The Small Business Owner’s Retirement: Can I Retire?

Solving The Dilemma

There’s a fatal flaw in the retirement of many small business owners: After pouring a lifetime of sweat, time and capital into building the business, their rough-sketch strategy is to sell out someday for a ton of money… then settle back and enjoy a financially secure retirement. Many business owners are so sure this will happen that they don’t bother to make any other retirement plans.

Who is this person who, at just the right moment, is going to show up with cash in hand to buy the company… and pay a fair price? For thousands of small business owners each year, no one steps forward. Perhaps the business is too specialized or is tied too closely to the owner’s unique personality and skills. Or perhaps possible buyers equate retirement sale with distress sale and make only low-ball offers. Whatever the reason, many owners find that their company has suddenly become a white elephant that nobody wants.

One Possible Solution

Groom your own replacement, someone who will buy your company when you’re ready to retire. Maybe this person is a current co-owner (but be careful if he or she is about the same age as you, who will be counting on retiring around the same time.) Or it could be a son or daughter active in the business, or a younger key employee.

Business Owners Who Successfully Groom Their Own Replacements Leave Nothing to Chance

They realize that there is no room for error at the point of retirement. Here are some examples of steps they might take:

  • They are cautious. They make sure their heir apparent is the right person in terms of temperament, personality, competence and personal goals.
  • They set up a probation period so they can terminate the relationship if they find this person simply will not work out. During that period, they keep everything informal, strictly verbal. At the same time, even when they go to a formal agreement, they make sure it contains a termination provision.
  • They      fashion golden handcuffs and incentives to ensure that their replacement stays until the baton is passed. An ambitious successor needs and deserves gradually increasing authority and benefits. Options include deferred compensation or the opportunity to acquire partial ownership prior to their retirement. Both parties need something to win by sticking to the agreement…and something to lose if it falls apart.
  • They put it in writing, along with the help of their attorney—locking in who does and gets what, and spelling out all details and caveats, including how to establish the final valuation of the business. This formal buy/sell agreement protects everybody.
  • They build in a funding mechanism. This is crucial. No matter how good the terms of the buy/sell agreement, it will be worthless if the money is not there when needed to carry out the plan. Under one option, the successor may be able to purchase the company from ongoing profits. Other options include setting up a sinking fund or allowing the successor to simply borrow the money. These options may work but they leave much to chance. Instead, the recommended funding vehicle—one that protects your family in the event of your disability or premature death—is life and disability income insurance.*
  • They have a back-up plan. As a business owner, you know that very few things go exactly as planned. What if your business hits tough times or your successor dies, becomes disabled, or—all to common—leaves because of a personality conflict? Or what if there simply is no heir apparent waiting in the wings? Sometimes, it’s simply best to dismantle the business.

retirement in reach


Plan Early

Whether or not you have a possible successor for your company, you should begin mapping out your retirement strategy today. Your insurance professional or your independent professional advisors can help you develop this kind of business strategy.

Feel welcome to contact us for a complimentary review of your personal/ business retirement situation. AIPS does not provide legal or tax advice, please consult your tax and legal advisors regarding your individual situation.

Posted by Troy Barrow, LUTCF – Troy is an independent Agent practicing professionally for six years and is the owner of Arlington Insurance Planning Services, licensed in the States of New York and New Jersey. You may contact Troy at 646 580-5189 or


Planning for Special Needs Dependents…How to continue your Love & Care

Special Needs

A Special Needs Trust

Parenting is a tough job. But if you’re a parent of one of the six million school-age disabled children in the U.S. today,[1] you know that job can be even more challenging, especially financially. Costs often include special residential homes, employment assistance, and more. And these are typically ongoing expenses for you and your family.

Help from the Fed

If you’re a parent or caregiver for a disabled loved one, you can help meet expenses and ensure quality care through two primary government programs designed to meet your unique needs: Supplement Security Income (SSI) and Medicaid. SSI provides cash benefits to help you pay for a loved one’s food, shelter and clothing. SSI also automatically makes your loved one eligible (and, in some states, qualified) for Medicaid. Through SSI your disabled loved one may be eligible for other benefits as well, depending on what state you live in. Medicaid provides comprehensive coverage for medical care, physical therapists, social programs, and rehabilitative and custodial services.

However, the government puts conditions on any benefits you receive: efforts may not be duplicated. Government money is provided on an “as-needed” basis. If your disabled loved one receives outside funding for covered services, government support is reduced. Therefore, you may be limited in what you can “spend” on – or leave to – your loved one.

Supplementing Federal Support

That’s why you may want to consider creating a Special Needs Trust. Trusts can offer you a way to help meet ongoing needs and supplement basics without affecting a loved one’s eligibility for government funding. A Special Needs Trust can also help provide continued care if you pass away.

Federal programs provide “health, shelter, and support” and, as mentioned, cannot be duplicated. However, a Special Needs Trust is designed to supplement care, not replace already provided services, and can help pay for additional medical therapies, education, transportation, and other extras that can add to the quality of life your loved one enjoys.

If you’re a parent creating a trust, you can also use these savings to supplement the needs of non-disabled, minor children.

Securing Your Trust

You should consult an attorney to find out how a Special Needs Trust works and questions you may need to address. You may want to evaluate some of these basic parameters to help create a trust that will work for you:

  • Is your main consideration estate exclusion (no control over trust assets) or current income needs (maintaining control of the assets)?
  • What is the average cost of supplemental needs?
  • What level of support must you provide for other family members?
  • Who should be your trustee(s)?
  • What limits should be placed on a trustee’s ability to withdraw funds?
  • Should funds be withdrawn on an “as-needed” basis or distributed on a schedule?
  • What funding vehicles should be used?

Funding a Trust

The funding vehicle you select for your Special Needs Trust is critical. Investments or other financial resources may multiply the value of your trust fund. However, fluctuating markets and tax laws may impact the value of your savings and, by extension, the funds available for your loved one.

If you’re concerned about such funding vehicle, life insurance may be an option for you. Both permanent whole life and universal life, which offers a flexible face amount and adjustable premiums, can be used to fund your trust. Life insurance can provide a guaranteed death benefit as well as other advantages, dincluding cash value accumulation opportunities, and the ability to access cash value through loans to help meet expenses.[2] Also, the face amount of your policy is often greater than the premium cost, so the amount your loved one, as beneficiary, receives could be multiplied.

Life Insurance and a Trust: How it Works

To fund a trust with life insurance, funds need to be gifted to the trust. Gifting money to the trust allows it to purchase a life insurance policy and name itself as beneficiary. If you have an existing permanent policy, this can be used as well, by transferring ownership of the policy to the trust. This ownership arrangement prevents your special needs loved one from having direct control over the funds, eliminating the risk of losing government benefits while premium payments help create cash value for the trust, and for your loved one’s benefit.

Two Types of Trusts

Depending on your age and financial situation, or that of the person establishing the trust, there are two types of Special Needs Trusts: testamentary and inter-vivos.

  • Testamentary Trust: For older parents or long-term caregivers, or for anyone looking to create a bequest to a special needs beneficiary upon his/her death, a testamentary Special Needs Trust, established through a will, may be suitable. At the grantor’s death, a trust is created based on terms specified in the will. The trust receives proceeds from any life insurance policies and all other indicated assets and offers a secure way to lock in a lump-sum for your disabled loved one’s continued care.
  • Inter-vivos (Living) Trust: If you and the disabled individual are both fairly young, an inter-vivos trust may be appropriate. You can access funds in an inter-vivos trust to help supplement expenses while you’re still living—and at the same time, create savings for the future.

[1] NEA: National Education Association, Great Public Schools for Every Child, “Special Education and the Individuals with Disabilities Education Act,” see

[2] Loans and withdrawals reduce any available policy cash values. In addition, loans against a policy accrue interest at the current rate and decrease the death benefit by the amount of the outstanding loan and interest.

Data and information is provided for informational purposes only, and is not intended for solicitation or trading purposes. Please consult your tax and legal advisors regarding your individual situation.

Posted by Troy Barrow, LUTCF – Troy is an independent Agent practicing professionally for six years and is the owner of Arlington Insurance Planning Services, licensed in the States of New York and New Jersey. You may contact Troy at 646 580-5189 or