Life insurance as part of buy/sell

[tigertown80]

What is the name of your state? PA

My brother and I both owned and paid for life insurance on each other. I paid premium and owned policy on him, and vice versa. Company that we jointly owned grossed up salaries and we paid with after tax dollars.

In our shareholder agreement, we specified that life insurance should be paid to estate of deceased with note for balance.

My brother died. Prior to his death, I agreed to try to find a buyer for company rather than follow shareholder agreement and its valuation model. We suspended shareholder agreement pending outcome of negotiations with buyer. We have found a buyer and are planning to close deal. When I agreed with my brother to undertake sale of company, rather than follow our existing shareholder agreement, I told him I would keep proceeds of life insurance as his estate would not have any stock to sell me. (Note: strategic buyer willing to pay 2X what company valuation per shareholder agreement, hence my brother's estate is very interested in doing deal and NOT following shareholder agreement.)

Two questions: Does the estate have any claim to the life insurance proceeds which I have received? I paid with after tax dollars and am sole owner and beneficiary. Also, shareholder agreement is mum on what happens to life insurance if not used as part of buy sell.

Second, I have asked estate to sell me policy on my life (it is term, no cash value) for pro rata cost of premiums paid for current year. If estate refuses, do I have any way to force estate to sell?

 

[Dandy Don]

Is there anything in writing to document the fact that the shareholder agreement has been suspended?

 

[moburkes]

The life insurance policy doesn't even appear to have been written correctly, in order to have it associated with the company. Was the company a partnership or a corporation?

 

[tigertown80]

In answer to previous two posts:

1. Yes, shareholder agreement was suspended in writing pending outcome of potential sale.

2. Life insurance was not "associated" directly with company. In this way we could get proceeds tax free for use in shareholder's agreement. Company is a corporation. Insurance policy was never owned by corporation nor is it mentioned in policy in any way.

 

[moburkes]

In answer to previous two posts:

1. Yes, shareholder agreement was suspended in writing pending outcome of potential sale.

2. Life insurance was not "associated" directly with company. In this way we could get proceeds tax free for use in shareholder's agreement. Company is a corporation. Insurance policy was never owned by corporation nor is it mentioned in policy in any way.

Oh, boy. The money, apparently, belongs to you.

Don't do this again.

 

[tigertown80]

Bear in mind that I am giving up the ownership of a company that I have worked for and built for 25 years in order to tear up a perfectly valid shareholder's agreement and, as a favor to my brother and his estate, sell ownership to a third party. Why aren't I justified in keeping the insurance? If nothing more, it's a "break up" fee for me that compensates me for the loss of:

1. Independence
2. Control
3. Lifetime employment
4. The ability to give a company, which I can continue to build, to my heirs

The life insurance worked exactly as it was intended: it protected the interests of the survivor and the decedent, albeit in a new way. Even so, given the choice, I'd much rather follow the shareholder's agreement and keep the company...even if that means a significant financial risk to me. The value that would go to the estate per the shareholder's agreement is very fair...it's just not nearly as much as the third party will pay. NTL, my preference would be to keep the company and not sell...I'm sure that is not what the estate would like. And, since the insurance gives me added protection financially, I'm willing to do this favor despite my personal preferences..

 

[moburkes]

Bear in mind that I am giving up the ownership of a company that I have worked for and built for 25 years in order to tear up a perfectly valid shareholder's agreement and, as a favor to my brother and his estate, sell ownership to a third party. Why aren't I justified in keeping the insurance? If nothing more, it's a "break up" fee for me that compensates me for the loss of:

1. Independence
2. Control
3. Lifetime employment
4. The ability to give a company, which I can continue to build, to my heirs

The life insurance worked exactly as it was intended: it protected the interests of the survivor and the decedent, albeit in a new way. Even so, given the choice, I'd much rather follow the shareholder's agreement and keep the company...even if that means a significant financial risk to me. The value that would go to the estate per the shareholder's agreement is very fair...it's just not nearly as much as the third party will pay. NTL, my preference would be to keep the company and not sell...I'm sure that is not what the estate would like. And, since the insurance gives me added protection financially, I'm willing to do this favor despite my personal preferences..

It has NOTHING to do with justification. If the buy/sell agreement was written correctly, then that money would go to the COMPANY, and you wouldn't be able to use it personally, period. For whatever reason. Period.