What to do if you run your own small business
Almost everyone understands the idea of life insurance. Often, family members do not want to see something that has been important to them sold up and dissolved. Pride and a sense of responsibility to employees complicate matters. In the case of a corporation, the other shareholders face problems of uncertainty in not knowing who will control the shareholding and potentially want to come in and run the business.
The answer is to plan for the business to continue after the death of the life insured. This requires action whilst the business is stable. Life insurance companies offer buy/sell agreements. The idea is that the parties agree a fair price for the sale when business is good. Firesales never produce good returns. There is no guarantee that the business itself would have enough liquid cash to buy out the deceased’s interest. But if an acknowledged business value is set for federal estate tax purposes and inflation-proofed, the buyer insures and links to the buy/sell agreement. Upon death, the insured value is paid to the business and used by the nominated individual to buy out the deceased’s interest.
Whichever permutation you put in place, the business can continue in exactly the way you want whilst still releasing cash to help provide for your family. All it takes is planning effort now. Talk to your insurance agent about the options and look for life insurance online quotes in the internet.
This money passes into the estate and can be used to buy an annuity or to generate income for the family to use as they think fit. It is a win-win situation all around. If the partnership is a separate business entity, it can insure the lives of the partners and buy out the interests of any one partner at a pre-agreed price. In the case of a corporation, either the major stockholders insure each other, or the corporation insures all major stockholders and uses the death benefits to redeem the stock at the agreed price.