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Can you benefit from business succession planning? For many successful people, the simple answer is yes. Often times, the business is the largest and most important single asset in an estate as it provides the income that funds the rest of the estate.
Why is business succession planning important?
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To continue the business in the event that a stockholder dies.
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To avoid business and family interest conflict.
Advantages of Business Succession Planning
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Creates source of funds to pay death taxes and administrative costs
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Guarantees a market for stock thereby avoiding a forced sale
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Establishes a fair price for stock
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Results in a stock valuation which can be binding for Federal estate tax purposes
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Estate pays no income tax on the sale
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Tax-free cash is provided to make the purchase
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Increase in basis for heir stock
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Full control of business is assured
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The need for borrowing to pay the purchase price is avoided
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The financial and competitive position of the business is not disturbed
The Role of Life Insurance
To take full advantage of a business continuation plan, you can use the current income from your business to purchase life insurance on each of the owners' lives. Use of current income to purchase life insurance means that:
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Credit is improved and not impaired
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Expenditure is made when it is best afforded while all parties are alive
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Cost will be less than 100 cents on the dollar
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Purchase price is immediately available, usually tax-free.
Income Tax Implications
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Corporation
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Surviving stockholders
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Family of deceased stockholder
Estate Tax Implications
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Proceeds not included in estate
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Value of corporate stock is included
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This should equal the amount of policy proceeds received by the surviving stockholders.
Consider Lincoln Life's products to assist in your business planning. Depending on what your specific needs are, we have many products that can fit this need. For a list of products available in New York, click here
LM0112-0484
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