When you look at your client’s balance sheet do you see their retained earnings growing? Have you considered that excess retained earnings may represent a future tax problem to the business or to them? Did you know that there is an accumulated earnings penalty tax of 20%? Or, if you choose to distribute the retained earnings the distribution will likely be treated as a non-deductible dividend?
Loss of a Key Person:
Have you considered what might happen to your client’s business if key person was no longer able to work or were to die prematurely? The loss of a key person could have a devastating financial effect on their business. Think of the turmoil the death of a key person can have. It can impact: your clients, your business operations, your credit, your future expansion plans, your other key people and, ultimately, your profits.
Personal Insurance and Retirement Needs:
How well protected is your client’s family against his/her premature death or disability? Could their retirement accumulation use some help?
The 1 for 3 Solution:
There is one solution that may help you address all three concerns - permanent life insurance.
1. Protect your business in the event of loss of a business owner or key person using a specially designed permanent life insurance policy.
2. Reduce your retained earnings. The premium paid will reduce your cash account. The cash value of the life insurance policy (if any) will be an asset on your balance sheet. To the extent the cash value is less than the premiums paid your retained earnings will be reduced by that difference.
3. Reduce taxes on later distributions. When the insurance policy is no longer needed for business purposes it may be repurposed and distributed to the insured for personal uses (such as additional protection and potential retirement accumulation).
Is this concept right for your client?
The ideal client for the Retained Earnings Planning Concept is:
• A “C Corporation” with excess retained earnings
• A business that requires life insurance coverage on the owner or a key executive
• An owner who may have a future need for personally owned life insurance
Matt joined National Life Group in 2012 as Director of Advanced Planning. Prior to joining the company Matt was with Hartford Life as Director of Advanced Planning. Matt has 16 years combined experience in the financial service and insurance industry assisting agents in developing advanced planning solutions to meet business/individual client needs. Matt is a frequent speaker at insurance and CPA meetings on subject matters such as Non-Qualified Planning, Buy-Sell Arrangements and Premium Financing. Matt earned his Bachelor of Arts Degree from Washington and Jefferson College and his Juris Doctorate from University of Massachusetts School of Law at Dartmouth.
Elisabeth Moore is a founder and VP of Executive Retirement Plans Inc. She consults with businesses and individuals regarding retirement plans, and works with other like-minded professionals in the financial service and insurance industries to design advanced market plans for business owners. Prior to starting Executive Retirement Plans Inc, Elisabeth has been a CPA for over 25 years with experience in tax preparation, financial statement auditing and consulting. www.execretire.com
Brian Bartlett, Founder of Bartlett Financial Management in Little Elm, Texas has been in the investment business for over twenty-five years, working with companies and individuals. Twenty of those years Brian served as a Branch Manager, overseeing offices of firms in New York and Texas. Brian’s small-town upbringing is reflected in his desire to build client relationships by being accessible as a financial advisor. Brian also is a regular guest on two radio shows in Colorado, discussing faith and family.