Business Owner

Case Study

Please remember that all clients are different and individual suitability should be determined. These case studies are presented as information only; actual results may vary. It is not our position to offer legal or tax advice. Seek the advice of a professional advisor prior to making a tax-related investment and/or insurance decision.

Two brothers, 50 year old Dan and 45 year old Brad, co-founded an electronic supply company with three locations. Both men are married with wives who work in the company and each brother has a son who works for the company.

Dan’’s son is older than Brad’’s and has been working full-time for the company for a number of years. Dan also has a daughter who is not employed by the business. Brad’’s son is finishing high school and works part-time.

Dan’’s net worth is $8 million, while Brad’’s net worth is $6 million. Almost all of each family’’s assets are owned in the brothers’’ names, with each wife owning only a small percentage of the assets (roughly 10%-20% EACH). Dan recently finished updating estate planning documents, but Brad’’s documents were out of date and exposed to significant estate taxes.


  • The current buy-sell agreement is funded with life insurance, but mandates that the deceased partner’s family be bought out with the insurance proceeds.
  • Under the current design, the deceased’’s family is made to relinquish emotional and financial interest in the company the deceased worked so hard to build.
  • Since the business, under present circumstances, is a successful concern, this gives the deceased brother’s’ family no right to share in future appreciation of assets.
  • Additionally, since spouses and sons are also employees of the business, they could each potentially lose all management power bestowed by voting rights and in the case of one brother predeceasing the other, the members of the deceased brother’’s family could potentially face job loss if relations become acrimonious.
  • All personal life insurance is owned in the estate of each insured, while the buy-sell coverage is cross-owned (i.e., each brother owns the other’’s policy). A simultaneous death of Dan and his wife would trigger over $200,000 in unnecessary estate taxes just due to improper insurance ownership.

Potential Solutions

  • First, determine what the families really want to happen with the business in the event that one partner predeceases the other. Be cognizant of the fact that Dan is five years older than Brad and would likely pass away or retire before his brother.
  • Based on the above introspective discussion, it was determined that the families didn’’t want to be forced out of the business and might be needed to ensure business continuity during potentially difficult times. Therefore the mandatory buy-sell was felt to be unnecessary.
  • Move all personal insurance ownership out of the taxable estate of each family member (spouses included).
  • Begin retitling homes and other assets into the spouses’’ names to utilize Unified Credits.
  • Transfer the buy-sell insurance to an irrevocable trust so that the proceeds would be kept for the benefit of the deceased brother’’s family. This would allow retention of the stock and ensure strong financial backing for said family.
  • A stock gifting strategy was then recommended as a means to reduce the taxable estate of the brothers, while also rewarding the sons who participated in the business.
  • Update Brad’’s estate planning documents to reflect the new business transfer strategy and coordinate with various trusts.
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