Tell Congress Where You Stand - Act Now
You may be confident the next generation is ready to lead your family business. The more challenging question is whether they have the liquidity to fund the transfer of ownership.
A succession plan may effectively transition leadership and express how future economics are shared. But if it doesn’t include a mechanism to fund the transfer of equity to the next generation, then the plan is incomplete and has a high risk of failure. Simply put, not funding a business buy-sell agreement is stone age planning.
Assess Your Plan
Without a funding and liquidity plan to facilitate the transfer of equity, the business is faced with challenges that could make it difficult to keep the business in the family. The business will need to explore a variety of options, each with their own challenges and risks. These options include:
- Utilizing inter-family loans and redirecting operating cash flow to pay down the loan
- Taking on third-party debt
- Taking on an outside capital partner to fund the buyout
- Selling the business outright
Be Proactive
There are a number of estate planning tools (including GRATs, asset sales, and gifting strategies) that can effectuate the transfer of ownership. With that said, these strategies have practical limits and take time to mature. Additionally, with today’s higher interest rate environment, the efficiency of some of these strategies is reduced.
Life insurance can provide short-term and long-term solutions that provide certainty for the liquidity needed to fund the equity transfer. Coordinated with a buy-sell agreement, a policy creates dedicated liquidity for the ownership transfer so incoming owners can complete the purchase without taking on debt, utilizing cash flow from the business, or taking on an equity investor.
Acknowledge Your Goals
For most family-owned businesses, the goal isn’t simply an ownership transfer. It’s also about:
- Ensuring the continuity of the business through the transition
- Keeping control within the family
- Avoiding financial strain on the business at the moment it can least absorb it
If your succession plan names future owners but doesn’t yet address how the ownership will be transferred, that gap is worth closing before it becomes urgent.
Don’t Wait to Take Action
Winged Keel Group can evaluate how life insurance can complement the ownership transfer strategies alongside your legal, tax, and business advisors, and help you understand what adequate funding would look like for your specific transition. Reach out to Mark Richards (mrichards@wingedkeel.com) to start the conversation.
Winged Keel Group, a proud sponsor of Family Enterprise USA, is the preeminent national platform for the structuring, implementation, and administration of high-end life insurance solutions for ultra high net worth families and institutions. To learn more, visit https://www.wingedkeel.com/. 10092026-6004660
About Winged Keel Group
Dating back to 1851, the America’s Cup is the oldest continuous competition in sport. The 1983 race marked the first time that the challenger had won the Cup since the contest began. The challenger’s key to victory was the development of a “winged keel.” This structural development increased the challenging yacht’s stability, enabling it to move more smoothly and quickly through the water.
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