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BUSINESS CONTINUATION PLAN -
EMPLOYEE ONE-WAY PURCHASE
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What it is:
- A plan that assures the continuation of a
business after the death of an owner
How it works:
Advantages:
- Provides for business survival after the
death of an owner
- Provides a way to deal with the company's
liabilities and financial responsibilities
- Creates a market for the business interest
- Converts non-liquid business interest into
cash for family
- Facilitates the estate settlement process
- Provides money to buy the business interest
- Helps fix the value of the business interest
in the estate
| Employee One-Way Purchase Arrangement |
Advantages
- At death the employee buyer's purchase can
be funded at a discount
- Employer can assist buyer through tax deductible
bonus or split dollar
funding
- Cash values of life policy are available
to fund lifetime purchase
- Guarantees market for business and control
goes to desired person
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Disadvantages
- Requires buyer to pay for insurance policy
with personal dollars (unless split dollar
or bonus plan used)
- Requires higher premium contributions to
generate enough cash
value to fund lifetime
buyout
- Life insurance can be costly if insured owner/seller
is older or in poor health
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CONCEPTS INDEX |
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