What it is:
- A plan that assures the continuation of a business after the death of an owner
How it works:
Advantages:
- Provides for business survival after the death of an owner
- Provides a way to deal with the company’s liabilities and financial responsibilities
- Creates a market for the business interest
- Converts non-liquid business interest into cash for family
- Facilitates the estate settlement process
- Provides money to buy the business interest
- Helps fix the value of the business interest in the estate
Employee One-Way Purchase Arrangement
Advantages
- At death the employee buyer’s purchase can be funded at a discount
- Employer can assist buyer through tax deductible bonus or split dollar funding
- Cash values of life policy are available to fund lifetime purchase
- Guarantees market for business and control goes to desired person
Disadvantages
- Requires buyer to pay for insurance policy with personal dollars (unless split dollar or bonus plan used)
- Requires higher premium contributions to generate enough cash value to fund lifetime buyout
- Life insurance can be costly if insured owner/seller is older or in poor health