Executive Trifecta

Executive Trifecta

Key Member Coverage, a Survivor Income Benefit, and Subsequent Distribution of Policy to the Key Member

"Trifecta" refers to a winning sequence of three, and Executive Trifecta delivers three, very powerful, sequential benefits.

1. Selected members whose deaths would cause a serious financial loss for the LLC are insured in favor of the LLC thereby providing indemnification for such a loss.
2. During their participation, each insured member is provided with LLC-paid survivor income benefits should death occur while involved with the firm.
3. At a prearranged date, as described in the Agreement between the parties, the life insurance policy is distributed to the participating member (as a K-1 distribution) thereby creating a supplemental retirement asset. After the policy transfer, any payment of the life insurance death benefit is made directly to the member's personal beneficiaries.

Part 1: Key Member Coverage

Most firms would not consider operating without insuring against the loss of its property. The same logic should apply to its human capital -- a far more vital asset to the successful continuation of any business. Property can be rebuilt; not so with a human life. In order to recognize the value of a key member, a life insurance policy on the member's life made payable to the LLC is a prudent strategy. This coverage can provide needed cash to:

a ) Recover the costs of locating a replacement;
b ) Recover the loss of profits while training a replacement
c ) Recover the permanent loss of profits if the member is "irreplaceable";
d ) Assure creditors and suppliers that their loans and receivables are safe;
e ) Assure customers that the LLC will continue its operations;
f ) Fund a buyout of the member's interest in the firm.

Features of this coverage for the LLC are:

a ) Discriminatory participation as to the selection of participants;
b ) Income tax free policy death benefits;
c ) No regulatory approval required and ERISA compliance* is nominal.

Part 2: Survivor Income Benefit

With Executive Trifecta, the LLC contractually agrees to pay scheduled amounts of income to the survivors of a participating member. This provides the member with:

a ) A source of continuing family income;
b ) Relief from purchasing expensive personal life insurance.

Features of this coverage for the LLC are:

a ) Discriminatory participation as to the selection of participants;
b ) Deductible benefit payments (Member's legal and tax advisers may find it advantageous to treat the death benefit proceeds allocated for the survivor income benefit as a lump sum K-1 distribution);
c ) No regulatory approval required and ERISA compliance* is nominal.

Part 3: Policy Transfer

At a prearranged date, as described in the Agreement between the parties, the LLC transfers ownership of the policy to the participating member who, in turn, names personal beneficiaries. This provides the member with:

a ) Policy cash values for use as a supplemental retirement asset;
b ) Income tax free policy death benefits for personal beneficiaries.

Conclusion

Executive Trifecta facilitates a nurturing environment that rewards key members while simultaneously providing indemnification for the LLC in the event of the untimely death of a covered participant.

*Some employers do not have the resources or expertise to administer a non-qualified plan such as Executive Trifecta. These employers may want to consider using a third-party administrator (TPA) to administer the plan to ensure that applicable ERISA requirements are implemented and monitored.