Upload
lesley-nadler
View
212
Download
0
Tags:
Embed Size (px)
Citation preview
©2014 Voya Services Company. All rights reserved. CN0904-12224-0916
Key Person protection
©2014 Voya Services Company. All rights reserved. CN0904-12224-0916
Disclosures
The Voya™ Life Companies and their agents and representatives do not give tax or legal advice. This information is general in nature and not comprehensive, the applicable laws change frequently and the strategies suggested may not be suitable for everyone. You should seek advice from your tax and legal advisors regarding your individual situation.
These materials are not intended to and cannot be used to avoid tax penalties, and were prepared to support the promotion or marketing of the matter addressed in this document. The taxpayer should seek advice from an independent tax advisor.
Life insurance products are issued by ReliaStar Life Insurance Company (Minneapolis, MN), ReliaStar Life Insurance Company of New York (Woodbury, NY) and Security Life of Denver Insurance Company (Denver, CO). Within the state of New York, only ReliaStar Life Insurance Company of New York is admitted and its products issued. All are members of the Voya™ family of companies.
All guarantees are based on the financial strength and claims paying ability of the issuing insurance company who is solely responsible for all obligations under its policies.
2
©2014 Voya Services Company. All rights reserved. CN0904-12224-0916 3
Time
Money
Passion
You’ve invested a lot in your business
} Your business
©2014 Voya Services Company. All rights reserved. CN0904-12224-09164
Your business is probably your most valuable asset.
Your lifestyle and your financial foundation depend on it.
©2014 Voya Services Company. All rights reserved. CN0904-12224-0916
Do you have some special employees?
Do some of your employees have special skills that make you profits?
Unique Contacts/Connections
Innovative/Technical Abilities
Sales Track Record
Management/Leadership Skills
Financial Expertise
5
©2014 Voya Services Company. All rights reserved. CN0904-12224-0916
Key people increase your profits
If you’ve done a good job hiring, you have some key people whose skills create profits.
Your income and economic security may depend on them staying with your business and continuing to do a good job.
The unexpected loss of even one key employee can reduce your profits for years.
6
©2014 Voya Services Company. All rights reserved. CN0904-12224-09167
What would it mean to your business if your most valuable employee died unexpectedly?
We often take our key people for granted.
©2014 Voya Services Company. All rights reserved. CN0904-12224-0916
Losing a key employee can be devastating
Who will take over the key person’s duties?
How long will it take to find a good replacement?
Will you have to pay the new person more?
How long until he/she is up to speed?
8
©2014 Voya Services Company. All rights reserved. CN0904-12224-0916
Losing a key employee can be devastating
Will you have to do both your job and the key employee’s job at the same time?
What will be the impact on your customers?
What will be the impact on the other employees?
What will happen to business profits?
9
©2014 Voya Services Company. All rights reserved. CN0904-12224-0916
Protecting your business
Smart business owners hope for the best
But they plan in advance for the worst
They anticipate disasters and are prepared if the unexpected happens
They have contingency plans ready if they are needed
10
©2014 Voya Services Company. All rights reserved. CN0904-12224-0916
Do you have a plan in place to minimize the loss if one of your key people dies unexpectedly?
11
©2014 Voya Services Company. All rights reserved. CN0904-12224-0916
Preparation is key
Smart business owners protect their businesses Many businesses use a four step process:
1. Identify their key people
2. Determine how much value would be lost
3. Explore the alternatives available
4. Decide how much of the risk to self-insure
12
©2014 Voya Services Company. All rights reserved. CN0904-12224-0916
Calculating a key person’s value
Jim Williams is CFO for CRAZY Tools, Inc. He is a key employee responsible for $100,000 of
profits annually. Other facts:
– Total salary & perks $175,000 annually– A replacement would cost $225,000 annually– A new person would need 4 years to equal him– Recruiting costs/commissions would be $50,000– Training costs would be $25,000
13
©2014 Voya Services Company. All rights reserved. CN0904-12224-0916
Key Person Valuation Tool
14
©2014 Voya Services Company. All rights reserved. CN0904-12224-0916
Key Person Valuation Tool
15
©2014 Voya Services Company. All rights reserved. CN0904-12224-0916
Consider using Key Person Life Insurance
Key Person Life Insurance can protect your business for a relatively small cost.
Life insurance on the key person can help:
– Provide funds to recruit, hire and train a qualified replacement
– Replace lost profits
– Provide funds to pay business debts
16
©2014 Voya Services Company. All rights reserved. CN0904-12224-0916
How Key Person Life Insurance works
Business purchases a life insurance policy on key person and pays premiums.
Business names itself as the beneficiary.
If key employee dies, death benefits are paid to the business; they can be used to pay expenses or replace lost profits.
17
©2014 Voya Services Company. All rights reserved. CN0904-12224-0916
Key Person Life Insurance
18
1
Premiums
Policy
1 Policy3 Death Benefits2
Life Insurance PolicyBusiness
Voya Life Companies
©2014 Voya Services Company. All rights reserved. CN0904-12224-0916
Income Tax aspects of Key Person Life Insurance
Premiums are not income tax deductible
Death Benefits are generally income tax free (IRC Sec. 101)*
If the business is a C corporation, then cash value growth and death benefits may be subject to the corporate alternative minimum tax (AMT)
*Assuming a 101(j) consent form has been signed by the key employee.
19
©2014 Voya Services Company. All rights reserved. CN0904-12224-0916
Key Person Life Insurance
Some potential advantages
Income tax free death benefits under IRC section 101* (subject to the AMT for C corporations)
Policy cash values are an asset on the business’ balance sheet
Growth in cash values is income tax-deferred (subject to the AMT for a C corporation)
Risk of loss is transferred to the insurance company
*Assuming a 101(j) consent form has been signed by the key employee.
20
©2014 Voya Services Company. All rights reserved. CN0904-12224-091621
Key Person Life Insurance
Some potential advantages Income tax free death benefits
under IRC section 101* (subject to the AMT for C corporations )
Policy cash values are an asset on the business’ balance sheet
Growth in cash values is income tax-deferred (subject to the AMT for a C corporation)
Risk of loss is transferred to the insurance company
Some potential disadvantages Premium payments are not
income tax deductible Determining a key employee’s
value is an art, not a science Key employees can leave the
business before death; the business may incur similar losses / expenses
Insured key employee needs to execute a 101(j) notice and consent form
*Assuming a 101(j) consent form has been signed by the key employee
©2014 Voya Services Company. All rights reserved. CN0904-12224-0916
What about you?
Are you a Key Person in your business?
What would happen if you died on the way home from work?
Would happen to the value of your business?
What would that mean to your family’s finances?
22
©2014 Voya Services Company. All rights reserved. CN0904-12224-0916
Suppose you died in an accident on the way home from work tonight
– How much of the value of your business would be lost? Would your business survive? What would your family do?
23
©2014 Voya Services Company. All rights reserved. CN0904-12224-091624
Do you have a plan in place to protect your business and your family?
©2014 Voya Services Company. All rights reserved. CN0904-12224-091625
Suppose you die unexpectedly
There is a Plan: What does it say? When was it created? What value does it place on
your interest? Is there enough money
backing it up Does it make sense today?
There is no Plan: Who makes decisions? Will customers stay loyal? What will happen to your
business interest? Will your key employees
stay or be hired away? How much business value
will disappear?
©2014 Voya Services Company. All rights reserved. CN0904-12224-091626
Your death (or that of another owner) could create another difficult financial problem.
The bank may be able to change lending terms or call an outstanding loan.
©2014 Voya Services Company. All rights reserved. CN0904-12224-091627
Even worse, if the loan is personally guaranteed, the bank may be able to demand repayment from your estate.
The terms of the personal guarantee may place the bank ahead of your spouse and children in the settling of your estate.
©2014 Voya Services Company. All rights reserved. CN0904-12224-0916
I may be able to help you protect your business’ value
I may be able to help you get the most for the time, money and emotion you’ve put into your business by protecting the value of your key employees:
– Calculate each key employee’s value
– Explore alternative solutions
– Gather information on insurance alternatives
– Determine how much exposure you have through personal lending guarantees
– Assist in keeping your plans up-to-date
28
©2014 Voya Services Company. All rights reserved. CN0904-12224-0916
What I need from you
To assist you, I need some information: Who are your key employees? Have your calculated their value to your business?
Has that value been updated for today? Are you self-insuring the entire risk? What alternatives have you considered for
transferring part of the risk? Has there been an analysis of the business debts
that have been personally guaranteed? What’s your current situation?
29
©2014 Voya Services Company. All rights reserved. CN0904-12224-0916
Next steps
Smart business owners hope for the best, but they plan for the worst. If something happens, they are prepared. Where would you like to start?
– Calculating your key employees’ value,– Considering self-insurance / professional
insurance alternatives, or– Analyzing your current risk exposure under
personal loan guarantees
30