Business Owners Suite · Succession and Continuation
Business Transition
A succession plan answers three questions: who runs the company next, on what timeline, and funded by what. Life insurance can bridge the gap between generations of owners, providing the liquidity that lets a transition happen on the schedule you chose rather than the one an event forces on you.
Worth Knowing
Most succession material assumes there is somebody to sell to. These two points are for the owner who does not have one yet.
Where a business has a single owner, an individual, usually a key employee, can agree to buy the business, and the buyer typically purchases life insurance on the owner to fund that purchase. The successor does not have to already have capital. The agreement creates the buyer before the buyer can afford to be one.
Source: North American Company for Life and Health Insurance, Business Planning: Buy-Sell Agreement, 1804NM-9
An employer-owned policy can be structured so that part of its purpose is providing funds to help a key employee buy the business one day, stacked on top of key person protection the company already needed. The retention benefit and the succession funding are the same asset, working on two timelines.
Source: North American Company for Life and Health Insurance, Executive Retention+, 1896NM-6
The Structure
What it does
A plan that exists only as an understanding tends to get settled by whoever has the most leverage in the room after the founder is gone. Written succession removes that contest before it starts.
What has to be true
Naming a successor is the easy half. Funding their purchase is the hard half, particularly when the successor is a child or a long-time employee with no capital. Insurance proceeds, a note, or a bonus arrangement built over years are the usual answers.
Where it comes apart
Plans built entirely around death ignore the far more common exit, which is retirement. A durable plan covers the planned transition and the unplanned one, and it names a date rather than a condition.
You built the company on your terms. The transition out of it deserves the same standard.
Begin the Conversation
Whether your agreements are drafted, outdated, or still an intention, this conversation is private, unhurried, and specific to your company.
Important: This page is general education. It is not legal, tax, accounting, or individualized financial advice. Buy-sell agreements, split dollar arrangements, deferred compensation plans, and trusts should be drafted by a qualified attorney, with tax treatment confirmed by a qualified tax professional. Life insurance policies contain costs, charges, limitations, exclusions, and conditions; coverage depends on underwriting and on the terms of the policy issued. Guarantees are backed by the claims-paying ability of the issuing insurance company. Policy loans and withdrawals reduce cash value and death benefit, are subject to interest charges, and are generally not subject to income tax provided the contract is not a Modified Endowment Contract as defined by Section 7702A of the Internal Revenue Code. Distributions from a Modified Endowment Contract are taxable to the extent of gain and may carry an additional tax before age 59 and a half. Carrier material referenced on this page is cited to its published form number.