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Published on: HNIs

How Liquidity can help in Succession Planning for Family businesses?

Most families face the problem of successful succession planning for family businesses when they finally come at crossroads with the future. Family-run businesses are built with a lot of time and energy, which means that entrepreneurs are likely to want to preserve it for their next generation. 

However, according to statistics, only less than 30% are able to do so. If you want your high net-worth clients to be able to preserve and pass on their family business, liquidity can help you. Nevertheless, succession planning is a sensitive and complex topic. 

The significant challenges that come up when planning for next-generation:

– Making all family members happy with the succession. 

– Creating a safety net within the succession plan to preserve wealth for future generations. 

– Focusing on wealth and company expansion as part of the succession plan

For most high net-worth clients, the priority ticker tilts a bit more towards wealth preservation than expansion. This is because they want their future generations to have the same standard of life. However, there is a significant focus placed on wealth expansion as well. 

While succession planning for family businesses, high net-worth clients have three primary concerns – one for themselves, one for their families, and one for their companies. 

1. Transitioning Smoothly

As a financial advisor, it is your duty to help your clients and their businesses to get ready for the family’s financial future. To ensure that, you need products that enable a seamless wealth transfer to the next generation. 

Succession Planning

Maintaining liquidity can become key in such cases. It helps with a successful transition by managing tax and wealth equalization for families. Not just that, liquidity also supports the business through tough times when it loses its founding member or primary driving force during successions. 

So, if you can design life insurance products that protect your client’s liquidity, allow them to leave behind a philanthropic legacy, and preserve the existing wealth, then you are much more useful to your clients. 

Also Read: Why are more Middle East Family Officesfocusing on transition?

2. Create more liquidity

For this, life insurance policies that combine wealth management and create more liquidity are in vogue with high net-worth clients. In most cases, these products offer high life coverage in a few different major currencies. 

Create more liquidity

And since it leaves behind a huge liquid death coverage, these policies can help bring additional liquidity to the next generation while preserving business growth now. 

Designed specifically for high net-worth clients with investment experience who want long-term growth, it allows them to opt for wealth creation or preservation as they deem fit. 

3. Offer Flexible policies

Universal life policies are flexible and can be tailor-made to ensure that you tick off every requirement of your client. For example, if suddenly a death in the family opens the family up for a huge tax liability, then you too can generate liquidity with such policies and help your clients out. 

This will protect a hasty sale of assets which is what many families have to do to ensure that they survive. 

Not only is it a protective measure, but an effective distribution method as well. Liquidity enables clients to treat all their heirs equally, irrespective of whether they participate in the business or not. It ensures smooth succession in business management and estate management. The flexible nature of the policy allows adapt to the changing circumstances at any point of time. 

4. Ensure a legacy

Liquidity allows the next generation to get rid of any liabilities or retain control over their company through shares. In many cases, it can become the trump card in hiring a commercial successor for the company if none of the family members are interested or adept in the business. 

Outside of this, liquidity allows donations to charitable causes, ensuring tax savings and goodwill. 

Life insurance in its very essence is the planning for the next generation. Delivering sustainable wealth planning that ticks every box of the current and future generations can be a big positive for a life insurance advisor. 

Also Read: Why Succession Planning is a Necessity for your HNW Clients?

A Sample Case Study into Succession Planning

Suppose you have a client that launched a company with their university friend. From there on, they have been able to grow their company to a valuation of $15 million, with the majority of shares being held by them. 

Now, if the founding pair hold 66% of the company with 34% being held by the venture capitalist firm, what happens if one of the partners passes away. One death would make it very difficult for the other to hold on to the control of the company. 

The deceased person’s family can interfere with management and even sell away their shares. What do you do to help them? 

Customized succession planning is the answer:

With Continental Associate Network, you get the opportunity to present them with life insurance and legacy planning solutions that make a difference. Not just that, our products also help you safeguard the financial well-being of your family. 

A simple Generations policy will help the surviving partner get enough money to settle the financial needs of the deceased’s family members. Once their claims are settled, the remaining partner can retain full control of the company. 

It will not only ensure that the partners get customized benefits suited to their personal goals, but also allow them to change policy beneficiaries. So, what are you still waiting for?

Get in touch with us at Continental Associate Network today!