Buy Sell Agreement - Life Insurance Buy Sell Agreements For LLC Or Corporation Business Partners

The first question most people have is what in the world is buy sell life insurance? In closely held businesses the death of one owner can cause a plethora of inconvenient issues to arise within the business. Depending on the deceased owners' estate planning, the remaining business partners could face a number of legal and financial hurdles.

A buy-sell agreement is a contract among business owners, where upon the death of one of the owners, the remaining owners are required to purchase the deceased's interest via the terms of the contract (buy-sell agreement) and the deceased's survivors or heirs are required to comply by selling their inherited interest at the pre-determined price.

The buy-sell life insurance method is becoming more and more attractive to business owners because it avoids the question of how family members are to ensure they are receiving a fair price for their inherited share in the business. It also avoids the corporation having to produce a large amount of cash to redeem the heirs' interest in the corporation, and it avoids corporations having to deal with unwanted and potentially inexperienced partners (such as the spouse of the deceased).

Cross Purchase vs. Stock Redemption

There are two basic formations of buy-sell agreements. The first is a cross purchase agreement. The next is a stock redemption agreement. In a cross purchase agreement each owner of the corporation will purchase a life insurance policy on the other owners, and will in turn be named the beneficiary of the policy. In a stock redemption agreement the corporation purchases the life insurance policies. In each instance when an owner dies either the corporation or the other owners will use the proceeds of the life insurance policies to redeem the deceased owners' interest in the corporation.

Pros and Cons Of Buy Sell Agreements

These agreements are financially advantageous to both the corporation and the individuals that stand to inherit interest in the corporation. The fair market value of the owners' shares are agreed upon at the time of the signing of the buy-sell agreement. The proceeds are paid out to the other owners who then use the funds to purchase or buy out the deceased owners shares. There are no income tax consequences to the deceased's family as a result of the "sale", nor are the proceeds subject to corporate creditor claims or the corporate alternative minimum tax. As a result of the life insurance proceeds there is a lump sum of cash available to buy out or "fund" the agreement at the time of death, without having to go thru the probate period required by most states.

There are some drawbacks to the life insurance buy-sell agreement, most centering around the premiums paid into the life insurance policies during the lives of the owners. Since insurance premiums are not paid with pre-tax dollars, they are usually not tax deductible. Depending on the age and health of the owners, some of them might not be insurable. The uninsurable owners would really have no incentive to participate in a buy-sell agreement, which would result in an inequitable situation in regards to stock redemption agreements. Also, since interests and ages of the owners of the corporation could vary widely, there is a chance that the corporation will have to pay higher premiums for older owners and for those with smaller interest to pay a disproportionate share of premiums.

There are other ways to fund buy sell agreements, each with their own set of advantages and disadvantages. However, depending on the size of your corporation (or partnership or LLC), age and interests of its owners the life insurance buy sell agreement is an excellent way to ensure that your family and co-owner have the easiest transition of your shares in the event of death.

Buy Sell Agreement Life Insurance Quotes

Be sure that you shop around and compare life insurance quotes from multiple companies before purchasing a policy. A little bit of research spent early on will be well worth it when it comes time to draw up the paperwork.

Get started shopping around and finding life insurance today! Article Source: http://EzineArticles.com/?expert=James_J._Robinson

Using Life Insurance in Business Succession Planning

When you started your business, all that you initially considered was how to succeed and keep from failing. The biggest concern was failure, not in how to ensure that the business survived after you passed on. However, now that your business is successful, you want to make sure that either the business continues to survive, or at the very least, that your heirs are fairly compensated by the partners when they take over the business.

In the situation where the business has two or more partners, the partnership or shareholder agreement will typically have provisions in it where the other partner(s) will purchase the shares of the deceased partner upon their death. That way, the same core group can continue to control the company. Unfortunately, when the unthinkable event occurs, rarely will you have the available cash to buy out the partners shares. This would require you to take out additional debt, and this adds more risk to your financial position. The company probably doesn't have the necessary cash reserves to buy out their shares either. This type of situation can throw the company into financial turmoil at the very least, or possibly even into bankruptcy.

One way that you can avoid this financial nightmare is to purchase term life insurance on each of the partners, and the surviving company owners will be named as the beneficiaries. This gives the other owners the necessary cash to be able to purchase the deceased partner's share. This keeps the company stable, and it allows the partner's family to receive the cash right away. If your agent structures the policies correctly, the premiums on the policies may also be tax deductible. Insurance proceeds are also tax free. From a taxation perspective, this type of arrangement can allow you to use a small tax deductable expense in order to later use a large tax free sum of money to finance this transaction.

Another thing to consider is key man insurance. We always make sure that we have the proper amount of liability coverage, as well as coverage from loss or damage of the business property. However, we often forget to get insurance coverage on our most important assets: our key employees and owners. If one of your key employees or owners were to suddenly die, your business could be negatively impacted. You may also lose a lot of your expected income, and you will commonly incur a considerable amount of expenses while recruiting, hiring, and training an adequate replacement.

Using key man insurance will not replace the work that they did, but the proceeds will provide funds for the following: keeping the business running, offsetting the expected loss in revenue, and finding and training a new person to take over their role.

Additionally, many times when a business tries to get a large business loan, the bank will actually verify that the company has key man life insurance in place before they issue the loan. This protects the bank from loss by ensuring that the death of one of the main people will not cause the failure of the business.

By taking these steps, you can ensure the long term survival of your company, as well as the ability for the firm that you build to outlive you. Many companies can provide you with quotes on term life insurance and key man insurance.

Multiple companies can offer you quotes on a return of premium life insurance policies.

Article Source: http://EzineArticles.com/?expert=David_Sayers

Why Life Insurance Should Be Placed Inside Superannuation

Life insurance is usually held my people who have dependents and their lifestyle would be negatively impacted if the life insured policy holder was to die. This is quite often parents which kids who are financial dependents. It is also held by couples with an empty nest and a mortgage so that should one partner unexpectedly pass away the surviving partner is able to pay off the mortgage with the sum insured.

Life insurance in Australia should always be held inside superannuation. This is because it is more tax effective. This type of insurance held out side of super is not tax deductible. However the policy can be held inside super and be funded with money which has only been taxed at 15%. This is generally a lot lower rate than most peoples income (taxed at either 31.5% or 39.5%). Therefore over time there can be huge savings through structuring this type of insurance inside super.

Should you only pay 15% in tax (really 16.5% after the Medicare levy is included) you can deposit money into your super and receive the government co-contribution. This way the government is paying for your life insurance policy.

For those who do structure their life insurance inside super should try and contribute at least the cost of the policy into super. This way the insurance premium will not affect your wealth creation and retirement savings. After all, this is why we have super!

For higher income earners structuring your life insurance inside super makes a massive difference. Outside of super you pay 46.5% tax and as mentioned above the premium can be funded using money that has only been taxed at 15%. A huge saving!

Article Source: http://EzineArticles.com/?expert=Guy_Halpin

Online Life Insurance Quotes - Important Factors To Consider When You Compare And Shop Online

The advent of the internet has made is easy to shop, compare and obtain life insurance quotes online. With just a few clicks of your computer mouse, you can access several hundreds of life insurance websites and research for the best insurance quote that suits your needs. It is very important that you educate yourself with the key aspects of life insurance companies and the policies they offer, before you get your online insurance quote and sign on the dotted line. The more informed you are on these aspects, the better your chances of getting the best online insurance quote.

So, What Do You Need To Know To Get The Best Online Insurance Quotes?

It is important for you to take time and effort to understand the difference between term life insurance and whole life insurance.

It is also important for you to bear in mind that the cost of term insurance increases after middle age. With term life insurance, you get insurance protection for a specific period of time you would have decoded upon, after which it expires with no cash value.

The main attributes of whole life insurance is level premiums, guaranteed cash values, and death protection. However, its values can be eroded by inflation, thus impacting on the cash values.

There are also some important aspects you need to keep in mind if you are considering online life insurance in regards to flexible policies such as adjustable life, variable life and universal life. Basically, these policies were developed to offer more attractive growth opportunities for the policy holders. However, these types of policies bear a greater risk since neither principle nor interest are guaranteed. Variable life insurance policies are regulated at the state and federal level.

It is important that you research on and well informed about your insurance policy rights such as ownership rights, conversion options, reinstatement clause and entire contract clause. You will also need to know if you are protected by the policy's grace period. Are you wondering what these terms are and what they mean? If so, that shows how important it is for you to fully understand all aspects of your life insurance policy and the clauses and terms that it contains. While it is convenient and easy to get online insurance quotes, you will need to do your research and be fully informed on what you will be signing for, before you actually sign on the dotted line.

It is imperative that you understand your rights and responsibilities as a policy owner when reviewing online insurance quotes. Before you commit yourself to signing up, it is advisable that you have your agent assess all the aspects of coverage and limitations of any new policy you may be considering.

While you shop for and compare online life insurance quotes, bear in mind that quotes paid for life insurance are generally not tax deductible. This is because premiums are considered a personal expense and hence not tax deductible. Dividends are considered to be a return of excess premium paid by the policy holder, and they are not included as income for tax purposes. However, interest earned on dividends and accumulated by the insurer or paid to the policy holder is taxable in the year it is received.

Given the search engines and many websites that are available, shopping for life insurance quotes has never been easier. The consumer is able to get the shop around and camper, and get the best rates and policies that suits their needs and circumstances.

It is important for you to research and educate yourself with the many aspects of life insurance policies, terms, coverage, and the companies you may be considering; before you make your final decision.

With this knowledge, you will be in a better position to get the best insurance policy and rates that is most suitable to your needs and your families' financial well being.

Dean Shainin offers free online life insurance quotes. For more information, articles, news, tools and valuable resources on life insurance, visit this site: http://life-insurance.deans-knowledgebase.com Get free valuable online tips for saving money from his: Online Life Insurance website.

Life Insurance Premium Financing

Life insurance premium financing is used by wealthy individuals to pay their life insurance premiums. By financing your premiums, it allows you to free up the funds that might have otherwise been used to pay your premium. Many wealthy people require a substantial amount of life insurance for business planning, estate planning, or for income replacement.

In order to qualify for life insurance premium financing most insurance companies require you have a minimum of $2.5 million in net worth and at least a $200,000.00 a year income. In addition, you must be bankrupt remote entity, such as a Limited Liability Corporation, or an Irrevocable Life Insurance Trust.

In a normal premium financing arrangement, you would apply for a policy at the same time you apply for a loan. The loan is usually arranged by the insurance company you are working with although there are many different companies that handle only the financing and do not deal with the actual insurance policy. While you are being medically underwritten for the life insurance policy, your loan is being processed. Assuming you pass the medical exam and qualify for the loan, the policy and financing are put into place at the same time.

The benefits of a premium financing arrangement is that it frees up business and personal money to be used more efficiently in other investment arenas. In addition, life insurance premium financing may minimize gift taxes, and can provide a greater rate of return on the death benefit paid through regular non-financed methods.

Life insurance premium financing loans may be repaid either by paying a monthly payment while you are alive, pay from the policy itself, or at the time of your death, proceeds from the policy will pay off the loan.

Interest on the life insurance premium financing loan is considered to be personal interest, and therefore, not tax deductible.

If you are considering a premium financing loan for estate planning, there are some tax issues you may want to consider. The life insurance proceeds will be included in your estate if you own the policy. If the life insurance policy is owned by an irrevocable life insurance trust, estate taxes on the death benefits may be avoided.

Before you consider financing your life insurance premiums you should be aware that the life insurance policy will have to earn returns of between 150 to 300 basis points over the interest rate of the loan.

In addition, you should ask what the loan commitment fee is, as well as knowing whether the life insurance premium financing loan is renewable, how long the term of the loan is, and if the loan extends well beyond your life expectancy.

You may want to find out if the loan requires a personal guarantee, or if the loan is guaranteed by the life insurance policy.

Also, you want to know how if the program is designed on your IRS calculated life expectancy or is it conventional. If the loan is based on your life expectancy, and you live beyond that, the loan amount will exceed the cash value and the whole program will come apart.

Before entering into a financing agreement you may want to consult a trusted attorney, your financial advisor, and/or your Certified Public Accountant.

You will also want to shop around and compare insurance companies, their individual plans, the premium amounts, and the different types and amount of life insurance available to you.

Get started comparing life insurance quotes now! Article Source: http://EzineArticles.com/?expert=James_J._Robinson

A Tax Deductible Fund For Education

There comes a point in life for many senior citizens when they recognize that they are really managing assets for the benefit of their heirs. This point is reached when they have resolved the problems involving funding for unexpected health problems, and have also satisfied the question of having adequate lifetime income.

Sometimes it is possible to provide funding for health care needs in such a way as to benefit the heirs with the funds that are not lost to long term care expense because of good luck or good health.

What we are talking about here is a form of life insurance recently made available to retirees that allows access to the insurance benefit if funds are needed for home care or for nursing facility care. For example, a $200,000 life insurance policy would allow a retiree to have $4,000 monthly to pay for care. If the benefit was not used for such care, it would then be available to the estate as a life insurance benefit, and those funds could then be available to fund a grandchild's college education.

There is a way that allows retirees to set up VERY SIGNIFICANT educational funds for the grandchildren and to TAKE A TAX DEDUCTION for doing so. It combines two very efficient financial tools -

A CHARITABLE GIFT ANNUITY
LAST SURVIVOR Life insurance (A wealth Replacement plan)

Let us look at an example:

John is 72 years old and his wife is also 72. John has a substantial IRA account and is required to take money from it each year even though he really would prefer to allow it to remain in the account to grow free of taxation.

His adviser gives him this idea:

Why not transfer $100,000 from the IRA account to a GIFT ANNUITY? By so doing, he would not only satisfy the mandatory IRS withdrawal, he would develop a tax credit to help pay the tax on his withdrawal. Quite important also, was this simple fact: he would receive $6,500 income from the annuity every year for as long as he lived.

This money would be sufficient to pay the premiums for a last survivor life insurance premium with a face amount of

$200,000

That is correct! You have just managed to transform a $100,000 gift into a $200,000 benefit that you can dedicate to colleges expenses for grandchildren if you so wish, or to pay the tax bill on the remaining IRA account. You also have done the following -

Benefited a favorite charity
Satisfied a current IRS requirement for your IRA account
Received a tax deduction for the current tax year.
Reduced the ultimate tax owed on your IRA account

In the process, you have also eliminated the problem of funding the cost of the insurance, since the check to pay the premium comes at the same time as the billing from the insurance company. The funds are guaranteed to last for your lifetime, and the insurance costs are also guaranteed to never increase.

You may wish to split the program into two segments in order to benefit two separate charities, and spread the tax benefits over two tax years. You have a number of planning alternatives that your adviser can help work out.

Here is the question for you: If your circumstances allow, is there any reason you would not make an investment with a guaranteed 2 for 1 return?

Like it or not, we all must be financial planners. Bob Zimmerman now brings over 50 years of experience to the aid of those seeking to better inform themselves. Holding a BS degree in Finance from the University of Detroit, he also has an MBA degree from that institution.

He spends his senior years devoted to advancing the goal of educating the public. To that end, he has published a book - THE ANNUITY-FROM MYSTERY TO MASTERY. It is further described on his website - http://www.safemoneyplus.com

He also has a website devoted to education the public about the practical usses of CHARITABLE GIFT ANNUITIES. That site is http://www.cga-advisor.com

For those with a charitable mindset, he is more than happy to offer NO FEE counseling .

Hire Your Family As Workers and Make Them a Tax Deduction

You can legally hire members of your family to work for you and make them a tax deduction. He or she must provide a value to your business for you to justify their hiring. Hiring your husband or wife could also make some everyday expenses tax-deductible. Life insurance payments, health insurance payments, tuition for education related to work, and work travel and entertainment expenses are tax deductible.

You can hire your kids or grand-kids to work for your business part time doing jobs like cleaning the office, maintaining the work vehicle, addressing envelopes, answering the phone, tracking inventory, making deliveries, data entry, or just running errands.

The money you pay them becomes a tax deduction, even if it becomes their allowance or is deposited into a savings account. In this manner, money you might ordinarily just be handing to your children or squirreling away for them becomes a tax deduction for you.

Of course any salary you pay to any member of your family must be recorded on their own income tax return. However, you can pay out up to $7,756 annually and not take any tax deductions from their pay.

Of course, they have to work, like any other employee. You can pay a deductible salary to a member of your family, as long as it is not substantially more than you would have to pay a non-family member to do that same job. The pay can't be considered disproportionate to the work.

If the person performing the job were not a member of your family, you would have to pay them at least minimum wage. So, it would make sense to pay minimum wage to them. Salaries are tax-deductible to you, as an employer, and taxable to your family members as income.

The pay to your family members must be periodic, at least once a month. You lose any tax benefit if you pay wages to a family member whose tax bracket is higher than yours. Pay by check, not in cash. Do not treat the family members pay any differently than any other current employee.

Of course, this works best if you are running your business from your home, as home business tax deductions become applicable as well. In this scenario, along with your family members' earnings becoming tax deductible, many costs of the daily operation of your house like electricity and heating could qualify. Check on all the deductions available to you if you combine hiring family members with working from home. There is a lot of tax benefit to running your business this way.

Can you employ your family members in your business? Well you can do it but you need to convince IRS that this is not just a family adjustment. If you employ, what expenses can you claim as a deduction? What precautions should you take? Chintamani Abhyankar explains.

Chintamani Abhyankar, is a well known expert in the field of finance and taxation for last 25 years. He has written many books explaining inside secrets of the magic world of personal finance. His famous Tax eBook "Stop donating your money to IRS" which is now running in its second edition, provides intricate knowledge and valuable tips on personal finance and income tax.