Sam BW-the-life

In many sales situations, life insurance advisors find themselves not only advising clients about design and implementation but also playing the role of a psychologist. This particularly holds true when working with family-owned businesses and multiple siblings and/or families.

Just this week I met with three brothers ranging in age from 52 to 57. These gentlemen started a now successful business thirty years ago that has grown to have a value in excess of $10 million. That was the good news.

The bad news was that they never had a buy/sell agreement, nor had they focused on succession planning. Each principal had two children, but only two of the children were in the business, with the remainder not intending to enter the business. This is not atypical for family-owned businesses, and as the second and third generations enter into the business the number of family members involved expands and planning becomes more difficult.

This is the point at which you must take off your cap as a life insurance advisor and don a new cap as a “family psychologist.” Most advisors have been in these situations previously and can offer solutions and recommendations from prior experiences that can be useful to those who are trying to resolve these matters. This enables the advisor to bring important “value added” advice to his client and, by doing so, to strengthen the relationship. The ultimate success is when the client recognizes that the advisor is not there solely for the pur- pose of making the sale.

My clients, not unlike others, were so busy building their business – doing everything from paying bills to taking out the garbage – that they never focused on the value of what they had built. The business now had forty employees and provided each principal with an income in excess of $500,000 annually. The business represented the primary asset of each of the three brothers. There was likely no estate tax issue, as each brother was under the threshold for estate taxes.

The classic need in this situation was primarily to create immediate liquidity. The business had been actively pursued by entities trying to roll up similar businesses. It was easy to recognize that the death of  a principal would create an opportunity for an outside entity to take advantage of a distress sale if liquidity was needed as a result of the death of one of the brothers. Each brother did have one common goalkeeping he business in the family – and recognized the problem that could evolve as a result of a distress sale.

There were many issues that required attention:

    • One brother had his son in the business, while his daughter had no intention of entering the
    • A second brother had a daughter in the business, but she was not in a management position and her long term continuation was His son had chosen another profession.
    • The third brother had no children intending to enter the business, but wanted to be certain his family received adequate remuneration for his
    • All of the brothers recognized the fact that they did not want the spouse of a deceased brother participating in the business.

Funding the stock purchase program was fairly straightforward. The brother having no children would sell his interest to each son of his two brothers equally. This would leave the two surviving brothers still in control of the business, with 66.6 percent. However, this brother’s wife wanted his children who were not in the business to also receive something equitable, while recognizing  that  she  would ultimately pass on her residual estate to her children if she outlived her husband. This was not an unusual request and could easily be addressed outside the buy/sell  funding.

The brother having a son in the business had an issue with respect to his brother’s daughter who was unlikely to stay in the business for a long period. There was a need to protect the daughter financially, albeit not have her participate in the future ownership of the business. This was addressed in a similar manner to the above situation by providing a policy to protect the one brother’s daughter not attached to the buy/sell. There was some additional balancing to provide for those children not involved in the business.

Sharing our knowledge from prior experiences is a valuable asset. As advisors we often forget to draw on these experiences when working with a client. These experiences help us create a picture for the next client – an illustration we can bring to the table. When the client understands how life insurance fits into this picture, completing the story, you will have succeeded.

Sam J. Kaufman, CEO

Author’s Bio

CEO, began his career in the life insurance industry in 1968 after graduating from The University of Miami, and in 1973 founded Agent Support Group (then Agent Support Services), a life insurance brokerage agency. He built ASG into one of the first true multi company agencies in New York. His focus on providing value-added service as well as insisting that ASG become a leader in technology allowed the company to grow to become a powerhouse and one of the largest independent life operations in the Northeast. The pioneer who gave brokers their first computerized sales illustrations (Kaufman was one of the first in New York to even own a computer) has now pioneered the ASG mobile app, allowing life agents the ability to do business anywhere and access the latest information in the palm of their hands. Kaufman has played an important role in product development and marketing and has lectured before the New York chapter of NAIFA and the Society of Financial Service Professionals. He is a member of NAILBA and has won numerous industry and carrier awards, including lifetime achievement recognition. ASG,  a Lifemark Partner Agency, is a leading multi-company life insurance brokerage agency with operations in New York, New Jersey and North Carolina. They serve as a general agent for many of America’s strongest and most competitive insurance companies, offering a broad spectrum of products to suit many life, annuity, long term care and disability income needs. Kaufman can be reached at Agent Support Group, 99 Park Avenue, Suite 1910, New York, NY 10016. Telephone: 212-292-5760. Email: