Modern Buy-Sell Planning
Using LLC and Life Insurance
A Limited Liability Company (LLC) is an entity that offers business owners the liability protection of a corporation and the flexible tax characteristics of a partnership. Planners are putting LLCs to ever-greater use to help their clients address a wide variety of needs, from asset protection to estate planning. One area in which LLCs have shown themselves to be particularly useful is buy-sell planning for business owners in a manner that not only addresses the potential death of an owner, but retirement as well, in a tax-efficient manner. This paper will describe how businesses can utilize an LLC and cash value life insurance to formulate a comprehensive buy-sell plan.
The Need for Buy-Sell Planning
In a buy-sell agreement, business owners agree to transfer their interests in the event of death, retirement, disability or other designated events. Without such an arrangement, departure of a principal can result in economic and emotional uncertainty. For example, if an owner dies and leaves his interest to someone currently outside the business, a substantial question exists as to whether that individual has the skill, energy, and experience to carry the necessary load. Even if coowners have an informal buy-out understanding, the deceased's family may not be willing to sell the business interest to remaining owners at a reasonable price. An owner might also simply leave, selling his interest to an outside buyer, who might disrupt operations by seeking more salary, higher dividends, or other changes.
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