What You Need to Know
- The Connelly v. IRS ruling highlighted the importance of business continuity planning.
- Death is one risk to continuity.
- Any condition that could keep an owner off the job is another.
The need for comprehensive risk management strategies in retirement planning cannot be overstated.
An often overlooked yet crucial component is disability insurance.
It plays an important role in safeguarding business continuity and ensuring stability, particularly when a key owner becomes incapacitated.
An owner could have a stroke, a heart attack or another health problem that interferes with the ability to work at any time. Disability can come to a client with $50 million in net worth about as easily as to a client with just $50,000.
Recent legal developments, such as the Supreme Court decision in Connelly v. IRS, which sided with the IRS, underscore the importance of strategic insurance planning to avoid unintended tax consequences.
The Role of Disability Insurance
Disability insurance provides a safety net for businesses when a key owner or partner becomes incapacitated.
It ensures that the business can continue to operate smoothly without the financial strain of compensating a non-contributing owner.
This type of insurance can also be used to buy out the disabled owner’s share, thus preventing potential conflicts and ensuring business stability.
Consider a scenario where three partners own a business.
If one partner becomes disabled, the remaining partners might find themselves in a difficult position.