Allianz Life Insurance Company of North America
For financial professional use only – not for public distribution.
An introduction to small-business ownersOne-Way Buy-Sell Agreements
BUSINESS CONTINUATION STRATEGIES using life insurance
PPT-263 1/2014
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1. Why business continuation planning?2. One-way buy-sell agreements
Agenda
This presentation is designed to provide general information on the subjects covered. Pursuant to IRS Circular 230, it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Allianz Life Insurance Company of North America, its affiliated companies, and their representatives and employees do not give legal or tax advice. We encourage you to consult your tax advisor or attorney.
Before we begin
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Why business continuation planning?
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Why business continuation planning?
Try answering the following questions:
What will happen to your business when you retire?
Do you have a business successor lined up and ready to take over?
Will your entire business or a share of your business need to be sold?
Do you already have a buyer and what is the price?
What if you died today? What would be the consequences to your
business partners, employees, customers, debtors, creditors, and most importantly, your family and beneficiaries?
Many small businesses purchase insurance products
to provide FINANCIAL
PROTECTION for the business owner, key employees, or the
business itself.1
1”Small World, Trends in the U.S. Small Business Market,” LIMRA, 2013.
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Potential pitfalls survivors may face after the death of a business owner
Conflict between surviving owners & family
Concerns of employees & creditors
Lack of market
Valuation difficulties
Lack of income for family
Surviving owners may be forced to buy via installment sale unless funded with insurance
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How can life insurance fit into business succession planning?
A death benefit provided by life insurance can be a vital part of your business succession planning and employee retention.
Fixed indexed universal life (FIUL) insurance can also help while providing potential tax advantages
Key person life insurance
Buy-sell agreements
Executive bonus plans
Nonqualified deferred
compensation
Some common uses of life insurance in business succession planning
The death benefit is the main reason for purchasing life insurance
It passes income-tax-free to the beneficiaries and can be used for: Income replacement for primary
wage earners Business succession Mortgage and other debts Estate tax coverage
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Source: 1“Small World: Trends in the U.S. Small Business Market, LIMRA, 2013.
Small businesses REQUIRE MULTIPLE
TYPES OF FINANCIAL PROTECTION
including: Personal coverage for
the business ownerFinancial safeguards for
the business Insurance and
retirement benefits for the employees1
For financial professional use only – not for use with the public.
HOW FIUL WORKS
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Policy loans and withdrawals will reduce the available cash value and death benefit and may cause the policy to lapse, or affect guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. Tax laws are subject to change and your clients should consult a tax professional.
POLICYHOLDER
Pays POLICYPREMIUMS
POLICY FEES & CHARGES Fees & charges used to fund
DEATH BENEFIT TO BENEFICIARIESAND OTHER VARIOUS EXPENSES
MAXIMUM PREMIUM
Minimum premium
Any available
CASH VALUE
Has the potential to
GROW
as more premium is p
aid
Cash value may be accessed via POLICY LOANS
AND WITHDRAWALS1
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One-way buy sell agreements
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One-way buy-sell agreement in action
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Buy-sell agreement –
Hypothetical example is for illustrative purposes only. These characters are fictional and not actual Allianz clients.
You should consult with an attorney and tax advisor to determine what may be appropriate for your situation.
Sam (sole owner of business) commits to selling his business at an agreed value upon a triggering event(s) (e.g., death, retirement, disability, etc).
Barb (buyer) agrees to purchase the businessat an agreed value upon the triggering event(s).
Barb purchases an FIUL policy on Sam’s life sufficient to meet her obligations under the buy-sell agreement. Barb pays the premiums, and is the owner and beneficiary of the policy.
One-way buy-sell agreement in action
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Buy-sell agreement –
Hypothetical example is for illustrative purposes only. These characters are fictional and not actual Allianz clients.1Policy loans and withdrawals will reduce available cash values and death benefits, and may cause the policy to lapse or affect any guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject ordinary income tax.
Barb retrieves any available cash value from the life insurance policy through policy loans1 or receives the death benefit to meet her obligation within the agreement.
Sam or his estate will receive funds from Barb.
Sam or his executor will transfer the business interest sold to Barb according to the agreement.
Some advantages for the business owner in a one-way buy-sell agreement
Business owner receives value of their business
Maintains confidence of creditors, employees, and customers
Known buyer established Provides liquidity for payment of potential
estate taxes and settlement expenses Estate receives a step-up in basis to the
current market value of the business at death Buy-sell agreement may set the value of the
business in owner’s estate
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There are unique
BUSINESSOWNERADVANTAGESto a one-way buy-sellagreement.
Some advantages for the buyer in a one-way buy-sell agreement
Buyer receives the opportunity to own the business.
Buyer has the ability to purchase the business using a life insurance death benefit or any available cash value accumulation through policy loans.1
Life insurance policy death benefit is federal income-tax-free to the beneficiaries.
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There are unique
BUYERADVANTAGESto a one-way buy-sellagreement.
1Policy loans and withdrawals will reduce available cash values and death benefits, and may cause the policy to lapse or affect any guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax.
One-way buy-sell agreement: Some additional considerations
The successor buyer needs funds to pay the life insurance premiums.
The business owner must qualify through health and, in some cases, financial underwriting.
There are attorney’s fees when drafting the one-way buy-sell agreement.
Need to identify business assets since business and personal assets are not legally separate for a sole proprietorship.
Agreement may limit the ability to use the business as credit collateral.
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SPECIAL considerations
of one-way buy-sell agreements
Consult with your attorney and professional tax advisor to discuss the possibilities for your situation. Ask your financial professional for more information on how life insurance works (including fees and expenses) and which product may be appropriate for your buy-sell strategy.
Work with your team of professionals to see if fixed index universal life insurance can help with your business-planning strategies.
The next step
Guarantees are backed by the financial strength and claims-paying ability of Allianz Life Insurance Company of North America.
The Employee Retirement Income Security Act (ERISA) may apply. Be sure to consult your tax advisor or attorney regarding your own situation.
Products are issued by Allianz Life Insurance Company of North America, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297. 800.950.1962 www.allianzlife.comProduct and feature availability may vary by state.
DisclosuresAllianz Life Insurance Company of North America (Allianz)
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OUR MISSION:Allianz Life Insurance Company of North America is the trusted authority in insured retirement solutions for consumers working with a financial professional.
