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Presented by MidAmerica Financial Resources. You can reach them at 618.548.4777 or greg.malan@lpl.com or on the web at www.mid-america.us

 

Buy-Sell Agreements for Businesses

Buy-Sell Agreements for Businesses
Planning for your future and beyond.

Provided by MidAmerica Financial Resources

 

For most, creating an estate strategy is important to make sure your loved ones are taken care of after you’re gone. But it may be just as important to have an estate strategy for your business. Whether you’re a sole proprietor who will be passing on your business to your heirs or your business partners will take over for you, having a plan in place might ensure that your business legacy continues to live on.

 

One way to potentially safeguard a business is to create a buy-sell agreement. A buy-sell agreement is a contract between different entities within a corporation to buy out the interests of a deceased or disabled partner. A buy-sell agreement can also protect the business from loss of revenue and cover the expenses of finding and training a replacement.

 

When is the right time to implement a buy-sell agreement? While a buy-sell agreement can be put into place at any time, it often makes sense to set one up at a critical point in your business, such as bringing in a new partner.1

 

Types of Buy-Sell Agreements

There are two main types of buy-sell agreements commonly used by businesses:

 

Cross-Purchase Agreement. In a cross-purchase agreement, key employees have the opportunity to buy the ownership interest of a deceased or disabled key employee. Each key employee takes out a policy on each of the other key employees. Cross-purchase agreements tend to be used in smaller companies where there are not too many key employees to cover.

 

For example, if your business has 3 partners, each partner will take out two (2) cross-purchase agreements to cover the other partners, for a total of 6 cross-purchase agreements.

 

Stock-Redemption Agreement. Stock-redemption agreements are formal agreements between each of the key employees — and the business itself — under which the business agrees to purchase the stock of the deceased or disabled key employees. Key employees agree to sell their shares to the company, often in exchange for a cash value.

 

These agreements establish a market value for a key employee’s share of the company.2

 

Funding a Buy-Sell Agreement

There are several options for funding a buy-sell agreement:

 

Set aside funds. Money for a buy-sell agreement can be set aside, as long as it is easily accessible. These funds must be kept up for the life of the company and may present a temptation during fiscally tough times. The business owners must determine the appropriate amount needed to cover the cost of a buyout.

 

Borrow the needed amount. A company can borrow enough to buy out a withdrawing key employee at the time of their death. However, the loss of the employee can often affect a company’s ability to secure a loan, and the payments become an added stress on the business during an already difficult time.

 

Life Insurance. Purchasing a life or disability policy in order to fund a buy-sell agreement is an option when preparing for the future. Using life insurance enables a buy-sell agreement to be funded with premium payments and attempts to ensure that funds will be available when they are needed.3

 

Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

MidAmerica Financial Resources may be reached at 618.548.4777 or greg.malan@lpl.com www.mid-america.us

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Securities and advisory services offered through LPL Financial, a Registered Investment Adviser, Member FINRA/SIPC.
MidAmerica Financial Resources and Malan Financial Group are separate and unrelated companies to LPL.

 

Citations.

1 – score.org/resource/covering-your-back-buy-sell-agreement [2019]

2 – fitsmallbusiness.com/buy-sell-agreement/ [07/12/2017]
3 – forbes.com/sites/forbesnycouncil/2019/05/13/why-business-partners-should-always-have-buysell-agreements/#34af2d1877f4 [05/13/2019]

Health Care Costs Are Cutting into Retirement Preparations

Health Care Costs Are Cutting into Retirement Preparations

This is happening in subtle and not-so-subtle ways.

Provided by MidAmerica Financial Resources

 

You may have seen this statistic before or one resembling it: the average 65-year-old retiring couple can now expect to pay more than $250,000 in health care expenses during the rest of their lives.

 

In fact, Fidelity Investments now projects this cost at $285,000. The effort to prepare for these potential expenses is changing the big picture of retirement planning.1

  

Individual retirement savings strategies have been altered. How many people retire with a dedicated account or lump sum meant to address future health costs? Probably very few. Many retirees end up winging it, paying their out-of-pocket costs out of income, Social Security benefits, and savings.

 

While couples can save together, individuals also have considerable health care costs as well. Fidelity estimates the costs as $150,000 for women and $135,000 for men. The costs can potentially take up a considerable amount of a retiree’s income – 9 to 14%, according to Fidelity. Per year, out-of-pocket costs, including dental and vision, could run into $3,000 to $8,000 in an average year.2,3

 

While households have begun adjusting their retirement expectations considering projected health care expenses, businesses have also quietly made some changes. If you can take advantage of employer matching contributions, take advantage of that benefit.

 

There is no easy answer for retirees preparing to address future health care costs. Staying active and fit may lead to health care savings over the long run, but some baby boomers and Gen Xers already have physical ailments. Barring some sort of unusual economic phenomenon or public policy shift, the question of how to pay for hundreds of thousands of dollars of medical and drug expenses after 65 will confound many of us.

MidAmerica Financial Resources may be reached at 618.548.4777 or greg.malan@lpl.com www.mid-america.us

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Securities and advisory services offered through LPL Financial, a Registered Investment Adviser, Member FINRA/SIPC.
MidAmerica Financial Resources and Malan Financial Group are separate and unrelated companies to LPL.

Citations.

1 – fool.com/investing/2019/12/07/these-5-factors-will-tell-you-how-much-you-really.aspx [12/7/2019]

2 – plansponsor.com/estimates-health-care-costs-retirement-continue-rise/ [4/2/2019]

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