BUSINESS SUCCESSION & FAMILY LEGACY:
KEEPING THE DREAM ALIVE
Preserving Your Hard Earned
Family Wealth & Creating a Legacy
Presented by
Freedom Broker Services, LLC
Business Succession Planning for:

Partnerships

LLC’s

Sub Chapter S Corporations

Sole Proprietorships
Questions Lead to Answers

What is the most overlooked and
underfunded liability facing closely held
businesses and partnerships?
Questions Lead to Answers

Do you have a buy-sell agreement?

Is it funded?

When was the last time it was updated?

What is important to you about your money?
Three Key Components to the
Buy-Sell Discussion
1.
What happens when my business partner dies?
2.
What happens if my business partner becomes disabled?
3.
What happens when my partner wants to retire?
What is important to you as
the business owner ?

Who is important to you?

Do you want to create a legacy?

What about the next generation? Business growth, the future?
Involving Other Professionals

A team approach is often needed in this type of planning (as with
many other types of planning)
Who are the Team Members?

Banker

Financial advisor

Attorney

CPA
Involving Other Professionals
Why do I need to involve others?



Attorney and CPA are crucial to the success of the plan
They facilitate the process (Buy-sell agreements, power of attorney,
etc.)
Funding these risk exposures is a logical and efficient way to
complete the plan
What could result from this type
of team discussion?

Peace of mind for the business owner

Funding early death need with Life Insurance

Funding disability need with Disability Income Insurance

Funding buy-out need with Disability Buy-Sell Coverage

Pre-funding retirement buy-out/exit strategy
Waiver of Premium Rider
The Waiver of Premium Rider adds significant
value to your Life Insurance funding solution.




Make your Life Insurance Plan self-completing
in the event of disability
Insurance company pays your premium to
keep your Life Insurance coverage in force
Policy can be converted to a permanent cash
value generating contract
Cash value builds to supplement your
retirement plans
Waiver of Premium Rider:
How it Works
Imagine a 45 year-old business owner
becomes disabled at age 46….
- He purchased a $1,000,000 20 year term policy to fund a buy-sell with his partner
paying premiums of $1,500 per year
- Insurance company implements the Waiver of Premium Rider and pays ALL future
policy premiums to keep the $1,000,000 in force
- Insurance company allows for FULL CONVERSION to a Whole Life contract with a
premium of $15,000 per year
- The cash accumulation in the new policy by age 65 is $500,000 yielding a $30,000
per year tax free income stream at age 66 to the disabled business owner
Business Valuation

Business valuation is important to establish for both the business
owners as well as the insurance company extending the coverage
Business
Valuation
Methods Methods
Business
Valuation
1.
Book Value Method
2.
Book Value plus Value of Goodwill
3.
Straight Capitalization Method
4.
Book Value plus capitalization of excess earnings
Business Valuation Methods

A great starting point as the business owner is to determine what you
would sell the business for to a competitor?
How much is
my business
really worth?
Types of Agreements

Cross Purchase

Entity

OPPO Trust (ie. one policy per owner)
The Tax Advantage of a
Cross Purchase Agreement
Cross Purchase Agreements allow for a step
up in basis for the surviving partner.




Ex. A business is originally capitalized with a
value of $1,000,000
Over the next ten years, the business grows to a value of $5,000,000
The Buy Sell Agreement is executed assuming the current value of the
business is $5,000,000 and funded with $5,000,000 of life insurance
With a Cross Purchase Agreement in place, the surviving partner
has a new basis of $5,000,000 and has paid 0 Capital Gain
on the difference between the original business value and the
current value. This saves the business owner approximately $1,000,000
in taxes from the ultimate sale of the business
(assumes a 20% capital gain tax)
Cross Purchase Agreement
What else is important in the
Succession Planning process?

Estate equalization

Key-person

Trans-generational planning

Business continuity
Estate
Equalization
Estate Equalization




Who gets left out of the closely held business, family business, family
farm?
Who are the heirs? Who is most important to the business owner or
family farm?
Is there a son or daughter in the business? Are there other kids off to
Med school, Law school, the Army?
How not to disenfranchise?
Key Person

Who is your #1?

What talent or skill do they have that is irreplaceable?


What happens to the business if they go down, i.e. long term disability or
death?
Double Jeopardy: ad hoc payments to a disabled business partner or key
person (section 105 of IRS code)

How does good planning soften the blow?

Does your Key Person have an interest in purchasing the business?
Trans-Generational Planning

Do your sons or daughters have an interest in maintaining
and running the business at some point in the future?
Business Continuity &
Legacy Planning


A third generation business needs cash flow for continuity:
- Maryland’s inheritance tax is 10% of the estate- do the heirs
of the business or family owned farm have the liquidity to pay
that?
What about Estate Taxes?
T.E.A.M.
Together
Everyone
Achieves
More
Thank you!
Contact Freedom Broker Services Today
Headquarters
Freedom Broker Services, LLC
19785 Crystal Rock Drive
Suite 211
Germantown, MD 20874
kconley@freedombrokerservices.com
rbuck@freedombrokerservices.com
O: 240.477.1135
F: 888.977.3121
A plan for generations to come.