Protecting Your Assets

Non-qualified Plans

A deferred compensation plan is an arrangement in which an employee or owner defers some portion of their current income until a specified future date. Wages earned in one period are actually paid at a later date. Life insurance can be used to informally fund a deferred compensation plan. The deferred amounts can be used to pay premiums on cash value life insurance. The cash value can then be available at retirement to supplement other income or, if the insured dies before retirement, the insured's designated beneficiary would receive the insurance policy's death benefit.

A non-qualified deferred compensation plan gives the employer the power to pick and choose among the recipient employees without regard to years of service, salary level or any other criteria. It also allows a business to provide benefits to officers, executives and other highly paid employees as part of an executive benefits package. With a non-qualified plan the amounts of the employer's contributions are not limited. There are no significant filing or reporting requirements. 

A non-qualified plan does not, however, receive favorable tax treatment at the time it is given. The employer is not entitled to tax deductions until the benefits are actually paid to the employee.

Executive Benefits

A executive bonus plan is a way for the employer to "bonus" the employee with an amount of money to be used as funding for a life insurance policy. The employee only pays income tax on the bonus applied as premium. In future years, the employee can draw on the cash value of this policy through loans or withdrawals, and in the event of death, the employee's family receives the death benefit.

Business Succession

Just as you would help plan your client's future, you should plan for the future of your company. By putting the proper strategies in place now, you can ensure your company will continue on according to your wishes. Business succession strategies include:

• Key person insurance
• Family Limited Partnership (FLP)

The Buy-Sell Agreement

The buy-sell agreement provides assurance to surviving owners that their business will continue in a successful manner. It also provides the deceased owner's heirs with funds that will enable them to meet their financial needs and pay estate administration costs. It is an agreement between the owners of a business detailing what is to occur upon the death of one of the owners. Such agreements can also deal with the situation in which one of the owners becomes disabled, retires, divorces, or wishes to sell his or her interest in the business.