Business Owners - Succession Plan 

Business owners are often faced with unique financial planning issues. As a result, the insurance industry has designed various products and strategies that not only help resolve some of these issues, but also support business owners in attaining their financial and personal goals

Without a plan of action, in the event of a premature death or inability to work due to disability, the success of your business could be jeopardized. Dictate in advance who will manage your business during either of those circumstances by developing a succession plan to provide for orderly transfer of management and ownership of your business.

Funded with life insurance and/or disability income policies, a properly drafted buy/sell agreement can help create succession plans. Proceeds from these policies give you peace of mind, assuring you of cash liquidity for stock redemption or the cost incurred with your absence from the business. Using a shared-ownership or split-dollar program, you can use a life insurance contract to (1) provide liquidity to keep your business going if you die before retirement or (2) provide tax-deferred cash-value buildup for a post-retirement benefit.

Corporate-owned life insurance is a tax-effective tool for funding deferred executive compensation. With tax-free loans provided by life insurance, the cash-value buildup offers an added retirement benefit for key executives to supplement their qualified plans.

By converting group term insurance to a split-dollar policy, both the employer and the employee can benefit. Because the policy is portable, it provides long-term coverage for the employee and reimbursement for out-of-pocket expenses for the employer.

For business owners and key employees, purchasing disability income policies protects the incomes of those most valuable to the business. If the premiums for the disability income policies are deducted by the corporation, the proceeds are taxable to the employee. If they are not deducted, the proceeds are tax-free. Adding this form of protection to a key executive's benefit package is a wise decision.

For employees 50 and older, long-term care may be a concern. A portable long-term-care policy paid for by the corporation could be a great addition to their benefits package. The corporation can deduct the premiums while allowing the proceeds to be received free of income tax.

These are just a few of the life insurance products developed over the years to meet various needs. Use caution in choosing these or any other products to suit your particular financial needs. A financial advisor can assist you with professional expertise and service.

This information may answer some questions, but it is not intended as a comprehensive analysis of the topic. Periodically, ENB Associates, Inc. provides planning information to clients. However, ENB Associates, Inc.assumes no fiduciary duties, and such service should not be relied upon as the only source of information. Competent tax and legal advice should always be obtained.

Emily S Hazlett is Vice-President:Investments at ENB Insurance Agency, Inc. a wholly owned subsidiary of Evans National Bank.

Evans National Bank does not provide tax or legal advice. Be sure to consult with your own tax and legal advisors before taking any action that would have tax consequences.