Retire on your terms while rewarding and retaining key people

Situation:

Two brothers in their late 50s owned a thriving development business but weren’t sure as to the exit strategy.

 

Action Steps:

Grant, Hinkle & Jacobs had helped the two brothers successfully buy out the real estate development company from their deceased father’s spouse many years ago by creating and funding a special trust with life insurance.

The brothers, who are now in their late 50s, do not have children who are interested or able to take over the business. The owners liked the idea of eventually rewarding the people who helped make the company a success. There were key people spread out among the company’s many divisions, several of whom served as property managers for assets in other cities.

We reviewed the existing benefit package and the cash on hand for surety bonding and determined that all employees could be insured under a guaranteed issue whole life policy for $50,000, $75,000, and $100,000 increments. This not only enhanced the return on cash values to over 3% without disturbing the surety bond, but it also gave the employees a death benefit that grows annually and can be paid to the employee’s beneficiary or the company.

Most importantly, since the policies have cash value, if the owners decide to exit and take retirement income via an Employee Stock Option Plan (ESOP), the company will already have a funded mechanism in place to repurchase shares of retiring employees through the policies’ cash values rather than having to disrupt future cash flow.

 

Results:

The owners were relieved to know that they had options for retirement and felt good that they were rewarding employees who were crucial to the success of the business. The employees were incentivized to stay and perform so they could eventually earn ownership, and a solid financial foundation to fund the repurchase liabilities was established with the life insurance to protect cash flow.