Owner

---

Seize
the
Day
–
Carpe
Diem
 A
New
Look
on
(Permanent)
 Life
to
Generate
Sales
for
 Business
Owners
 Presented
by:
 
Teresa
Bippen.
JD
 Jeffrey
Hollander,
JD
 
Andrew
J
Rinn,
JD,
CFP ,
CLU,
ChFC
 

 ®




Important
Disclosure
 


 
`The
Tax
Relief,
Unemployment
Insurance
ReauthorizaJon
and
Job
CreaJon
Act
of
 2010
( Act )
impacts
the
federal
giQ,
estate
and
generaJon
skipping
transfer
tax
 (together
referred
to
as
 transfer
tax )
through
2012.

Among
other
changes,
the
 Act
temporarily
establishes
maximum
exempJon
amounts
of
$5,000,000
per
 person
for
transfer
tax
purposes,
establishes
a
maximum
transfer
tax
rate
of
35%
 and
provides
for
portability
of
the
estate
tax
exempJon
between
spouses.

These
 changes,
however,
are
only
in
effect
through
December
31,
2012.

Unless
Congress
 enacts
new
legislaJon,
on
January
1,
2013
the
transfer
tax
laws
will
revert
back
to
 the
laws
(e.g.
exempJon
amounts
of
$1,000,000
and
generally
55%
maximum
tax
 rates)
that
were
in
effect
in
2001.

At
this
Jme,
it
is
not
clear
what
steps,
if
any,
 Congress
will
take
to
revise
the
transfer
tax
laws
for
years
beyond
2012.

Future
 changes
in
transfer
tax
exempJon
amounts
and
transfer
tax
rates
may
impact
the
 appropriateness
of
any
transfer
tax
planning
strategy
or
product
sale.

Clients
need
 to
understand
that
tax
law
is
always
subject
to
interpretaJon
and
legislaJve
 change.

MetLife
and
its
affiliates
do
not
provide
tax
advice
and
therefore
clients
 must
speak
with
their
qualified
legal
and
tax
counsel
regarding
their
current
estate
 plan
and
what
planning
opJons
are
available
and
appropriate.


AddiDonal
Disclosures
 Pursuant to IRS Circular 230, MetLife is providing you with the following notification: The information contained in this document is not intended to (and cannot) be used by anyone to avoid IRS penalties. This document supports the promotion and marketing of insurance products. You should seek advice based on your particular circumstances from an independent tax advisor. MetLife, its agents, and representatives may not give legal or tax advice. Any discussion of taxes herein or related to this document is for general information purposes only and does not purport to be complete or cover every situation. Tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the facts and circumstances. You should consult with and rely on your own independent legal and tax advisors regarding your particular set of facts and circumstances.

The
Business
Owner
Market
 •  Baby
boomers
will
transfer
$10
trillion
to
later
generaJons
 •  Largest
generaJonal
transfer
of
wealth
in
history
of
 humankind
 •  Vast
majority
of
wealth
is
held
as
stock
in
more
than
12
 million
privately
owned
businesses
 •  During
the
next
10‐15
years,
more
than
70
percent
of
those
 businesses
are
expected
to
change
hands
 


The
Reality
 • 

EsJmated
8
million
business
owners
will
exit
ownership**


• 

Over
500,000
businesses
will
change
hands
annually**


•  •  • 

95%
of
all
U.S.
corporaJons
are
closely
held*
 Only
27%
of
all
businesses
have
a
formal
business
succession
plan*
 70%
of
all
second
generaJon
family
businesses
fail*


Business
Owners
are
Affluent
 •  • 

Affluent
business
owners
represent
one
fourth
of
 all
business
owners*
 Who
are
affluent
business
owners?**
 –  At
least
$500K
in
investable
assets
 excluding
real
state
and
business
interests


Business
Owner
Market‐Timing
is
Everything




Business
Owner
 Marketplace


+


TRA
2010
+








 Return
to
Permanent
Cash

 
Value
Life
Insurance


Equals


Business
Owner
Opportunity


TradiDonal
Exit
Strategies
 1.  Stock
RedempJon
   Company
purchases
stock
of
 shareholder.


2.  Management
Buy
Out
   Key
managers
purchase
stock
 of
shareholder


3.  Sale
to
Third
Party





Exit
Strategy



–  Merger:
Market
 uncertain
 –  Sale
to
the
Open
 Market:

 •  Buyers
are
limited
 •  Financing
can
be
 difficult


  Outsider
purchases
enJre
 company
 9


Seize
the
Day
 •  YOU
are
in
a
posiJon
to
 provide
value‐added
 soluJons
to
these
 business
owners
 •  Producers
share
many
of
 the
same
traits
as
 successful
business
 owners*


Three
Business
Owner
Strategies
 Business
ConJnuaJon

 ReJrement
Partnership


SERP
Dollar
Plus


Business
Owner

 Strategies


ReJrement

 Buy
Sell


ReJrement
Buy
Sell
 


Discussion
Overview
 •  Who
are
the
prospects?
 •  How
does
the
strategy
work?

 •  Examples
of
possible
results
 •  What
are
the
benefits?
 •  Other
consideraJons
 


Who
Are
the
Prospects?


Who
Are
the
Prospects?
 •  Partnerships
and
LLCs
taxed
as
partnerships
 •  C
or
S
CorporaJons
where
there
is
more
than
one
owner
 AND
the
business
owners
are
also
partners
in
a
partnership
 •  Business
owners
who
need
to:
 –  Accumulate
assets
for
reJrement
 –  Create
assets
to
fund
buy‐sell
agreement
 •  Businesses
that
already
have
a
buy‐sell
agreement
 –  Unfunded,
OR
 –  Funded
with
term
insurance


How
Does
the
Strategy
Work?


Three
Components
of
Strategy


§162
bonus

 arrangement
 
between

 company
and

 each

 business
owner


Buy‐sell

 agreement
 between
owners


Private

 endorsement

 split
dollar

 agreement

 between
owners


§162
Bonus
Component
 •  §162
Bonus
to
each
business
owner
to
fund
buy
sell
 Carrier
issues
policy
 owned
by
Abby


Policy


Bonus
 (W‐2
income)



 Carrier
 



 Premium


Owner

 Abby
 Age
42



 AB

 Apparel
 Company






Bonus
 (W‐2
income)
 Carrier
issues
policy
owned
 by
Betsy


Owner

 Betsy
 Age
46


Policy


Buy‐Sell
Agreement
Component
 •  Legal
buy‐sell
agreement
establishes
terms
and
purchase
price

 for
each
owner
to
buy
other s
share
of
business
 Policy


Owner



Bonus
 W‐2
income
 
 Carrier






 Premium


Abby
 Age
42



 AB

 Apparel
 Company





Bonus
 W‐2
income


Owner

 Betsy
 Age
46
 Policy


Cross
Purchase
 Buy‐Sell
 Agreement:
 Provides
for
 purchase
In
 event
of
owner s
 death.


Split
Dollar
Agreement
Component
 •  Private
endorsement
split
dollar
agreement
funds
buy‐sell
agreement
 Policy


Owner



Bonus
 W‐2
income
 Premium
 
 Carrier
 


Abby
 Age
42



 AB

 Apparel
 Company



 Bonus
 W‐2
income


Owner

 Betsy
 Age
46
 Policy


Betsy
endorses
porDon

 of
death
benefit
to
Abby


Cross
Purchase
 Buy‐Sell
 Agreement:
 Provides
for
 purchase
in
event
 of
owner s
 death.

 Abby
endorses
porDon




of
death
benefit
to
Betsy


Abby
pays
Value
 of
Economic
 Benefit
to
Betsy

 (may
be
taxable
 income)


Betsy
pays
Value
 of
Economic
 Benefit
to
Abby
 (may
be
taxable
 income)


ReDrement
Buy‐Sell


•  Cost
to
each
owner
 –  Annual
income
tax
on
bonus
from
company
 –  Annual
tax
on
value
of
economic
benefit
from

 endorsed
split
dollar
benefit
 –  IniJal
legal
costs


21


Examples
of
Possible
Results


Results
Example
1:
 


Early
Death
of
Partner


Results
Example
1:



Early
Death
of
Partner
 •  To
demonstrate
the
results
at
an
early
death,
assume
Betsy
dies
at
56
 
 AB

 
 Apparel
 Company
 





Owner
Abby


Abby
buys
 Betsy s
AB
 shares



Abby s
shares
of
 
 AB
Co.
 


Policy


Endorsed
 PorDon
of


 death
benefit
 paid
to
Abby
 24


At
Betsy s
death
 AB
shares
become

 part
of
estate
 Betsy s
Estate
 Betsy s
shares
of
 
 AB
Co.
 


Remaining
death
benefit
 paid
to
Betsy s
estate
 Death
Benefit


Results
Example
1
:



Early
Death
of
Partner
‐conDnued
 •  AQer
death
of
partner,
Abby s
results
for
reJrement:
 
 AB

 
 Apparel
 Company
 






 
 Owner
Abby


DistribuDons

 from
Policy

 Policy


•  Abby
has
owned
her
own
policy
from
 incepJon
 •  Abby
does
not
have
to
purchase
her
policy
 from
Betsy s
estate.
 •  Abby
is
free
to
uJlize
the
cash
value
of
her
 own
policy
to
supplement
her
reJrement
 income.
*




*
Tax‐favored
distribuJons
assume
that
the
life
insurance
policy
is
properly
structured,
is
not
a
 $1,208,411
 modified
endowment
contract
(MEC),
and
distribuJons
are
made
up
to
the
cost
basis
and
policy
 loans
thereaQer.

Loans
and
withdrawals
will
decrease
the
cash
value
and
death
benefit.

If
the
 policy
has
not
performed
as
expected
and
to
avoid
a
policy
lapse,
distribuJons
may
need
to
be
 reduced,
stopped
and/or
premium
payments
may
need
to
be
resumed.

Should
the
policy
lapse
 or
be
surrendered
prior
to
the
death
of
the
insured,
there
may
be
tax
consequences.


Results
Example
2:
 


Both
Partners
Live
to
ReJre
 





Results
Example
2:


Both
Partners
Live
to
ReDre
 •  Endorsements
are
released.
 
 
 Abby


DistribuDons

 from
Policy

 Insured=Abby



 
 Betsy


DistribuDons

 from
Policy

 Insured=Betsy


•  Business
is
sold.
 •  Each
individual
has
owned
their
 own
policy
since
incepJon.
 •  No
need
to
 swap 
policies
which
 may
have
resulted
in
taxable
 income.
 •  Each
individual
has
access
to
their
 respecJve
policy s
cash
value
to
 $1,208,411
 supplement
reJrement.
*



Results
Example
3:
 


Buy‐Out
of
Partner s
Share
 of
the
Business
 


Results
Example
3:



Buy‐Out
of
Partner s
Share
of
the
Business
 •  Assume
Abby
uses
the
policy
cash
value
to
buy‐out
Betsy s
share
of
 the
business
when
Betsy
reJres
 
 AB

 
 Apparel
 
 Company





Owner
Abby
 Betsy s
shares

 
 of
AB
Co.
 


Abby
takes
 distribuDon
from
 policy
cash
value*
 Policy


Abby
buys
 Betsy s
AB
shares



The
partners
 terminate
the
split
 dollar
agreement


Owner
Betsy


Policy


Results
Example
3:



Buy‐Out
of
Partner s
Share
of
the
Business
‐conDnued
 •  Results
for
reJrement,
following
the
buy‐out:

 
 AB

 
 Apparel
 
 Company





Owner
Abby


Betsy


Betsy s
shares

 
 of
AB
Co.
 


(Dollars
from
sale
of
AB
 
 Co.
Shares) 
 


DistribuDons

 from
remaining
 
cash
value
(if
any)
 Policy


DistribuDons

 from
full
 
cash
value
 Policy


Other
ConsideraDons
 •  Use
of
the
policy
death
benefit
for
estate
 planning
 •  Owners
decide
to
sell
the
business
and
use
 the
policy
for
supplemental
reJrement
 income
*
 •  Use
of
the
policy
death
benefit
for
charitable
 consideraJons


What
Are
the
Benefits?


What
Are
the
Benefits?
 •  Purchasing
one,
dual‐purpose
policy
reduces
 overall
costs
of
insurance,
and
therefore,
may
be
 more
cost‐efficient
than
purchasing…


– Permanent
policy
for
death
benefit
 coverage
and
reJrement,
plus
 – Term
policy
for
buy‐sell


What
Are
the
Benefits?
 •  Business
owners
can
make
addiJonal
policy
contribuJons
 to
boost
reJrement
income
*
 •  Money
needed
for
buy‐out
is
tax
favored
 –  At
reJrement:
withdraw
basis,
then
borrow*
 –  At
death:
death
benefits
 


What
Are
the
ConsideraJons?


ConsideraDons
 •  If
both
buy‐sell
agreement
and
private
split
dollar
 agreement
are
executed
properly,
plan
is
 estate
tax
 neutral .






–  At
death,
full
amount
of
death
benefit
is
included
in
 deceased
owner s
estate.
 –  However,
split
dollar
agreement
is
legiJmate,
legal
obligaJon

 to
pay
specified
porJon
of
death
benefit
to
other
owner.
 Therefore,
that
amount
should
be
a
deducJon
against
estate.


•  Business
owners
should
review
plan
at
least
every
3
to
5
 years.
If
business
grows…
 –  May
need
to
increase
amount
of
endorsement
 –  May
need
to
increase
policy
contribuJons
 


ConsideraDons
‐conDnued
 


•  Business
owners
must
also
be
partners
in
a
 partnership
or
owners
in
a
pass
through
LLC
in
 order
to
avoid
transfer
for
value
results
under
 IRC
SecJon
101(a)(2)
 


SERP
Dollar
Plus


38


Prospects
 •  Companies
with
 top
hat 
employees
that
 they
would
like
retain
or
reward
for
their
 services
*

 •  Companies
seeking
to
provide
a
robust
 future
bonus
to
valued
executive
 •  Employers
who
wish
to
avoid
complicated
 administration
and
who
wish
to
retain
 control
of
the
policy
as
a
corporate
asset


Business
owners
want
to
reward
and
retain
talent





PROBLEM:

Other
companies
make
offers
to
key
employees

 to
enDce
them
away
 Job
 security!!


More
 Money!!


Perks!
 PromoJon!!


41


Poten&al
Solu&on
Introducing…


SERP Dollar Plus

A retention plan and retirement benefit for your key employees • 
Provides
a
life
insurance
death
benefit


• Provides
for
a
lump
sum
payment
to
key

 
employee
upon
completion
of
a
pre-selected
 
service
period
 • 
Employer
may
recover
its
plan
costs


SERP
DOLLAR
PLUS
Agreement


Key
Employee
 Employer
 • 
Promises
to
pay
employee
a
 specified

bonus
upon
compleJon
of
 service
requirement

 • 
Informally
funded
using
life
 insurance
 • In
the
event
of
employee s
death
 before
compleJon
of
service
period,
 employer
receives
a
porJon
of
the
 death
benefit


• 
Receives
lump
sum
bonus


upon
compleJon
of
pre‐ selected
service
period
 • 
Receives
death
benefit
 coverage
in
event
of
death
 prior
to
the
compleJon
of
 the
service
period


Employer
and
employee
enter
into
a
non‐equity
 endorsement
split
dollar
agreement
as
well
as
a
bonus
 agreement


Employer


Agreements*
 *
DraQed
by
 client s
asorney


Key
 Employee


Per
Split
Dollar
Agreement,
carrier
issues
policy
 insuring
employee,
owned
by
employer
**
 Carrier
 issues
 policy
on
 Key
 Employee


Employer


**To
ensure
that
the
death
 proceeds
of
an
employer‐owned
 policy
retain
income
tax
 favorable
characterizaJon,
it
is
 essenJal
to
comply
with
the
 requirements
of
Internal
 Revenue
Code
SecJon
101(j).



Agreement*
 *
DraQed
by
 client s
asorney


Key
Employee


Employee
names
a
beneficiary
for
a
porDon
of
the
 death
benefit
(per
agreement)


Policy


Employee s
 family


Employer
 Agreement*
 *
DraQed
by
 client s
asorney


Key
 Employee


Per
Split
Dollar
Agreement,
Employer
retains
all
interest
 in
policy
cash
value
and
death
benefit
equal
to
at
least

 the
greater
of
cumulative
premiums
paid
or
policy
cash
value.


Policy


Employer


The
employee
must
pay
the
annual
income
tax
on
the
 economic
benefit
associated
with
the
death
benefit.


 The
measure
of
the
value
of
life
insurance
protecJon
 provided
under
endorsement
split
dollar
plans
uJlizes
 Table
2001
rates
or
a
carrier s
lower
term
rates
(if
 applicable).


• 100%
of
 cash
value
 • 
DB
=
at
 least
to
the
 greater
of
 cum
prem
or
 cash
value


Important
Note
 To
help
prevent
the
plan
from
being
 considered
a
deferred
compensation
 plan
subject
to
409A,
the
lump
sum
 must
be
paid
out
to
the
employee
 within
2
½
months
after
the
close
of
 the
tax
year
in
which
the
bonus
is
no
 longer
subject
to
a
substantial
risk
of
 forfeiture.

 
 
 
 


This
plan
can
generally
be
designed
to
qualify
as
an
exception
 to
the
definition
of
deferred
compensation
under
IRS
Section
 409A.

See,
e.g.
Treasury
Regulation
Section
1.409A-1(b)(4).

 Failure
to
pay
the
bonus
before
the
end
of
this
period
may
result
 in
significant
income
tax
consequences,
penalties
and
interest.





Flexibility
of
Plan:
Employee
opDons
 
Once
paid,
the
execuJve
may
use


the
bonus
monies
for
reJrement
 expenses,
educaJon
expenses,
or
 even
as
a
source
of
cash
to
fund
a
 business
buyout
from
exisJng
 owners.


Flexibility
of
Plan:
Corporate
opDons
 The
promised
bonus
can
be
paid
from
corporate
 assets
or
through
policy
withdrawals
and
 loans.*

The
policy s
residual
value
may
then
 be
used
by
the
business
to
provide
conJnued
 key
person
protecJon.
 *
Loans
and
withdrawals
will
decrease
the
cash
value
and
 death
benefit.

Tax‐favored
distribuJons
assume
that
the
life
 insurance
policy
is
properly
structured,
is
not
a
modified
 endowment
contract
(MEC),
and
distribuJons
are
made
up
 to
the
cost
basis
and
policy
loans
thereaQer.

If
the
policy
has
 not
performed
as
expected
and
to
avoid
a
policy
lapse,
 distribuJons
may
need
to
be
reduced,
stopped
and/or
 premium
payments
may
need
to
be
resumed.

Should
the
 policy
lapse
or
be
surrendered
prior
to
the
death
of
the
 insured,
there
may
be
tax
consequences.


At
reDrement,
endorsement
is
terminated
and
 benefits
are
paid
to
employee

 Loan
and/or
 withdrawal
 from
policy
 cash
value*


Policy


Employer
 Agreement


Lump
sum
taxable
benefit
 paid
to
ExecuJve
from
 policy
cash
value


Key
Employee


*
Loans
and
withdrawals
will
decrease
the
cash
value
and
death
benefit.

Tax‐favored
distribuJons
assume
that
the
life
insurance
policy
is
properly
structured,
is
not
 a
modified
endowment
contract
(MEC),
and
distribuJons
are
made
up
to
the
cost
basis
and
policy
loans
thereaQer.

If
the
policy
has
not
performed
as
expected
and
 to
avoid
a
policy
lapse,
distribuJons
may
need
to
be
reduced,
stopped
and/or
premium
payments
may
need
to
be
resumed.

Should
the
policy
lapse
or
be
 surrendered
prior
to
the
death
of
the
insured,
there
may
be
tax
consequences.


SERP
DOLLAR
PLUS
agreement
 Employer…
 Key
Employee…
 • 
owns
the
policy
 
 • 
pays
the
full
premium
 
 • 
cannot
deduct
premiums
 
 • 
generally
receives
a
tax
 deducJon
for
lump
sum
 payment
to
key
employee



• 
pays
the
annual


income
tax
on
the
 economic
benefit
cost
 • 

recognizes
lump
sum
 payment
as
taxable,
 ordinary
income


Should
the
execuDve
die
during
the
service
period,
employer
and
key
 employee s
designated
beneficiary
receive
their
specified
porDons
of
 death
benefit
income
tax‐free.
*
 *
To
ensure
that
the
death
proceeds
of
an
employer‐owned
policy
retain
income
tax
 favorable
characterizaJon,
it
is
essenJal
to
comply
with
the
requirements
of
Internal
 Revenue
Code
SecJon
101(j).

Life
insurance
benefits
received
by
a
C
corporaJon
may
 be
subject
to
the
corporate
alternaJve
minimum
tax
(AMT).



QuesJons?


The
Business
ConJnuaJon

 
ReJrement
Partnership


The
Prospects
for
a
BCRP

 










The
Business


 



Owners
Who
Wish
To:
 • 

MulJple
owners
who
are
also


 owners
in
a
valid
pass‐thru
enJty
 such
as
a
partnership
or
LLC.




• 

Partnership
is
owner,
beneficiary,
and
 premium
payer
of
life
insurance


• 

Generally
three
or
more
owners


• 

Interested
in
a
technique
that
may
 result
in
smaller
premiums
as
 compared
to
other
techniques




 


Pre‐reJrement
 •  Fund
a
buy‐sell
agreement
using
one
 enJty
to
control
and
facilitate
the
 purchase
 •  Obtain
a
step
up
in
basis
 •  Address
transfer
for
value
issues

 •  No
separate
tracking
of
economic
 benefit
costs
 Post‐reJrement
 •  Redirect
assets
iniJally
set
aside
for
 the
buy‐out
for
reJrement
purposes
 •  Obtain
flexibility
for
their
personal
 estate
planning
needs
 •  Liquidity
for
transfer
taxes


Business
ConDnuaDon
ReDrement
Partnership
 The
Concern
 Financing
a
buy‐sell
 agreement
for
mulJple
 owners

 or

 Accumulate
assets
for
 reJrement.


Why
Business
ConDnuaDon
ReDrement
Partnership?
 •  Combines
favorable
 asributes
of
a
tradiJonal
 cross
purchase
and
enJty
 redempJon
agreements
 OR
 •  Provides
reJrement
 income


57


Four
Components
of
the
BCRP
Strategy


Cash
 Bonus
 paid
to
 owners


Owners
 contribute
 cash
 bonuses
 to
 partnership


Partnership
 uses
 bonuses
 to
 purchase
 policy
on
life
 of
each
 owner


Purchase

 of
business
 interest
 OR
 Supplemental
 reJrement
 income
 


BCRP
Exit
Scenarios
Overview
 Upon
departure
of
the
BCRP
partner
(voluntary
or
due
to
death),
the
deparJng
BCRP
partner s
interest
 will
be
liquidated
and
paid
out.

Assume
equal
interests
below.
 Owner
Dies:









Owner
leaves
(i.e.
reJrement):


Death
proceeds
are
allocated
to
surviving
partners
*
 At
partner s
voluntary
departure
their
 share
is
equal
to
their
interest
in
the
total
 Cash
Value
of
all
the
life
insurance
policies
 owned
by
BCRP
as
well
the
value
of
their
 interest
in
any
other
assets
owned
by
the
 partnership.


1/3
of

 BCRP


DeparJng
BCRP
 partner
 NOTE
–
This
does
not
address
the
buyout
 from
the
primary
business.


At
partner s
death,
 the
deceased s
 interest
is
equal
to
 their
share
of
the
value
 of
the
assets
(exclusive
 of
the
death
benefit)
 owned
by
the
 partnership
 1/3
of

 BCRP


At
death
of
shareholder
 of
ABC
Inc.

the
shares
 pass
to
that
owner s
 estate

 1/3
of

 primary

 business


Decedent s
Estate
 *
NOTE
–
Depending
on
the
terms
of
the
exisDng
partnership,
this
special
 allocaDon
may
require
an
amendment
to
the
partnership
agreement.

Clients
 should
be
sure
to
consult
with
their
agorney.


This
hypotheJcal
is
for
illustraJon
purposes
only
and
actual
results
may
vary


BCRP
IntroducDon
 





ABC
Inc.
Three
owners
with
equal
shares
of
ABC
Inc.

Alex,
Bill
and
Craig
 














































 

BCRP:




Same
three
partners:
Alex,
Bill,
and
Craig



 

Primary
Concern:

Fund
a
buy‐sell
agreement
to
protect
against
the
possibility
of
premature
death










Buy‐Sell
Agreement



Alex


ABC
Inc.



Bill


BCRP



Craig


This
hypotheJcal
is
for
illustraJon
purposes
only
and
actual
results
may
vary


Puhng
it
Together:

The
First
Three
Steps
 ABC
Inc.
pays
annual
bonuses
to
the
owners
Alex,
Bill
and
Craig
to
help
with
BCRP
funding.
 Alex,
Bill
and
Craig
contribute
annually
to
BCRP.

 


BCRP
purchases
life
insurance
on
Alex,
Bill
and
Craig
,
and
becomes
beneficiary
on
policies.
 Generally
tax
 deducDble
 to
business


Taxable
 to
Owner


STEP
1


ABC

 Inc.


STEP
3


STEP
2


Taxable
bonus



Alex


Capital


Taxable
bonus



Bill


Capital


Policy
Premiums


BCRP


Policy
on
Alex


Insurance

 Company


Policy
on
Bill
 Taxable
bonus



Craig


Capital


Policy
on
Craig


This
example
uses
whole
life

life
insurance.

All
figures
are
hypotheJcal
using
MetLife s
2011
 dividend
scale.

Actual
results
will
vary.



Step
4:
Looking
Forward:
Purchasing
the
Business
Interests
 The
underlying
life
insurance
ideally
should
feature
an
increasing
death
 benefit
 The
increasing
death
benefit
funds
both
the
buyout
of
the
BCRP
and
the
 buyout
of
the
ABC,
Inc.
from
the
decedent s
estate
at
the
same
Jme.



BCRP
Buyout



Increasing
porDon
helps
 funding
the
BCRP
buyout.
 Face
Amount
funds
the
 ABC,
Inc.
Buy
Sell.


The
increasing
porJon
of
the
death
benefit
 above
the
Face
Amount
provides
funds
to
BCRP
 to
fund
the
BCRP
buyout.


ABC
Inc.
buy‐sell
agreement



Face
Amount
funds
the
buyout
from
ABC
 Inc.


This
hypotheJcal
is
for
illustraJon
purposes
only
and
actual
results
may
vary


Life
Insurance
Policy
Design
 To
provide
an
increasing
death
benefit,
following
opJons
can
be
considered:
 1.  Universal
Life
with
variable
Death
Benefit
OpJon
(OpJon
B)
–
Face
Amount
plus
 cash
value
 2.  Variable
Universal
Life
with
variable
Death
Benefit
OpJon
(OpJon
B
or
OpJon
C)
–
 Face
Amount
plus
cash
value
 3.  Whole
Life
with
the
Paid
Up
Insurance
dividend
opJon
 •  AlternaJvely
using
the
paid
up
addiJons
rider
may
further
enhance
the
 flexibility
of
the
policy
design
to
beser
match
the
BCRP
needs.
 
 Increasing
porJon
helps
 funding
the
BCRP
buyout.
 Face
Amount
funds
the
 ABC.
Inc.
Buy
Sell.
 This
hypotheJcal
is
for
illustraJon
purposes
only
and
actual
results
may
vary


What
Happens
Next
‐
ReDrement
Funding
Scenario
 Partner
reJring
from
BCRP
could
receive
the
policy
on
his
life
as
part
of
his
BCRP
partnership
 share.

This
does
not
address
the
lifeJme
exit
from
the
underlying
business.

However,
assuming
 the
policy
is
distributed,
it
can
be
used
by
the
reJred
as
a
source
of
supplemental
reJrement
 funding.


ContribuDons


Age
 50
 
Alex


Age
 48
 
Bill


Age
 
Craig
 46


At
Age
65


15
years

 


Policy
on
A
with
cash
 adjustment*


17
years

 


Policy
on
B
with
cash
 adjustment*


19
years

 


BCRP


Policy
on
C



ReDrement
Years



Alex



Bill



Craig


ReJrement
income
 from
policy



Age
 85


ReJrement
income
 from
policy



Age
 85


ReJrement
income
 from
policy



Age
 85


*
Any
required
cash
adjustment
would
be
funded
from
the
assets

remaining
in
BCRP.


This
hypotheJcal
is
for
illustraJon
purposes
only
and
actual
results
may
vary


Alex
ReDres
 As
a
preexisDng
partnership
must
be
used,
the
partnership
must
account
for
assets
or
 liabiliDes
that
will
likely
differ
from
policy
cash
values
at
distribuDon


Assuming
that
all
partners
survive
to
the
first
reJrement,
Alex
leaves
the
BCRP
and
takes
his
share
of
the
BCRP
interest.

H uses
this
as
a
funding
source
for
his
supplemental
reJrement
income.


1


First
the
enJre
BCRP
interest
must
be
calculated
(for
convenience,
this
 example
does
not
consider
non‐life
insurance
assets
owned
by
the
BCRP).
 BCRP
interest
equals
the
sum
of
the
combined
policies
cash
value


First 15 Years

$_____

Policy on Bill

$_____

Policy on Craig

$_____

Totals

$_____


Owed
Alex

$______


Policy on Alex transferred from BCRP to Alex – valued at policy Cash Value

3
 4


Alex s
supplemental
 reJrement
income:


BCRP Interest

Policy on Alex

2
 Alex s
partnership
interest
equals
the
enDre
BCRP
interest
divided
by
3:













 
 Alex s
share
of
the
BCRP
interest
 will
be
paid
as
follows:


Cash Value

Any necessary withdrawals from two policies remaining in BCRP Total 
 remitted to Alex upon departure from BCRP

$__________ +$__________

= $________

Level
annual
income
for
Alex
for
20
years
























































 
 
 
 
 













 
 
 
 
 

$______


BCRP
conJnues
with
two
remaining
partners
who
contribute
annually
to
BCRP.


 and
BCRP
pays
annual
premium
toward
each
of
the
two
remaining
policies.


Bill
ReDres
 As
a
preexisDng
partnership
must
be
used,
the
partnership
must
account
for
assets
or
 liabiliDes
that
will
likely
differ
from
policy
cash
values
at
distribuDon
 Next
partner
Bill
leaves
the
BCRP
and
takes
his
share
of
the
BCRP
interest
as
a
 funding
source
for
his
supplemental
reJrement
income.


1


First
the
enJre
BCRP
interest
must
be
calculated
(again,
for
convenience,
this


example
does
not
consider
non‐life
insurance
assets
owned
by
the
 BCRP).
 BCRP
interest
equals
the
sum
of
the
combined
policies
cash
value:


2


End of the 17th Year

Cash Value /

Policy on Bill

$______

Policy on Craig

$______

Totals

$____

BCRP Interest

Bill s
partnership
interest
equals
the
enDre
BCRP
interest
divided
by
2:















Owed
Bill

$_______
 Policy on Bill - transferred from BCRP to B – valued at policy Cash Value

3


Bill s
share
of
the
BCRP
interest
 will
be
paid
as
follows:


4


Bill s
supplemental
 reJrement
income:


Cash withdrawn from policy on C remaining in BCRP Total remitted to Bill upon departure from BCRP

$_________ +$_________

$_______




Level
annual
income
for
Bill
for
20
years















































$_______



 Annual
premium
paid
by
remaining
owner
Craig


Craig
ReDres
Last
 As
a
preexisDng
partnership
must
be
used,
the
partnership
must
account
for
assets
or
 liabiliDes
that
will
likely
differ
from
policy
cash
values
at
distribuDon


Finally
Craig
terminates
the
arrangement
and
take
his
share
of
the
BCRP
 as
a
funding
source
for
his
supplemental
reJrement
income.
 Upon
his
reJrement
at
the
end
of
the
19th
year,
Craig
terminates
arrangement


1


(again,
for
convenience,
this
example
does
not
consider
non‐ life
insurance
assets
owned
by
the
BCRP).
 Craig s
interest
equals
the
cash
value
of
own
policy 


2


Craig s
supplemental
 reJrement
income:






End of the 19th Year

Cash Value

Policy on Craig

$_________

Totals

$______

Interest

Level
annual
income
for
Craig
for
20
years





















































 
 
 
 
 
 














































$__________


TerminaJon
of
Arrangement


Death
Before
ReDrement
Scenario*‐Alex
Dies
 
At
the
owner s
death,
the
estate
will
obtain
the
decedent s
share
of
the
BCRP
and
ABC
Inc.

 The
death
proceeds
will
provide
funding
for
the
purchase
of
the
deceased
partnership
and
ABC,
Inc.



Insurance

 Company
 Death


proceeds


BCRP
interest

 for
the
purpose
of
paying

 off
the
decedent s
estate:
 Policy
on
A
–
Cash
Value
 Policy
on
B
–
Cash
Value
 Policy
on
C
–
Cash
Value


ABC,
Inc
Buy
Sell



BCRP



ABC,
Inc
value
as

 per
buy‐sell
agreement


1/3
of
BCRP
value


Alex s

 Estate
 1/3
of
ABC
Inc.





BCRP
conDnues
with
the
remaining
two
policies
 *
AddiJonal
funds
from
the
policies
remaining
in
BCRP
might
be
required
to
pay
out
the
necessary
interest
to
A s
estate.


This
hypotheJcal
is
for
illustraJon
purposes
only
and
actual
results
may
vary


Alex
Deceased
–
Bill
ReDres*
 BCRP
conJnues
unJl
Bill
is
ready
to
reJre.

Bill
then
leaves
the
BCRP
and
 takes
his
share
of
the
BCRP
interest
as
a
funding
source
for
his
supplemental
 reJrement
income.


1


First
the
enJre
BCRP
interest
must
be
calculated
(for
convenience,
this


example
does
not
consider
non
life
insurance
assets
owned
by
the
 BCRP).
 BCRP
interest
equals
the
sum
of
the
combined
policies
cash
value:


2
 3
 4


Cash Values

End of the 17th Year

BCRP Interest

Policy on Bill

$_____

Policy on Craig

$_____

Totals

Total Value of BCRP Interest

Bill s
partnership
interest
equals
the
enJre
BCRP
interest
divided
by
2:







BCRP
Value/
2
=Bill s
Interest
 Policy on Bill - transferred from BCRP to B – valued at policy Cash Value

Bill s
share
of
the
BCRP
interest
 will
be
paid
as
follows:
 Bill s
supplemental
 reJrement
income:





Any necessary withdrawal from policy C remaining in BCRP Total of:

$____Value of policy on departing partner Bill $________ Adjustment if necessary $ _____Owed Bill as Departing Partner























‐$$‐



Level
annual
income
stream
for
deparDng
partner

‐$$‐
 





Annual
premium
paid
by
remaining
owner
Craig.


Alex
Deceased
–
Craig
ReDres*
 Finally
Craig
terminates
the
arrangement
and
take
his
share
of
 the
interest
as
a
funding
source
for
his
supplemental
reJrement
 income.
 
 Upon
his
reJrement
at
the
end
of
the
19th
year,
Craig
terminates
the
arrangement
(for


1


convenience,
this
example
does
not
consider
non
life
insurance
assets
 owned
by
the
BCRP).
 C s
interest
equals
the
cash
value
of
own
policy






End of the 19th Year

Cash Value BCRP Interest

Policy on C

$_________

Totals

$_______




2


Craig s
supplemental
 reJrement
income:


Level
annual
income
20
years

























































$______


TerminaJon
of
Arrangement.


ConsideraDons
of
Business
ConDnuaDon
ReDrement
Partnership
 •  •  •  • 

•  • 

• 

Complexity
 Existence
of
a
bona
fide
operaJng
LLC
 Important
of
complying
with
COLI
Best
 PracJces
 Importance
of
using
a
team
of
advisors
that
 includes
client s
legal
and
tax
counsel
as
well
 as
a
financial
services
professional
 Exposure
of
life
insurance
to
creditor
claims
 Purchase
of
the
primary
business
at
 reJrement
when
the
policy
is
no
longer
a
 partnership
asset?
 As
a
preexisJng
partnership
must
be
used,
 the
partnership
must
account
for
assets
or
 liabiliJes
that
will
likely
differ
from
policy
 cash
values
at
distribuJon.


• 

• 




If
policy
is
distributed
upon
reJrement,
and
 cash
value
is
accessed,
loans
and
 withdrawals
will
decrease
the
cash
value
and
 death
benefit.

If
the
policy
has
not
 performed
as
expected
and
to
avoid
a
policy
 lapse,
distribuJons
may
need
to
be
reduced,
 stopped
and/or
premium
payments
may
 need
to
be
resumed.

Should
the
policy
lapse
 or
be
surrendered
prior
to
the
death
of
the
 insured,
there
may
be
tax
consequences
 If
death
occurs
pre‐reJrement,
possible
 inclusion
for
estate
tax
purposes
of
death
 proceeds
of
policy
owned
by
BCRP
if
 decedent/partner
is
deemed
to
possess
 incidents
of
ownership



Benefits
of
Business
ConDnuaDon
ReDrement
Partnership
 •  •  •  • 

Efficient
buy
sell
soluJon
for
mulJ‐owner
enJJes
 Combines
favorable
asributes
of
a
tradiJonal
cross
purchase
 and
enJty
redempJon
agreement
 Can
provide
reJrement
income*
OR
death
benefits
to
 complete
a
buy
sell
agreement
 Whole
life
with
the
addiJonal
insurance
dividend
opJon

or
 VUL
with
a
variable
death
benefit
opJon
is
oQen
used


Tax‐favored
distribuJons
assume
that
the
life
insurance
policy
is
properly
structured,
is
not
a
modified
 endowment
contract
(MEC),
and
distribuJons
are
made
up
to
the
cost
basis
and
policy
loans
thereaQer.

 
 Loans
and
withdrawals
will
decrease
the
cash
value
and
death
benefit.

If
the
policy
has
not
performed
as
 expected
and
to
avoid
a
policy
lapse,
distribuJons
may
need
to
be
reduced,
stopped
and/or
premium
 payments
may
need
to
be
resumed.

Should
the
policy
lapse
or
be
surrendered
prior
to
the
death
of
the
 insured,
there
may
be
tax
consequences.
 *

QuesJons?


Important
Disclosures
 Pursuant to IRS Circular 230, MetLife is providing you with the following notification: The information contained in this document is not intended to (and cannot) be used by anyone to avoid IRS penalties. This document supports the promotion and marketing of insurance products. You should seek advice based on your particular circumstances from an independent tax advisor. MetLife, its agents, and representatives may not give legal or tax advice. Any discussion of taxes herein or related to this document is for general information purposes only and does not purport to be complete or cover every situation. Tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the facts and circumstances. You should consult with and rely on your own independent legal and tax advisors regarding your particular set of facts and circumstances.

Important
Disclosures




 
 MetLife life insurance policies have limitations, exclusions, charges, termination provisions and terms for keeping them in force. There is no guarantee that any of the variable investment options in this product will meet its stated goals or objectives. The cash value is subject to market fluctuations so that, when withdrawn, it may be worth more or less than its original value. Guarantees are based on the claims paying ability and financial strength of the issuing insurance company. 

 

 
Metropolitan
Life
Insurance
Company
 
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Avenue
of
the
Americas
 
New
York,
NY
10036

 
 
 
 
PEANUTS
©
2011
Peanuts
Worldwide


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