You may have heard the saying “the only thing that remains the same is change,” and that is especially true when it comes to planning for the future of your business.  My partners and I are constantly reminding clients that change will be a constant in their succession planning environment especially as it relates to their feelings, finances, family and federal tax laws. As these changes occur, reviewing and updating various aspects of your planning is imperative. While at times this can appear to be inconvenient, it will ensure you maintain proper alignment and ultimately increase the probability your succession plan will succeed.

Over the past few years I have been working with a wonderful family who has spent the past three decades building a highly successful business. Throughout this time they have been diligent planning for various contingencies such as a premature death or disability and had accumulated multiple life insurance policies which have served them very well. However, the planning process revealed that the existing life insurance portfolio was not compatible with their current goals and objectives. Thus, to meet today’s needs, I have been working in collaboration with the advisory team (attorney, CPA and the life insurance professional) to leverage existing cash values in the current portfolio to obtain the appropriate coverage needed.

In this particular case, there are two primary objectives: protecting the matriarch’s financial security in the next five to ten years and providing estate liquidity so their children would not be forced to sell assets to pay estate taxes. Matching the appropriate product with the respective need is an important part of this process especially since cash flow has been impacted by recent economic circumstances. For example, the advisory team concluded it is best to use ten year term insurance to meet the short term goal of financial security for the matriarch, instead of using a permanent policy which requires higher annual premiums and does not provide as much death benefit. This approach has afforded the client the ability to increase the amount of death benefit needed to ensure financial security in the short run.

The second objective, estate liquidity, had been properly addressed through the acquisition of joint and last survivor life insurance. However, the current policy projections revealed the policy would lapse at the client’s age eighty-two (82). This was problematic since the patriarch’s parents lived into their early nineties which meant there is a possibility the client could outlive the existing coverage. Therefore, the advisory team concluded additional premium should be paid into the policy each year to ensure the death benefit would be available when it is needed most. 

Hopefully the above example illustrates the need to review your planning on a continual basis, ideally each year. This is especially true if you are a closely held business owner as changes in the market, personnel and technology can have a profound impact on your planning environment. Frequent reviews and updates will give you peace of mind that what you have in place is consistent with your current circumstances, goals and objectives. That’s what I call proper alignment! 

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