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August 31, 2012
As a business owner, you have spent your career taking calculated risks to advance the growth of your enterprise. Often lost in the pursuit of growth is the issue of asset protection. Unfortunately, you may be putting a significant portion of your hard-earned equity at risk without even knowing it.
For example, if you have an employee who is critical to the success of your business, what would happen if they passed away? How would the loss of a major shareholder affect the ownership structure of your company? How much attention have you put into your plan to minimize taxes upon your death?
In many businesses, the death of a key person can disrupt, or even destroy, the operations of the business. A key person could be the founder of the company, whose intimate knowledge and vision is irreplaceable – or it may simply be an employee or salesperson with unique skills that are fundamentally necessary to the business.
There may not be a way to completely avoid the risk of losing a critical employee, but insurance can at least hedge this risk by ensuring you have enough funds at the right time to locate a suitable replacement, train them, and sustain the company’s financial health.
What if the key person who passes away is also a major stakeholder in your business? It’s wise to have a “buy-sell agreement” in place, which enables the surviving partners to buy the deceased’s ownership and maintain control of the company. Life insurance is typically the optimal vehicle because of the relatively low costs involved.
Depending on the structure of your business, your heirs may face the problem of capital gains tax owed by your estate upon your death. Rather than forcing your estate to deplete corporate assets – or even sell the business – to pay the tax bill, you can make sure they have adequate life insurance proceeds to cover this need. A variety of insurance-based strategies can ensure that you control the destiny of your business.
If you’ve worked hard to build a successful enterprise, it makes sense to treat its financial protection just as seriously as you treat its financial growth.
Chris Karram is a Founding Principal and Financial Consultant with SAFEBRIDGE Financial Group. He specializes in providing unique investment, insurance and retirement strategies to his clients in and throughout the GTA. Chris can be reached at 416.466.5858 or email@example.com. This article is for information purposes only and should not be considered as personal investment, tax or pension advice.
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