How Can Life Insurance Combined With Gifts of Stock to Charity Help Keep a Family Business in the Family?

Life insurance can be used creatively to combine business continuity objectives and charitable goals in a number of ways. For instance, suppose your client wants to benefit charity, provide liquidity for her own estate, and guarantee that no one but her son can obtain the stock. One possible solution is for her to transfer stock to the charity directly. She could make a gift to her son of the income tax savings that the donation of stock generates. He could use those tax savings to purchase insurance on his mother’s life and enter into a buy-sell agreement to assure him that at her death he will have the money to buy her out. At some time in the future, the corporation could purchase the stock from the charity after an arm’s-length valuation. This provides the charity with cash and returns the stock to the corporation.

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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