Insurance Only LLC

Insurance Only LLC

When it comes to business continuation planning, two common strategies business owners often consider are the cross-purchase plan and the entity purchase or stock redemption plan. Each has its advantages and disadvantages.

But, there’s a solution that can offer the advantages of both — the Insurance Only LLC:

• Upon the death of one of the insured owners, the insurance proceeds should maintain their income tax-free status¹ when paid out.
• The surviving owners will receive a step-up in basis, and the heirs of the deceased owner will receive the value of the business.
• So long as your client’s LLC elects to be taxed as a partnership, potential Transfer For Value (TFV) issues are mitigated.²

I’ll contact you soon to discuss this important strategy — and how it can play a valuable role when you are working on business continuation planning with your clients.

^{¹ Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.}

^{² TFV may cause the death proceeds to be taxable. As each shareholder dies, the deceased shareholder’s beneficial interest in the policies on the other owners’ lives is typically transferred to the surviving owners pro rata. This creates a classic TFV issue whereby an interest in life insurance is transferred for “valuable consideration” (i.e., the obligations created by the buy-sell agreement). However, the IRS signaled in Revenue Procedure 2021-3 that it will not issue private letter rulings on certain TFV and partnership issues involving LLCs.}

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^{Pub9909COI EM (07/23)}

^{2023-158493 (Exp. 07/25)*pre-approved content*}