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 plan for dealing with the company’s liabilities and financial responsibilities
- Creates a market for the business interest
- Converts a business interest into cash for heirs
- Prevents delay in the estate settlement process
- Provides money to fund the plan
- Helps fix the value of the business interest in the estate
Entity Arrangement
Advantages
- Uses potentially lower tax bracket in corporation to pay non-deductible premiums
- Requires only one policy per insured
- Uses business funds to pay premiums
- Cash values of policies are available to the business as needed
Disadvantages
- Control of the business may shift undesirably after an owner death
- The basis of the surviving owner’s interest is not increased
- The redemption of stock may be treated as a taxable dividend if the stockholders are family members
- The Corporate Alternative Minimum Tax may apply on death proceeds for large Corp.