As a business owner, you know the importance of planning for your company’s future. To this end,
you may have taken steps to learn about buy–sell agreements and the role that life insurance and disability income
insurance can play in planning a business buyout. If so, you may be one step ahead of the game. But have you thought
about long-term care buyout planning?

A Buy–Sell Refresher

Let’s review an important tool for planning the future of your business. A buy–sell
agreement is a legal contract that prearranges a buyer for your share of the business when a triggering
event occurs, and it also stipulates the price that the buyer will pay. You may negotiate a buy–sell agreement with
your partners, shareholders, members of your management team, or key employees who may have an interest in the
company’s future ownership.

Buy–sell agreements are generally structured in one of two ways: as a cross-purchase agreement or
an entity-purchase agreement. A cross-purchase agreement is negotiated between you and each partner or shareholder.
If you die or become incapacitated, the parties to the agreement purchase your shares at a previously agreed on
price. A cross-purchase agreement generally works best in companies with only two or three owners. As the number of
owners increases, it can become expensive and administratively cumbersome for each owner to maintain an agreement
with every other owner.

For a company with a larger number of owners, an entity-purchase agreement may be more practical.
With this kind of agreement, the company takes out a life insurance policy for each owner. At a triggering event,
the insurance money collected by the company is used to pay the estate of the deceased owner for that person’s share
of the business, and the remaining owners avoid any out-of-pocket expenses. When the company buys back a departing
owner’s shares, the value of the remaining shares increase accordingly.

Simply having an agreement in place does not ensure that funds will be available to buy your
shares when the agreement goes into effect. Therefore, these agreements are often funded through life insurance (as
is the entity-purchase agreement) and/or disability income insurance. In these cases, the triggering event would be
death or disability. But what about the possibility of a long-term care event?

Preparing for Long-Term Care

To create a more comprehensive buy–sell agreement, you may want to consider planning for an
accident or illness that requires long-term care. “Long-term care” refers to a variety of medical and nonmedical
services provided to individuals with a chronic illness or disability.

Most long-term care involves assistance with activities of daily living (ADLs), including, but not
limited to, dressing, personal care, meal preparation, and housekeeping. An individual is generally considered to be
in need of long-term care if he or she has difficulty performing two or more ADLs due to physical limitations,
cognitive impairment, or both. Services are typically provided in a nursing home, in an assisted living facility, or
at home.

A long-term care event can come about suddenly, as a result of an accident or illness, or
gradually, as part of the aging process. When an owner or partner requires long-term care, the company may find it
difficult to continue to pay that owner’s salary, and other owners may not have the funds to buy the departing
owner’s shares.

Preparing for long-term care when drafting a buy-sell agreement may be important to the future of
your company. A buy–sell agreement could trigger the sale of a departing owner’s shares, and the agreement could be
funded by long-term care insurance.

Long-term care buyout planning may help preserve the value of the business and ensure continuity.
Be sure to consult a long-term care insurance professional or your team at Planned Financial Services for more
information.

Important Disclosures

Investment advice offered through Planned Financial Services, a Registered Investment
Advisor.

The opinions voiced in this material are for general information only and are not intended to
provide specific advice or recommendations for any individual.

This material contains only general descriptions and is not a solicitation to sell any
insurance product or security, nor is it intended as any financial or tax advice. For information about specific
insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you
about insurance generally and not to provide personal service. They may not take into account your personal
characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type
of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may
affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company.
If you need more information or would like personal advice you should consult an insurance professional. You may
also visit your state’s insurance department for more information.

This information is not intended to be a substitute for specific individualized tax or legal
advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

This article was prepared by Liberty Publishing, Inc.

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