Our clients’ were two brothers who were the sole shareholders of a corporation with their main manufacturing plant in China. Their concern was twofold. Preventing the spouse of either brother from becoming a partner (which would happen at death without an agreement) and how to fund the buy sell agreement to prevent such an occurrence. The value of business exceeded 5 million dollars but the bulk of the value was in the manufacturing facilities.
We developed a concept of a Captive Insurance company, one for each brother, to provide the cash needed to buy out the other brother’s interest at death. The Captive Insurance Company allowed the brothers to insure against political unrest in China, loss of their assets in China and loss of their major supplier. An insurance company is allowed under the IRS Code to receive income up to 1.2 million dollars per year BEFORE they start paying corporate income taxes. The brothers had enough business revenue to fund the entire 1.2 million yearly (half in each captive) and now have developed the funds necessary to fund their buy-sell agreement.