BUY / SELL LIFE INSURANCE

The death or long-term disability of a business owner can cause a business terrible turmoil, the loss of customers and disruption at nearly every level. Have you considered what would happen to your business and family should you unexpectedly die or become disabled?

  • Do your heirs have experience operating the business on a day-to-day basis?
  • Would your heirs be forced to sell the business?
  • Would your heirs receive a fair price?
  • Would the IRS seek a higher valuation for your business?

These are difficult but important questions to answer. You owe it to yourself and your family to protect your years of hard work. Through proper planning, you can secure the continuation of your business and the financial security of your heirs. Having a written agreement that guides what happens after you are gone, and life insurance proceeds to fund the transition, is wise. Morris & Reynolds can assist by arranging the life insurance protection needed to fund your businesses Buy / Sell Agreement.

As a part of this agreement, the business will purchase separate life insurance contracts on the lives of the owners. The business will pay the premiums and will be the owner and beneficiary. When an owner-employee dies, his or her share of the company will pass to the heirs of his or her estate. The business may use the proceeds from the policy to purchase the interest from the estate.

WHAT WILL A BUY-SELL AGREEMENT ACCOMPLISH?

• Creates an immediate market for the stock.
• Sets a predetermined price at which owners agree to buy and sell their shares.
• Provides money to fund the plan.

BENEFITS OF A BUY/SELL AGREEMENT

A buy/sell agreement gives employers and their family members peace of mind knowing that their business is in capable hands should they no longer be able or want to manage it. It also:

  • Assures remaining owners that the deceased’s share of the business will not pass on to someone unsuitable
  • Assures continuity for customers, creditors and employees
  • Guarantees heirs a buyer for assets they may not know how to manage at a pre-determined, valued, price
  • In some cases a buy/sell agreement can provide employees a way to purchase a business they have a vested interest but not the capital for.
  • Provides money to create a fair market value exchange
  • Promotes equitable and orderly transfer of wealth, ownership and management
  • Provides heirs cash to pay estate debt, expenses and taxes

TYPES OF BUY SELL AGREEMENTS

When examining different strategies, it is important to select one that insures a smooth transition of ownership and protects your family’s financial future. A buy-sell agreement can help you accomplish this goal. Most business owners implement one of two Buy / Sell Agreements, a cross-purchase plan or the entity purchase or stock redemption plan.

A) CROSS PURCHASE PLAN: Each business owner purchases a life insurance policy on each of the other owners. When an owner dies, the surviving owners use the death benefit to purchase the deceased owner’s share of the business. In this plan, owners enter into an agreement with one another. To fund this plan, each owner applies for, owns, and pays the life insurance premiums on the other owners. When an owner dies:

  • Life insurance proceeds are paid to the surviving owner(s) income tax free.
  • Proceeds are used to purchase the heirs’ business interest.
  • Heirs receive an agreed-upon payment for their business interest.
  • Surviving owner(s) receive an increased cost basis for the acquired business interest.

B) ENTITY PURCHASE: In an entity redemption plan between owner-employees, each owner enters into an agreement with the business for the sale of their respective interests to the business. In this plan, owners enter into an agreement with the business. The business applies for, owns, and pays the life insurance premiums on each owner. When an owner dies:

  • The business will receive the life insurance proceeds.
  • The business uses the proceeds to purchase the deceased’s business interest.
  • Heirs receive an agreed-upon price for their business interest.

C) STOCK REDEMPTION PLAN: A stock redemption plan is an agreement between the business and its shareholders. The corporation applies for, owns, and pays the life insurance premiums on each shareholder. When a shareholder dies:

  • The corporation will receive the life insurance proceeds.
  • The corporation will use the proceeds to purchase the shareholder’s outstanding stock.
  • Heirs receive an agreed-upon price for the shareholder’s outstanding stock.

HOW TO FUND THE TRANSFER (SALE) OF A BUSINESS AFTER AN OWNER’S DEATH

(1) DO NOTHING IN ADVANCE & PAY CASH:
In this option, surviving owner(s) use cash at the death of a co-owner to fund the buy-sell agreement. But, several drawbacks to this method exist, including:

  • At death, funds may not be readily available for payment.
  • A savings plan accumulates funds over time. What if funds are needed tomorrow?
  • Will a savings plan be depleted to pay for unforeseen expenses?
  • Accumulation of cash may cause an accumulated earnings tax problem.

(2) DO NOTHING & BORROW MONEY:
In this option, surviving owner(s) borrow funds, usually bank loans, at the death of a co-owner to fund the buy-sell agreement. But, much like the first option, this method has drawbacks, including:

  • Future growth may be slowed due to an increase in expenses (repayment of loan).
  • Death of an owner may cause sales to decline, compounding the problem.
  • Death of an owner may make it difficult to receive a loan.
  • A surviving owner may have to sign for funds, exposing personal assets.
  • Surviving owners pay dollar for dollar plus interest for the deceased’s outstanding share of the business.

(3) CARRY LIFE INSURANCE TO FUND THE BUY / SELL AGREEMENT:

Purchasing insurance is often the most cost effective funding option for a buy-sell agreement. Using insurance as a funding vehicle will provide the following benefits:

  • Immediate availability of proceeds when death or disability occurs.
  • The funds used to buy the deceased’s share are purchased for pennies on the dollar.
  • Death benefit proceeds are generally income tax free.
  • Premiums may be significantly lower than the cost of repaying the loan interest.

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TRUSTED INSURER CHOICES: SUPERIOR MARKET KNOWLEDGE, RELATIONSHIPS & INSURER ACCESS

As an independent agency, not some insurance company, we offer choices from all of the leading insurers and act as your advocate and navigator through the complex world of insurance.

Morris & Reynolds represents and has access to the entire market of leading insurers. Many of our relationships with major insurers span decades and often find us in a leadership position as an advisor or agent Board member. We also offer immediate access to America’s Health Insurance Exchange, along with the professional advice and guidance needed to navigate the many insurer options in addition to providing the day to day service you need in the years to come that we’ve been known for since 1950.

THE LOWEST PRICES AVAILABLE ANYWHERE

Insurance rates are filed with and regulated by the State Department of Insurance. Whether you buy from Morris & Reynolds, some on line or toll free business you’ll never see, or even directly from an insurance company, you’ll pay the same premium for the coverage you purchase. This means that you can enjoy the advantages and convenience of shopping and purchasing your insurance from Morris & Reynolds’ professional people, as well as have our live, local, service available whenever you need it and rest assured that you’re getting the best available price.

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Your coverage and budget goals are our sole focus. The coverage and costs that we quote, in fact all we do, is focused on you and your family. We are known as aggressive negotiators who have our clients’ best interest at heart. Always.

We also enjoy serving our clients in the most transparent manner possible and are happy to discuss and disclose our compensation and answer your questions about that important topic with you. Morris & Reynolds is a truly independent insurance agency and has been since 1950. Our focus is never on stockholders, stock prices or an insurance company preference, but our clients’ goals, dreams and desires. Always.

HANDS-ON DAY TO DAY CARE & ADVOCACY FOR YOU & YOUR FAMILY

Let’s face it, insurance can be time consuming and frustrating. Dealing with medical providers, claims paperwork and insurers is often an experience filled with ‘red tape’, delays and frustration. Whether you or your family members have a question about your coverage, a provider, a bill or a claim we are here to help every step of the way. Our Client Advocates are here at Morris & Reynolds everyday focused on assisting you and your family with provider and claim concerns as well as the never ending ‘red tape’ involved with America’s medical ‘system’.

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Your satisfaction with the insurance that we provide to you and your family is very important to us. At Morris & Reynolds Insurance we take your peace of mind to heart in all we do from the coverage that we structure, the insurers we suggest and the day to day service and care we provide to you. When you need us most, we will always be there.

AWARD WINNING, EDUCATED, LIVE, LOCAL, PROFESSIONAL PEOPLE

At Morris & Reynolds Insurance our clients’ receive the best of both worlds. We are well known for our ‘old fashioned’, reliable and responsive service that dates to the founding of our agency in 1950.

Our Client Service Underwriters, Client Advocates and Professional Agents are deeply committed to their profession and career-long learning. Our award winning TEAM of professional people, the finest people in employee benefits and insurance, is unique to Morris & Reynolds Insurance. In order to offer our clients the very finest results possible we constantly seek improvement by way of training, performance measurement and process reviews.

Our corporate office is an approved and certified testing site for the prestigious Insurance Institute of America and their curriculum is part of our ongoing TEAM educational efforts. Morris & Reynolds Insurance is proud of the awards that TEAM members have received from a variety of industry associations and insurers, including the Florida Agent of the Year, The National Agent of the Year and The Customer Service Representative of the Year Honors to name a few.

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14821 South Dixie Highway, Miami, Florida 33176
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