Blog #42: Adding Key Executive Coverage
(Part 2 of “Valuing the Business”)

(Presentations were created using the InsMark Illustration System, Wealthy and Wise® and Cloud-Based Documents On A Disk.)

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Editor’s Note:  Blog #42 is the second in a series of Blogs involving several issues that emanate from the decision to sell a closely-held business, most of which provide opportunities for you to develop some serious business. If your practice involves retirement and/or estate planning for owners of such firms (or you would like it to), it is impossible to do it effectively without knowing the value of the business.  InsMark has formed a joint venture with a cloud-based business valuation firm named BizEquity to form the InsMark Business Valuator.

Most business valuations cost upward of $8,000 - $10,000.  The InsMark Business Valuator (powered by BizEquity) will do it for $350 ($150 if you purchase a package of 20 valuations.)  It is critical that you understand how the InsMark Business Valuator works, and if this market interests you, we recommend you review two resources before proceeding further -- if you haven’t reviewed them already:

Review a recording of our one-hour webinar on the InsMark Business Valuator (powered by BizEquity) on the InsMark YouTube Channel.

Review Blog #41:  If We Sell Our Business, Can We Afford to Retire?

This current Blog features a solution regarding life insurance coverage on the owner of the business where the InsMark Business Valuator has detected a $1,000,000 loss to the firm should the owner die.

In Blog #41:  If We Sell Our Business, Can We Afford to Retire?  we determined that George and Marie Grove, age 65 and 60, could maintain their current level of net worth (approximately $10 million) while ensuring after tax retirement cash flow of $440,000 a year indexed at 3.00% as an inflation hedge.  To prove this, we used a combination of the InsMark Business Valuator to value the business and Wealthy and Wise® for the proof of the cash flow and net worth.

Key Executive Coverage

(Business-Owned or Personally-Owned?)

George and Marie believe the business will be hurt financially should George die prior to selling it in five years.  The InsMark Business Valuator identifies this loss to the business at $1,000,000.  Click here to view the entire report to see the comprehensiveness of the evaluation.  Note the yellow highlighted sections on Pages 5 and 6 -- the value of the business is reduced from the $5,000,000 we originally used in Blog #41 to the $3,971,542 noted on Page 6, a $1,000,000+ reduction caused if George dies this year.  If he lives, the valuation remains at $5,000,000 as authenticated by the InsMark Business Valuator and described in Blog #41.

The easy solution is to indemnify the business against the loss of George by having the business purchase $1,000,000 of life insurance on him.  The evaluation should also take into account that George needs to replace his income for Marie’s benefit.  One way to meet the cash needs of the business and the income needs of Marie is to have the firm own a life insurance policy on George large enough where $1,000,000 of the death benefit offsets the reduced value of the firm due to George’s death, and the balance is used to fund a salary continuation benefit for Marie.

Is there a way to coordinate those two goals with, let’s say, $2,000,000 of coverage?  What kind?  Term insurance for five years?  Is there a place for a permanent policy?

The best way involves the personal purchase of permanent life insurance, and it works regardless of the structure of the business: C Corporation, S Corporation, Limited Liability Company (“LLC”), or Partnership.  (George’s firm is an LLC.)

Alternate Key Executive Insurance Technique

Following are the steps for implementing this arrangement:

  1. George purchases the life insurance policy personally with Marie as beneficiary.  The face amount of the policy is $2,000,000, $1,000,000 of which reflects the loss to the firm should he die prior to the sale of the business.
  1. If George dies prior to the sale of the business, Marie collects the life insurance proceeds, and although the LLC has lost $1,000,000 in valuation through the death of George (as documented by the InsMark Business Valuator), Marie has the $1,000,000 of the life insurance in a tax free life insurance death benefit to offset the loss.

    Should the LLC need the $1,000,000 to continue business operations, Marie can loan it to the LLC at a fair market rate of interest giving her the cash flow of the loan interest.  The loan would be repaid when the LLC is sold.

  1. George and Marie have personal access to the policy’s loan values for tax free cash flow during retirement years.

Below is a graphic of the $2,000,000 policy.  It is a max-funded Indexed Universal Life policy with five premiums of $184,000.  Click here to review the Illustration of Values of the policy from the InsMark Illustration System.

max funded indexed universal life policy graph image

“Wow”, you may say, “this could be an impossible sale!” And it may well be impossible if you expect George and Marie to cough up the $184,000 out of their personal income.

Where else are the funds coming from to purchase the policy?  We integrated the policy’s costs and benefits into the Wealthy and Wise analysis developed in Blog #41: If We Sell Our Business, Can We Afford to Retire? to determine if the premium cost can be absorbed by George and Marie’s assets with the after tax loans scheduled from the policy to apply on their retirement cash flow needs.  The goal is not to invade their net worth too much to do this.

Good news!  The procedure not only doesn’t degrade net worth; it improves it long-range by almost $1.7 million as you can see in the graphic below.

blog 42 net worth after providing required cash flow graph image

Note:  Participating loans of $100,000 a year from the Indexed UL for retirement cash flow begin in year 11 and are reflected in the graphic.

Strategy 3 (from Blog #41):  Sell the business in 5 years; retire on $440,000 after tax cash flow plus a 3.00% cost of living adjustment.

Strategy 4:  Same as Strategy 3 plus acquire $2,000,000 of personally-owned indexed UL paid for from assets.

So who says life insurance is expensive?  In this case, it costs almost $1.7 million if George and Marie don’t buy it. On top of that, it provides substantial death benefits as well.

There is no other planning software that can accomplish the analysis in Blogs #41 and #42 other than the combination of the InsMark Business Valuator (powered by BizEquity) and Wealthy and Wise.

Click here if you would like to review the Wealthy and Wise reports comparing Strategy 3 with Strategy 4.

 

InsMark’s Digital Workbook Files

If you would like some help creating customized versions of the presentations in this Blog for your clients, watch the video below on how to download and use InsMark’s Digital Workbook Files.

Digital Workbook Files For This Blog

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Download all workbook files for all blogs

Note:  If you are viewing this on a cell phone or tablet, the downloaded Workbook file won’t launch in your InsMark System.  Please forward the Workbook where you can launch it on your PC where your InsMark System(s) are installed.

 

Please understand that Strategy 3 in this Workbook is replicated from Blog #41 with Strategy #4 added.  With Strategy 4, the $184,000 premiums for the life insurance are entered on the Desired Cash Flow tab in years 1 - 5.  The $100,000 expected policy loan proceeds are entered on the Expected Cash Flow tab in years 11 - 30, and the cash value and death benefit of the policy are entered in all years on the “Other Assets” tab.  This scheduling directs Wealthy and Wise to find the money for the policy premium from George and Marie’s assets, and the powerful cash value and participating loan features of Indexed Universal Life more than offset the assets used to pay for the policy.

Next week in Blog #43, we will examine a dynamic new way that the business can induce Tom Hamilton, who is a key, non-shareholder, Executive Vice President and General Manager, to remain with the firm during these next critical years while the plans to sell the business are firming up.

For information about the InsMark Business Valuator (powered by BizEquity) or licensing information regarding Wealthy and Wise and the InsMark Illustration System, contact Julie Nayeri at julien@insmark.com or 888-InsMark (467-6275).  Institutional inquiries should be directed to David Grant, Senior Vice President - Sales, at dag@insmark.com or 925-543-0513.

Documents On A Disk imageDocumentation for the Alternate Key Executive Insurance Technique is available in InsMark’s Documents On A Disk™ (Version 21.0 and higher) in the Key Employee Insurance Plans section of specimen documents.  A variation with superb tax results is also provided in that same section in which an irrevocable trust is owner and beneficiary of the life insurance.

InsMark’s Referral Resources

If you would like assistance with an Alternate Key Executive Insurance plan or a Wealthy and Wise evaluation for one of your prospects or clients (or help with illustrations from other InsMark Systems), contact any of the Referral Resources listed below.  They are all highly skilled at running InsMark software and can help you using your choice of insurance company.  You don’t need to be licensed for InsMark software to use their services -- although if you aren’t, we would certainly welcome your participation.  Mention my name when you talk to one of our Referral Resources as they have promised to take special care of my readers.

Testimonials:

"InsMark is the Picasso of the financial services world — their marketing savvy never fails to amaze me."
Doug Peete (Past President, Top of the Table) Overland Park, KS

"Wealthy and Wise has been instrumental in closing three difficult planning cases in the last two years. Total commissions exceeded $100,000.  Without being able to demonstrate adequate retirement cash flow, these cases would not have closed."
Scott Mounger, CLU, ChFC, Mesa, AZ

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More Recent Blogs:

Blog #41: If We Sell Our Business, Can We Afford to Retire?  (Part 1 of Valuing the Business)

Blog #40: Leveraged Deferred Compensation

Blog #39: More on the Magic of Indexed Universal Life

Blog #38: Avoiding a $20 Million Mistake

Blog #37: Four Ways to Smite a Termite

3 Reasons Why It’s Profitable For You To Share These
Blog Posts With Your Business Associates and
Professional Study Groups (i.e. “LinkedIn”)

Robert B. Ritter, Jr. Blog Archive

 

Blog #41: If We Sell Our Business, Can We Afford to Retire?
(Part 1 of Valuing the Business)

(Presentations were created using the InsMark Business Valuator and Wealthy and Wise®.)

Getting Started with InsMark Training Video

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This Blog is written in coordination with our webinar featuring the InsMark Business Valuator (powered by BizEquity), the best lead generation system ever invented for successful business prospecting. Whether you are already active in the business market or would like to break into it, we hope you haven’t missed this webinar. If you did, we recorded it and you can click here to view it on the InsMark YouTube Channel.

The webinar features Don Prehn, marketing consultant and past President of InsMark, as he explains why this Cloud-based, business valuation service can completely change the way you interact with business owners (and enhance virtually everything you can do for them).

For those who become involved with this new concept, InsMark will share Case Studies in the next several Blogs to help you get up to speed on this exciting new platform. This Blog #41 begins the process.

Case Study #1

George and Marie Grove are age 65 and 60 and run a successful business. They are asking this question:

“If we sell our business for what we think it’s worth,

can we have the retirement cash flow we want

and still have a comfortable level of ongoing net worth?”

The Groves have the following assets:
$    700,000 Taxable Accounts
$    900,000 Tax Exempt Accounts
$    750,000 George’s IRA
$    900,000 Marie’s IRA
$ 4,762,500 Equity Account (incl. the after tax proceeds of $3,762,500 from a current sale of their closely-held business valued at $5,000,000)
$ 1,200,000 Illiquid Assets (personal property and home scheduled for downsizing in five years)
$ 9,212,500 Total

How did George and Marie determine the current value of their business to be $5,000,000?  They used the precision of the InsMark Business Valuator powered by BizEquity.  Click here to view that report. Note on Page 6 of the report that we highlighted the Equity Sale Value of $5,012,297 which we rounded to $5,000,000 for purpose of this analysis.

Click here to see the calculations of after tax capital from the sale of their business this year and a downsizing of their home in five years.

Query: If you are involved in retirement and/or estate planning with clients who own their own business, can you do it accurately without knowing a realistic value of the business? You really can’t, particularly by a seat-of-the pants guess by their advisers, but reliable valuations typically cost $8,000 to $15,000. Good for one year of continuous analysis, each BizEquity valuation costs a client $350 (and as low as $150 each if you purchase 20 valuations in a package). The results are based on a national data base of comparables of similar businesses in similar geographic locations.

We will use InsMark’s Wealthy and Wise to find out how much spendable cash flow can be produced for George and Marie from their current assets while retaining close to their current level of net worth.

Strategy 1: Spendable cash flow of $440,000 a year can be generated from their current asset base with the net worth illustrated below after producing that cash flow.

Click here to gauge the limits on how much cash flow liquid assets can generate.

Strategy 1: Net Worth

There is, however, a problem. The buying power of $440,000 diminishes rapidly due to inflation.

Strategy 1: Spendable Cash Flow

Strategy 2: The cash flow and residual net worth work out better if we schedule $300,000 of cash flow with a cost-of-living-adjustment (“COLA”) in an attempt to deal with inflation. Under this assumption, the after tax cash flow looks like this:

Strategy 2: Spendable Cash Flow

Total cash flow under these assumptions is $14,272,623 which is $1,972,623 more than the $13,200,000 provided in Strategy 1: Spendable Cash Flow.

Net worth now looks like this:

Strategy 2 Net Worth

Let’s compare the two side-by-side. Strategy 2 produces an attractive net worth solution.

Strategy 1: vs. Strategy 2: Net Worth

Case Study #2

Strategy 3: George asks how the numbers will look in five years. He expects his business to grow by 10% a year. Marie asks if that plan can support the original $440,000 spendable cash flow plus the 3.00% COLA — and it does.

Strategy 3: Spendable Cash Flow

As you can see below, their net worth adjusts accordingly, but ends up in about the same place.

Strategy 3: Net Worth

Let’s look at all three Strategies together:

Strategy 1 vs. Strategy 2 vs. Strategy 3: Net Worth

Strategy 3 is impressive. George and Marie’s net worth ends up consistent with their target. Their goal of COLA-adjusted spendable cash flow of $440,000 is also met (producing cumulative cash flow several millions higher than either Strategy 1 or 2.)

Strategic Point: There is no other planning software that can accomplish this analysis other than the combination of BizEquity and Wealthy and Wise.

Now your planning skills come into play. What moves must George and Marie make to ensure these results? I’m certain that several will have occurred to you already. Our solutions will be forthcoming starting with Blog #42 scheduled for release on Thursday, February 27, 2014.

Click here if you would like to review the Wealthy and Wise reports for the three Strategies. The system generates a substantial number of reports because we back up every number we calculate. We never want to leave you flat-footed when a CPA or attorney asks, “Where did this number come from?” For an actual proposal, you will probably want to include a few key reports particular to your case and put the balance in a carefully organized Appendix.

Issues for you to think about:

  1. George is one of the key executives needed to produce the 10% growth in the value of the business over the next five years.
  2. George tells us that Tom Hamilton, Executive Vice President and non-shareholder, is also key to the growth of the business.

Over the next few weeks, we’ll begin examining several ways to address these issues. I hope you’ll offer yours by way of Comments to the Blog.

Final Note: The first financial professional who provides access to the InsMark Business Valuator (powered by BizEquity) to a given business owner is the one who wins. There is absolutely nothing for advisers who later offer it to that same business owner. As a result, we are promoting BizEquity to the InsMark user base first to give those most closely associated with us first crack at it; however, we will be offering it widely to others later this year.

For information about BizEquity or licensing information regarding Wealthy and Wise, contact Julie Nayeri at julien@insmark.com or 888-InsMark (467-6275). Institutional inquiries should be directed to David Grant, Senior Vice President – Sales, at dag@insmark.com or 925-543-0513. (Several of our life insurance company clients are looking at it.)

 

InsMark’s Digital Workbook Files

If you would like some help creating customized versions of the presentations in this Blog for your clients, watch the video below on how to download and use InsMark’s Digital Workbook Files.

Digital Workbook Files For This Blog

Blog41.zip

Download all workbook files for all blogs

Note:  If you are viewing this on a cell phone or tablet, the downloaded Workbook file won’t launch in your InsMark System.  Please forward the Workbook where you can launch it on your PC where your InsMark System(s) are installed.

 

InsMark’s Referral Resources

If you would like assistance with a Wealthy and Wise® evaluation for one of your prospects and clients (or help with illustrations from other InsMark Systems), contact any of the Referral Resources listed below.  They are all highly skilled at running InsMark software and can help you using your choice of insurance company.  You don’t need to be licensed for InsMark software to use their services — although if you aren’t, we would certainly welcome your participation.  Mention my name when you talk to one of our Referral Resources as they have promised to take special care of my readers.

Testimonials:

“I am writing to give you a ringing endorsement for the Wealthy and Wise System. As you know, I am a LEAP practitioner. The Wealthy and Wise software has helped me supplement my LEAP skills in the over age 60 client base. I have been paid for many cases using Wealthy and Wise as support, the smallest of which was $27,000, the largest was $363,000. With those type of commissions, you would have to be nuts not to buy it.”
Vincent M. D’Addona, CLU, ChFC, MSFS, AEP, InsMark Power Producer, New York, NY

“If you don’t get the client to distinguish cash flow from net worth, you won’t make the case sale. In my experience, Wealthy and Wise is the only system that recognizes this important estate planning component.”
Stephen Rothschild, CLU, ChFC, CRC, RFC, International Forum Member, Saint Louis, MO

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More Recent Blogs:

Blog #40: Leveraged Deferred Compensation

Blog #39: More on the Magic of Indexed Universal Life

Blog #38: Avoiding a $20 Million Mistake

Blog #37: Four Ways to Smite a Termite

Blog #36: The Magic of Indexed Universal Life

3 Reasons Why It’s Profitable For You To Share These
Blog Posts With Your Business Associates and
Professional Study Groups (i.e. “LinkedIn”)

Robert B. Ritter, Jr. Blog Archive

 

Blog #40: Leveraged Deferred Compensation

(Presentations were created using the InsMark Illustration System, Leveraged Compensation System and Cloud-Based Documents On A Disk.)

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Editor’s Note: Once in a while, Bob will go deeply into an advanced subject on his Blog, and this is one of them. If you have clients who are senior executives with tax exempt organizations like hospitals, colleges and universities, and large charitable organizations, be sure to study this Blog. Otherwise, skip it unless you want to break into this market. If you do see a place for Leveraged Deferred Compensation in your practice, be certain to obtain the approval of a client’s legal and tax advisers regarding its applicability.

In the last few Blogs (Blog #36, Blog #37, Blog #38, and Blog #39), we have been examining Indexed Universal Life (IUL) in a Case Study involving Elizabeth Rand, MD, age 40. All that has led up to this Blog where she is illustrated using her IUL policy to fund an unusual deferred compensation plan.

Dr. Rand is a Board Certified orthopedic surgeon specializing in sports injuries. She is in negotiations with Bay Area Medical Center (“BAMC”) to merge her practice with the hospital. Her compensation package is in the high six figures, and she and BAMC are examining ways for her to defer $100,000 a year for five years with the payback in a lump sum at her age 60.

Deferred compensation funded with corporate-owned life insurance is an alternative, but Dr. Rand does not like: 1) its lack of any pre-retirement vesting and 2) that its typical annual retirement benefit is taxed as ordinary income.

InsMark’s Leveraged Deferred Compensation (“LDC”) may provide the answer.

Click here for tax comments involving deferred compensation plans between hospitals and doctors.

With LDC, Dr. Rand agrees to the $100,000 reduction in compensation in each of the next five years. BAMC agrees to extend a loan to her for $100,000 in those same years using loan regime split dollar as authorized by the 2003 Final Split Dollar Regulations issued by the Treasury Department.

Click here for comments on severance arrangements and tax exempt organizations.

BAMC also agrees to enter into a severance agreement with Dr. Rand whereby she will be repaid her $500,000 compensation reduction at her retirement (or earlier should she die or become disabled). Click here to review her year-by-year severance benefit.

Dr. Rand will use the loans from the hospital to purchase an indexed universal life policy. She is contractually obligated to repay the loans at retirement, and this puts the hospital in a cash flow neutral position as you can see below:

table 1 graph

Dr. Rand’s costs include the after tax cost of her payroll reduction plus the net cash flow for the loan interest due to the hospital, as follows:

table 2 graph

At the beginning of year 21, BAMC pays Dr. Rand the five years of compensation she has deferred ($500,000) as provided in the severance agreement, and Dr. Rand repay BAMC the outstanding loan balance of $500,000 due on the split dollar arrangement. She is out-of-pocket $225,000 in income tax on the $500,000 severance — just as she would have been had she received the $100,000 compensation in years one through five.

It has cost her $419,180 over the first 20 years and $225,000 in income tax at the beginning of year 21, a total of $644,180. What has she gained? She now owns the IUL outright and begins accessing its cash values via tax free, participating, policy loans of $120,000 a year.

Click here to view Dr. Rand’s Leveraged Deferred Compensation illustration. Her net values are illustrated in Columns (5), (6), (7), and (8) on Pages 3 – 5. And note on Page 9 that the arrangement provides her with a pre-tax equivalent rate of return of 15.24%. Be certain also to review Page 14 to see the interplay of bonuses and loan interest that determine her net cash flow relative to loan interest payments. It is assumed that the source of the bonus funds are from an overall annual bonus that Dr. Rand receives. For those wanting to eliminate this bonus arrangement, Dr. Rand may choose to pay the loan interest. In this case, her pre-tax equivalent rate of return reduces to a still substantial 13.80%.

Below is a graphic of her overall results:

Dr Rands LDC Illustration 60 year analysis

Note that Dr. Rand is illustrated receiving $4,800,000 in after tax cash flow from age 60 to 100 ($120,000 x 40 years) with residual value in the policy of $6,357,060.

Key question: Could she have improved those results by taking the $100,000 of compensation in years one through five, paid her $45,000 in taxes, and invested the resulting $55,000 each year over the first five years?

To calculate this, we need to compare all of Dr. Rand’s costs for the Leveraged Deferred Compensation ($644,180) with just the total of the after tax compensation she could invest if she takes the compensation ($55,000 x 5 = $275,000).

Let’s go to two corners of InsMark Systems that many of you don’t know exist.

Step 1.

Each of our executive-owned benefit plans allows you to export the executive’s share of the benefit plan to InsMark Source Data Storage. You can do this by clicking on this icon on the lower right of your benefit module’s Workbook Window while in edit mode:

Benefit Share image

Step 2.

One of the most popular modules we have for comparing alternatives is “Various Financial Alternatives”, located in the InsMark Illustration System. But that won’t work in this case because it only compares equal costs. A sister module to Various Financial Alternatives is “Other Investments vs. Your Policy” also located in the InsMark Illustration System.

We will import Dr. Rand’s share of the benefit plan noted in Step 1 into the Other Investments vs. Your Policy module by clicking on this prompt that appears on the lower right of this module’s Workbook Window while in edit mode and selecting the benefit data created in Step 1:

Source data image

That benefit data will now be resident in the Other Investments vs. Your Policy module which has a very useful prompt in the upper right corner of the Investment Detail tab that allows you to schedule completely different funding costs for the alternative investment:

Deposits to the investment image

If Dr. Rand invests the $55,000 in after tax funds in years one through five in an equity account, that account must furnish $120,000 in after tax cash flow from her age 60 to 100 with residual value of roughly $6.3 million at age 100 to compete with the Leveraged Deferred Compensation illustration. So we will use the “Schedule” prompt to input a $55,000 investment for five years with annual after tax withdrawals of $120,000 from age 60 to 100.

The assumptions we used for the equity account are (note that, due to the dividend, the overall yield is 100 basis points higher than the IUL):

Growth: 7.50%
Dividend: 1.00%
Sales Charge: 0%
Mgt. Fee: 0.75% (unusually low — most advisers charge 1.00% to 1.50%)
Income Tax: 45% (including a provision for state capital gains tax)
Capital Gains and Dividend Tax: 25% (including a provision for state taxes)
Realized Gains That Are Short-Term: 30% (generous)
Realized Gains That Are Long-Term: 70% (equally generous)
Portfolio Turnover: 10% (unusually low — assumes an index-type fund)

Below are the results of the comparison for Dr. Rand. Notice the shortfall in after tax cash flow from the equity account highlighted by the left side arrow due to the equity account running out of gas at her age 68.

comparison for Dr Rand LDC vs Equity Account number 1 image

Click here to view the full comparison illustration.

Some may say that the comparison should be between what the Leveraged Compensation Plan costs Dr. Rand and how those numbers compare when invested in the same equity account. That’s reasonable, so using the same equity account assumptions as above, those results are below.

Note: This time we selected this prompt:

Deposits to the investment image

Again we have a shortfall in after tax cash flow from the equity account highlighted by the left side arrow due to the equity account running out of gas at her age 76.

comparison for Dr Rand LDC vs Equity Account number 2 image

Click here to view the full comparison illustration.

How can the IUL work out so well? Two reasons:

1. Its participating loans create a significant amount of favorable interest rate arbitrage.

2. If you measure all the factors that can retard the growth of an equity account compared to what retards the growth of an IUL policy (mortality charges and expenses), the IUL will typically come out the winner every time — except over short term durations where the commission loads of the IUL have not had time to be absorbed.

Final Questions:

Will Leveraged Deferred Compensation work for any executive of a Tax Exempt Organization? Yes; however, in my opinion, it works best for senior executives of tax exempt organizations like hospitals, colleges and universities (think coaches), and other large charitable organizations.

Will Leveraged Deferred Compensation work for non-owner executives of any profit-making entity (C corporation, S corporation, LLC, Partnership, Sole Proprietorship)? Yes.

Will Leveraged Deferred Compensation work for owner-executives of C corporations? Yes.

Will Leveraged Deferred Compensation work for owner-executives of S corporations or member-executives of LLCs or partners of Partnerships? No, there would be no point in using it with a pass-through tax entity.

Tax Authority for Leveraged Deferred Compensation:

The funding mechanism of Leveraged Deferred Compensation is Loan-Based Split Dollar which is authorized by the 2003 Final Split Dollar Regulations (Treas. Reg. §§1.61-22, 1.83(e), 1.83-6(a)(5) and 1.7872-15). The fact that funding of the plan is assisted by an executive’s compensation reduction that is subsequently recovered by way of a valid severance agreement should be irrelevant.

In all cases, the approval of a client’s legal and tax advisers must be secured regarding the implementation or modification of this planning technique as well as the applicability and consequences of new cases, rulings, or legislation upon existing or impending plans.

Specimen Documents:

Specimen documents (including specimen severance agreements) are available for Leveraged Deferred Compensation in Version 21.0 (and higher) of InsMark’s Documents On A Disk™ under Key Employee Benefit Plans (in the Employer-Sponsored Split Dollar Plans section of documents).

For licensing information regarding the Leveraged Compensation System, the InsMark Illustration System, and Documents On A Disk™, contact Julie Nayeri at julien@insmark.com or 888-InsMark (467-6275). Institutional inquiries should be directed to David Grant, Senior Vice President – Sales, at dag@insmark.com or 925-543-0513.

 

InsMark’s Digital Workbook Files

If you would like some help creating customized versions of the presentations in this Blog for your clients, watch the video below on how to download and use InsMark’s Digital Workbook Files.

Digital Workbook Files For This Blog

Blog40.zip

Download all workbook files for all blogs

Note:  If you are viewing this on a cell phone or tablet, the downloaded Workbook file won’t launch in your InsMark System.  Please forward the Workbook where you can launch it on your PC where your InsMark System(s) are installed.

 

InsMark’s Referral Resources

If you would like assistance with any InsMark illustration, contact any of the Referral Resources listed below.  All are InsMark Agency Platinum Power Producers®, and they are highly skilled at running InsMark software and can help you using your choice of insurance company.  Mention my name when you talk to one of our Referral Resources as they have promised to take special care of my readers.

Testimonial:

“Thanks to the genius of Bob Ritter and InsMark, I was able to complete two cases in the last few months using the InsMark Leveraged Compensation System. Annual premiums total was over $90,000. Before reaching out to Bob, I struggled with conceptualizing and communicating this new deferred compensation logic to the business owners and their key employees. With the InsMark software, the compelling case logic was immediately obvious to everyone. In addition, the software is easy to learn and use.”
Glenn A. Main III, InsMark Power Producer, The Main Point LP, Pittsburgh, PA

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More Recent Articles:

Blog #39: More on the Magic of Indexed Universal Life

Blog #38: Avoiding a $20 Million Mistake

Blog #37: Four Ways to Smite a Termite

Blog #36: The Magic of Indexed Universal Life

Blog #35: Revisiting the Pothole in Wealth Planning (Good Logic vs. Bad Logic™)

3 Reasons Why It’s Profitable For You To Share These
Blog Posts With Your Business Associates and
Professional Study Groups (i.e. “LinkedIn”)

Robert B. Ritter, Jr. Blog Archive