What would you think of a program that permits you as a business owner/key employee to:
- Leverage a non-performing asset--accounts receivable--to create new wealth and potentially accomplish a variety of other personal and business objectives.
- Finance the program 100%;
- Not require personal guarantees, independent cash, or cash-equivalent collateral;
- Do so without factoring or interrupting the daily flow of these receivables?
While potentially providing significant death benefit, the program also can serve a variety of other business purposes, namely:
Retirement augmentation;
Business transition funding;
Asset protection from creditors.
A true turn-key provider offering marketing, underwriting, financing, and ongoing administration. Is much more client-friendly, and broadly applicable than previous designs.
A typical example might look as follows:
Facts: John Doe, a 45 year old owner of a small business is a non-smoker and in good health. His company—Acme Products, Inc. (the “Company”)—typically has about $600,000 in accounts receivable on its balance sheet at any given time. In theory, the value of the $600,000 would remain fairly stable until retirement or sale of the business, when the $600,000 receivable would be collected.
Desiring that this asset create additional value, the Company enters into an accounts receivable leveraged compensation arrangement and either distributes or lends the proceeds to Mr. Doe, who in turn purchases a universal life insurance policy or a fixed annuity contract with the proceeds. The lender takes a UCC-1 perfected security interest in the accounts receivable and a collateral assignment of the life insurance policy for so long as the loan remains outstanding. The loan is made on an interest-only long-term basis, while the proceeds invested in the insurance policy or the annuity product grow on a tax-free compounding basis.
Let us assume that the investment has grown at a 6% rate and the loan interest has been at 6.67% and further assume that this continues for 20 years until Mr. Doe retires at age 65. On this basis, the investment has grown on a tax-free compounding basis to make a total of $2.5 million available for distribution on a tax free basis (if a universal life policy is used), for 20 years after retirement.
That is $132,000 annually—while only $800,000 in interest payments have been made during this period. In addition, the value of the insurance product has been removed (in many states) from the reach of third-party creditors because of protections granted such investments under state law.
When the accounts receivable amount of $600,000 is collected at retirement, the $600,000 loan principal is repaid. In the final analysis, keeping in mind the growth of the investment, interest payment, and repayment of principal, the client has reaped a $1,200,000 benefit merely by taking the value of a currently non-producing asset and placing it on a compound growth curve in a tax-advantaged investment vehicle.
It is important to recognize that this does not represent a gain by redirecting an existing investment to another (type of) vehicle. Instead, it is achieved by monetizing a dormant balance sheet asset that would not be available for investment, but for this program.
In addition, if a universal life insurance policy has been used, it provides the client a significant death benefit which may be used to replace (the cost of) other high-cost policies, resulting in further efficiencies and savings to the client.
While some vendors offer one or more components of this type of program, few offer a true, complete turn-key system using only “blue-chip” partners, and truly one-stop financing, insurance underwriting, and ongoing program administration.
This type of program also offers enormous benefits to physicians who must run the lawsuit gauntlet. Contact us for the details, because . . .
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