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BUSINESS CONTINUATION AGREEMENTS are often partially funded or totally funded with life insurance. Most, if not all, of the life insurance proceeds are includable in the estates of the business owners. The BILIT^sup TM^ can keep the life insurance proceeds outside of the owners' estates. Additionally, this article addresses the seldom
discussed economic inequities inherent in most Business Continuation Agreements and potential solutions to these economic inequities.
Business continuation agreements are often partially funded or totally funded with life insurance. Most, if not all, of the life insurance proceeds are includable in the estates of the business owners. The basics of estate planning often dictate the removal of life insurance policies from the ownership of the insured either to outright ownership by younger generations or preferably to an Irrevocable Life Insurance Trust. Query - Why don't practitioners do the same for business owners? The premise of this article will be to introduce you to the BILIT^sup TM^ and to encourage usage for the benefit of your clients. The BILIT^sup TM^ solution encompasses much of the knowledge base you currently possess, together with a few twists and drafting details, which will be discussed later in this article.
A sample case will be used to economically illustrate the BILIT^sup TM^ in contrast with a traditional cross purchase business continuity agreement. As many practitioners prefer to use cross purchase due to the advantage of the step-up in basis to the surviving owners, the example will focus on that method. The step-up in basis becomes increasingly important in the unlikely event of estate tax repeal.
Additionally, this article will address the seldom-discussed economic inequities inherent in most business continuation agreements and potential solutions to these economic inequities. These inequities as well as the potential solutions also apply to the BILIT^sup TM^.
What is a BILIT^sup TM^?
A BILIT^sup TM^ is simply a basic Irrevocable Life Insurance Trust used for business continuity purposes. The name BILIT^sup TM^ (pronounced "bill it") is used to contrast it with an ILIT (Irrevocable Life Insurance Trust), which is used for personal, rather than business continuity purposes. The life insurance product can be funded by the business through either a split-Dollar premium financing concept or a Sec. 162 bonus to the employee....