This is between stockholders to buy departing stockholder’s shares
  • Redemption agreement:  The entity (business) buys the shares
  • Hybrid/ a combination of above: A “wait and see buy and sell”[1]

Provisions in the buy and sell agreement

The sale price of the departing owners’ interest and how it will be paid

  • Installment
  • Sinking fund
  • Cash 
  • Life insurance[2]

Other Methods To Transfer Property:

Although the buy and sell agreement is an effective method to transfer property, other methods, such as ESOPs, compensation plans, and pension plans have a place in funding.

There are other areas and issues in your business planning that need to be addressed at some point and redefined over time.

The valuation of your company should be done by a qualified and certified appraiser. Business owners seem to think they know the value of their business, however, in more cases than not, they are incorrect.

Having A Team Of Financial Experts Will Help You Plan Your Business And Your Estate.

My suggestion is to create a team of advisors who can meet periodically and report on the status of the business to the “team”.

I have found this to be a valuable tool as everyone gets on the same page in the planning process and understands what the owner wishes to accomplish. 

Over the years I have created the team consisting of the CPA, attorney, banker, investment, insurance and other professionals who come together and review what the status of the planning is up to that point for the business owner. Normally, the team consists of the professionals who have a relationship with the business owner and are currently doing planning for them. Unfortunately, each professional has their own agenda, and rarely knows what the other professional are doing for the business owner.,

In most cases this is the first time the advisors have communicated with each other. I have always thought this was in the best interest of the business owner and was prudent to use these resources. Putting the business owners’ advisors in the same room once a year could be the best planning strategy, they can employ. 

The Bottom-Line Thought

The solutions and strategies are in abundance to solve the issues. The problem is defining what the owner wants in their plan.

CLICK TO Request our Full White Paper and Business Guide Free (CODE R-1)

[1] A combination of the redemption and the cross purchase. Usually, the stockholder or trust owns the life insurance on the partners.  Normally driven by tax issues and positioning.   

[2] Life insurance is normally the least expensive way of funding the death benefit when compared to alternatives. The life insurance can also play a role in providing funds to help stockholders purchase interest in the company. 

You Saw It Coming And I Saw It Coming, We Both Saw It Coming…But we still bought it!…

by YOUR BUSINESS WORTH, posted in Uncategorized

After fifty years of running a tremendously successful planning firm, WORKING ONLY eighty days a year, I can make this statement with full confidence!  

Every business owner deserves success and financial independence when they give all they must to build a business.  NO issue here.  If done correctly they will enjoy financial independence and an abundance of leisure time which I call “your beach”.   

What gets in the way of preventing a business owner from becoming financially independent and finding their “own beach”, are two things:   

First Reason: The business owner has their hands in everything. Nothing gets by them.    They work eighty hours a week and wonder why they have no time for themself or families.   They believe you must work “hard” (to them that means anything that keeps them busy).   While they are doing insubstantial work, they are neglecting the important work (The Business and Financial Key Elements to Their Business).   

Second Reason:  Archaic and falsehood beliefs that business owners “bought into”, such as.  

  • Your inventory and your receivables are like money in the bank,  
  • You must work hard in the early years so you can slow down in the later years 
  • Take every dime you have and invest it in your business 
  •  You need to invest in your business in order to grow 
  •  Every business needs time to grow 
  •  You can’t grow fast 
  •  Borrow as much as you can 
  •  It’s a lot of money, but it’s a write off 
  •  When you go into business you initially spend more money than you want to 
  •  You need to invest in your business   
  • Plow all your profits back into the business   
  • You don’t need to give your key people additional benefits 
  • “It’s easier for me to do it, I’ll do it the right way” attitude 
  • If I train someone to do it, they may leave me and start their own business 
  • You don’t need a business valuation just use a simple formula 
  • I have all the systems in my head, we don’t need a document 
  • I’m not worried about leaving the business, they will figure it out 

Falsehoods, and archaic business principals   do more to destroy businesses than a bad economy.   If you don’t fix this situation, no matter how hard you work; YOU WILL NEVER GET TO YOUR FINANCIAL INDEPENDENCE AND “YOUR BEACH”.   It’s that simple!  

But the good news is that you can correct these problems by using a technique that has worked for me and my business clients for over fifty years.    It’s called the “ONE PAGE BLUEPRINT SOLUTION”, and it only takes TWO HOURS A MONTH (two lunch breaks) to implement and correct the two major reasons why business owners can’t become financially independent and find their “own beach.”    

To help you learn more on how you can eradicate the two reasons, I am offering a free copy of my eBook called, “Unlocking Your Business DNA”, (Cracking the code to a better business, bigger profits and more time on the beach).   THIS BOOK WILL help you understand the principals discussed.  Limited supply.  To receive your FREE EBOOK, CLICK.

* Book can be purchased on Amazon; Kindle and Paperback. All profits go to Wounded Warrier Project.

**Full Steam Ahead (title; You Saw It Coming)

BEWARE FINANCIAL ADVISORS: THIS IS AN EASY TAX TRAP YOUR CLIENT COULD MAKE! LEARN A FEW EXEMPTIONS AND YOU WILL STAY OUT OF TROUBLE!

Featured by YOUR BUSINESS WORTH, posted in Buy and Sell Agreements, Funding your Buy and Sell, Income from your business, Tax Efficient, Tax Free Income, Valuation, Value drivers, Working On Your Business

 Recently, we worked on a case which involved an endorsement split dollar plani, where the split dollar agreement involving the trustee   of an irrevocable trust was terminated pursuant to a “rollout. The agreement was between the employer and the trustee (endorsement split dollar). The result would have been a “transfer of value,” in which the death benefit exceeding the consideration would have been taxable income.  

If the split dollar plan were a collateral assignment split dollar, there would not have been a  “ taxable event”, as the sale of the policy would have been made to an exempt party, the insured, (grantor and the insured are one in the same).  Under the endorsement Split dollar, the company was selling to the trustee, not an exemption entity.  

Transfer for value jeopardizes the income tax-free payment of the insurance proceeds. Under the transfer value rule, if a policy is sold for consideration, the death proceeds will be taxable as ordinary income, more than the net premium contribution.  

Besides the outright sale of the policy, there can also be a taxable event if the owner is paid in consideration to change the beneficiary. This would be a transfer of value; thus, the death benefit is taxable beyond the consideration paid for the policy. The consideration paid to change the beneficiary can be any amount.  

Consideration does not have to be money, it could be in exchange for a policy, or a promise to perform some act or service. However, the mere pledging or assignment of a policy as collateral security is not a transfer for value.  

Transfer for Value Exceptions:   

  1. Transfer to the insured 
  1. Transfers to a partner of the insured 
  1. Transfer to a partnership in which the insured is a partner 
  1. Transfer to a corporation in which the insured is a stockholder or officer (but there is no exception for transfer to a co-stockholder.  
  1. Transfer between corporation in a tax-free reorganization if certain considerations exit.  

A bona fide gift:  is not considered to be a transfer for value, and later payment of the death proceeds to the donee will be paid income tax-free.   

Part sale and gift transfer actions are also  protected under the so-called “transferor’s basis exception”  which  provides that the transfer for value rule does not apply where the transferee’s basis in the policy is determined  whole or in part by reference to its basis in the hands of the transferor.   

Another transfer for value trap can occur in the situation when you have a “trusteed cross purchase buy and sell agreement”, to avoid a problem of multiple policies when there are more than just two or three stockholders. When the trustee is both owner and beneficiary of just one policy on each of the stockholders, a transfer for value may occur when one of the stockholders dies and the surviving stockholders then receive a greater proportional interest in the outstanding policies which continue to insure the survivors. This can be remedied by either using an Entity Redemption where the Corporation purchases the interest of the deceased stockholder’s interest.  

This can also cause exposure of transfer of value when transferring existing life insurance policies, insuring stockholders to the trustee of a trusteed cross purchase agreement, which does not fall within one of the exceptions to the transfer of value rules.  To avoid this initial ownership problem, the trustee should be the original applicant, owner and beneficiary of the polices.