Once Upon a Time…
…there was a family business owned by a father and mother with four children. As the children grew up, they were all given an opportunity to join the family business. Three children decided they did not want to join the business, while the last one did. Over the years, the one the child who joined the company helped it to grow and prosper. As the parents grew older they wondered how to handle their estate in a way that was fair to all of their children, but they never took any action. When the father and mother passed away suddenly, there was nothing in place to pay off the heirs who were not involved in the business. As a result, the business had to be sold in order to pay off the estate. The family business no longer existed. The heir who worked for the business had to find another job and did not receive adequate compensation for his efforts. The heirs who did not work in the business did not receive adequate compensation for the value of it, as it was sold for less than its value. In the end everyone was unhappy, their parents were gone, their family business was gone, and the estate was gone as well.
How could this story have turned out better? If the parents had implemented a buy/sell agreement and then purchased inexpensive life insurance to fund it, the story would have had a different ending. The life insurance proceeds would have been paid to the three heirs not involved in the business, compensating them for their share of the estate. The heir who had worked and grown the business would have then owned the business. While their parents would still have been gone, the family business could have continued with everyone satisfied with the way the estate was settled, and they would have all lived happily ever after.
Wendy Beever, CIC, ARM, AAI