Business Succession and Buy Sell Insurance
For a closely held business, the departure of an owner through death, disability, or retirement can create disruption that threatens the enterprise. Insurance funded buy sell agreements provide a mechanism and the funds to manage that transition.
Funding the Transition
A buy sell agreement is a legal contract among owners that governs what happens to an ownership interest when an owner leaves the business, whether by death, disability, or retirement. The agreement sets the terms of the transfer and often the price.
Insurance funds the agreement by providing the cash needed for the purchase when a triggering event occurs. Without funding, the agreement may exist on paper but lack the resources to carry it out, leaving the surviving owners and the departing owner's family in a difficult position.
Death and Disability Contingencies
A complete succession plan addresses both death and disability. Life insurance funds the buyout at an owner's death. Disability buyout insurance funds the purchase if an owner becomes disabled and can no longer work in the business. Addressing only death leaves a significant gap, because disability may be more likely and can be just as disruptive.
The contingencies the agreement covers should reflect the realities the business and its owners face.
Ownership Transitions
Succession planning also covers transitions that are planned rather than triggered: an owner retiring and selling to partners or to the next generation. Insurance and funding structures can support these transitions as well, smoothing the transfer of ownership and value over time.
Periodic Review of Business Agreements
Business agreements are not set and forget. As the business grows, ownership changes, valuations shift, or circumstances evolve, an agreement that fit when it was drafted may no longer fit. Periodic review keeps the agreement aligned with the current business and the current owners.
We help clients review their buy sell agreements over time, confirming that the insurance funding keeps pace with the business's value and that the terms still reflect the owners' intentions.
Our Approach
We work with your attorney to align the insurance funding with the buy sell agreement's terms, addressing both death and disability contingencies. The goal is an agreement that will actually work when it is needed, with the funds and the structure to carry out a smooth transition.