Modern Planning for Closely-Held Business Owners September 2014

Disclosures The author does not provide legal, tax and/or accounting consulting and/or advice. This material is being provided to you strictly in a capacity as an employee benefits consulting firm. The information contained herein is based on data you may have provided, our interpretation of the existing Internal Revenue Code, and the application of relevant statutes, regulations, court rulings, and familiarity with this material as it currently exists. Based on the legal and accounting complexity of employee benefit issues, along with the changing statutory and regulatory environment, the author strongly recommends that you consult with, and seek the advice of, your legal and/or accounting advisor(s) regarding this material.   IRS CIRCULAR 230 DISCLOSURE:  To ensure compliance with requirements imposed by the IRS, we inform you that any federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed on you, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. This report has been created for your sole use. It contains proprietary information of The Executive Benefits Guy and possession of it is not deemed a waiver of our rights. Distribution to a non-affiliated party is prohibited. Insurance Products: any illustrated guarantees are only backed by the claims-paying ability of the issuing insurance company; are not a deposit or other obligation of or guaranteed by, any bank or bank affiliate; are not insured by the FDIC or any other federal government agency, or by any bank or bank affiliate; and are subject to investment risk, including possible loss of value. For federal income tax purposes, life insurance death benefits generally pay income tax-free to beneficiaries pursuant to IRC Sec. 101(a)(1). In certain situations, however, life insurance death benefits may be partially or wholly taxable. Situations include, but are not limited to: the transfer of a life insurance policy for valuable consideration unless the transfer qualifies for an exception under IRC Sec. 101(a)(2)( i.e. the "transfer- for- value rule"); arrangements that lack an insurable interest based on state law; and an employer-owned policy unless the policy qualifies for an exception under IRC Sec. 101(j). Past performance cannot predict future results. The insurance product shown in this report is representative of the market and is based on a hypothetical investment yield which is not guaranteed. Actual results will be different from those shown here.

No Wonder… The Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy. Economist Milton Friedman Closely-held business owners are most often distracted by taxation and regulation.

…Small Business Owners… Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it. President Ronald Reagan, 1986 Closely-held business owners are most often distracted by taxation and regulation.

…are Confused! The last thing you want to do is raise taxes in the middle of the recession because that would just suck up and take more demand out of the economy and put businesses in a further hole. President Barack Obama, August 2009 Closely-held business owners are most often distracted by taxation and regulation.

2014 Income Tax Rates Top Income Tax Rate = 39.6% Employment Taxes = 3.8% Phase-out of Deductions MARGINAL TAX RATE = 43.4% Plus

AGENDA Why focus on the “Business Insurance” market? Issues / Concerns of Business Owners Missed planning opportunities

An Underserved Marketplace Small to Mid-Size Corporations 50 – 1000 employees New Sales, Cost of Healthcare, & Taxes are top Concerns A vastly underserved marketplace that is in the typical “sweet-spot” of client relationships for many financial service professionals.

“Good” Characteristics “Ideal” Target Market “Good” Characteristics Closely-held S- or C- Corporations > $5 Million in EBITDA Mature, stable business Active Owner Few shareholders Mature, stable closely-held businesses are simply easier to work with than other business entities.

“Poor” Characteristics “Ideal” Target Market “Poor” Characteristics Professional partnerships, LLC’s etc. Small “Mom & Pop” businesses / Early start-ups Large national / international corporations Inactive family or 3rd Party ownership Mature, stable closely-held businesses are simply easier to work with than other business entities.

“I want to defer paying taxes…”

For the Owner of a Pass-Through Tax Entity…. …or you can pay taxes on your business return. You can pay taxes on salary… You can’t really defer taxes!

= For A Business Owner… Succession Planning! Retirement Planning Buy-Sell Funding Estate Planning Key Employee Benefits Succession Planning! =

Planning for Retirement Limited opportunities to defer income. Primary retirement asset is the business. “Selling the business” is NOT a plan.

Buy – Sell Planning Audit - Fire Drill! Is life insurance funding in place? Does it disenfranchise family members in the event of death?

Estate Planning vs. Buy-Sell An estate plan is NOT a succession plan, but: Family transfer of business interests may be more efficient via estate planning than buy-sell planning.

(check if audience still awake)

Identifying Key People Nonqualified Plan Design Made Easy Who? Gets What? When?

Sliding Scale of Executive Benefits Employee Control Qualified Plans Executive Bonus Executive Bonus with Restrictive Endorsement Deferred Compensation SERP TEBG IP Employer Control + Tax Deduction - Control over Plan Assets

Identifying the Key Advisors Group Benefit Consultant Personal Financial Advisor / Agent CPA Attorney Be willing to coordinate and embrace in planning Process Be prepared with your own resources to introduce Be willing an able to work with other advisors. Complimentary rather than adversarial relationships.

A Practical Solution Suppose a Business Owner needs… Key person coverage on Owner Business Owned Life Insurance for informal funding of SERP Personal Retirement Plan funded with life insurance Insurance for Wealth Preservation / Creation / Estate Tax How Many Policies are Needed?

A Practical Solution You could design 4 (or more) policies One owned by the business on the owner (Key Person) One owned by the business on the key employee (SERP) One owned by the owner for personal retirement planning One owned by a trust for wealth preservation/estate tax Owners HATE this!

Control, tangible, tax efficient, cost effective A Practical Solution Why not just design ONE?! Owner dies, spouse has liquidity to invest in business (capital contribution) to keep it running Owner can borrow against cash values to infuse cash into the business to pay net cost of key employee benefits Owner can use policy for retirement income Owner can transfer to trust for wealth preservation/estate taxes Control, tangible, tax efficient, cost effective

About The Executive Benefits Guy 27 years of life insurance wholesale, distribution and retail sales experience Joint-venture partner for executive benefit and ownership succession strategies involving wealth accumulation & preservation www.executivebenefitsguy.com How TEBG can assist. 10809 Canfield Dr. Austin, TX 78739 Phone: 512.350.2798 Cell: 512.773.6739 Email: Peter@executivebenefitsguy.com Website: www.executivebenefitsguy.com Securities and Investment Advisory Services offered through NFP Advisor Services, LLC member FINRA/SIPC. NFP Advisor Services, LLC is not affiliated with Peter Viliesis, The Executive Benefits Guy. IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, we inform you that any federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed on you, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.