Liquidity Planning for Business Succession

Business owners invest significant amounts of time, effort and resources into building and growing their business. It’s only natural to want to ensure the smooth transition and preservation of business and personal wealth for loved ones. However, an inadequate plan for estate liquidity may cause issues in the event of the unexpected passing of a business owner.

Liquidity refers to the availability of cash or assets that can be quickly converted into cash. When it comes to estate planning, liquidity plays a crucial role in covering various expenses and obligations, including taxes, debts (business or personal) and family needs. For business owners, maintaining sufficient liquidity becomes even more essential, as it helps safeguard the continuity of the business while protecting personal assets. One tool that can be used to create liquidity in a business is the purchase of life insurance on the life of a founder. Below are two ways life insurance can help ease the transition:

  1. Business succession: Life insurance proceeds may facilitate the smooth transition of a business to the intended successor, ensuring stability and continuity in its operations. The funds can be used to buy out the deceased owner’s share (coordination with existing buy/sell agreements over time will be crucial), provide capital for the successor or settle any outstanding business obligations.
  2. Estate taxes (federal and state): Depending on the state in which the owner resides and the value of the estate, estate taxes can impose a significant financial burden on heirs. Life insurance may provide the necessary liquidity to cover these taxes, allowing loved ones to inherit the business without the need to quickly raise capital by selling a portion (or all) of the business to meet these tax obligations. Being forced to sell the business in short order may also result in a lower sale price and diminished family wealth.

When using life insurance as a strategy to create estate liquidity, it’s essential to periodically revisit your coverage and confirm that it remains sufficient. Regularly reviewing your personal financial situation and the value of your business with your Wealth Advisor team and your estate planning attorney can help ensure that current coverage can meet your needs as the business enterprise valuation and tax laws shift over time. 


Charlie Murin

Charlie Murin

Wealth Advisor

Charlie is a Wealth Advisor in our Itasca, IL, office. Previously, he served at legacy firm BDF, where he was an active member of the firm’s Financial Planning Committee, responsible for developing and improving the firm’s multifaceted planning process. He earned a Bachelor of Science from the University of Illinois in Consumer Economics with a concentration in financial planning. Charlie has his Series 65 license and is a CERTIFIED FINANCIAL PLANNER™ professional.


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