Buy-Sell Planning And Frogs – Look Before You Leap

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Aesop has a fable about two frogs whose pond dries up and are left to find a new home. One enthusiastically suggests they descend into a nearby deep well that would both provide water as well as shade on hot sunny days. With much caution the other replies, “But suppose the water should fail us. How can we get out again from so great a depth?”
 
When planning for business partners, don’t simply address the immediate concern upon the death or disability of a co-owner. Address the long-term problem created if the company relies heavily on the day-to-day involvement of the owner.
 
Before getting any signatures, alert your business clients that complete buy-sell planning must address two critical needs! Consider:
  • Need #1 – Funding the buy-out – Life or disability coverage provides the funds to assure the family of the deceased or disabled receives an agreed-upon price for their interest, and the remaining owner is assured of ongoing control.
  • Need #2 – Assuring ongoing success without the partner – “Key person coverage” with a company-owned policy provides cash to make up revenue shortfall caused by loss of a participating owner’s services.
  • Flexibility in the Use of Policy Proceeds – Once coverage for both is in force the benefits can be used for either need (e.g., when the agreed purchase price increases and an owner’s replacement cost deceases with the approach of retirement).
  • The “One-policy” Policy – Most carriers allow two owners to cross-own one policy that covers both needs when the agreement will result the purchaser being sole owner.
We are equipped to help you fully inform clients regarding their buy-sell planning so they can more efficiently talk to and make decisions with their legal and tax advisors. We are ready and available to take part in conversations with you and your clients and eventually, if needed, with their advisors. Contact Tom Virkler, JD – Director of Advanced Markets at tom@cpsadvancedmarkets.com or 706-614-3796.
 
For what it’s worth: Most frogs can jump up to 20 times their length, suggesting that Aesop might be fine with the first frog’s suggestion, depending on the depth of the well.