By Mitchell Wm. Ostrove, CLU, ChFC
Why is it that we leave more business on the table than we take off of it? Why don’t we recognize the potential sales that exist within every client contact? Are we just so happy to write one piece of business that we leave the lion’s share for someone else?
That’s exactly what I used to do—leave sales for someone else. Clients would go to my competition to implement health plans, pension plans or have their personal estate plan done. When I would ask, “Why didn’t you call me?” I’d get that all too familiar, “I didn’t know you handle that type of insurance.” The reality was, it was my fault. I wasn’t letting clients know the full scope of what I did and how I could help them. That’s when I developed a whole new approach. The key was to understand that there were multiple sales within every client contact, and it was up to me to develop that need and eventually the sale.
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Years ago, someone else would have benefited from the work I had begun. |
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One becomes many
Let me give you a classic example. We were called in to help develop a succession plan for a family business. The father, 68, and had developed a successful heating and air conditioning business with an excellent reputation. He had remarried, and he and his second wife both had adult children. His son and daughter were in the business with him and had been for more than 20 years. Her children were not involved in the business, nor would they be. His son was the keyperson in the business, having developed the ability to bid on—and win—major projects. The daughter, while a good employee, did not have the ability to run the company. And it was the father’s desire to treat his children fairly.
The father had already given the son 12 percent of the business. Now, in treating the children fairly, it was necessary to recognize that the son was developing the future growth in the company. This meant we were going to lock in the value of the company at the current value for the benefit of the daughter. The father was going to transfer an additional 38 percent of the company to the son over the next two years (in fact we were meeting in December so the transfer was actually being done within 30 days). The son set up a family limited partnership so that we could use five exemptions instead of one, and effectively utilize $120,000 of gifting, or $240,000 within 30 days, without eating into the lifetime exemption. At the father’s death, the son would be willed the balance of the shares in the company. Based on the current valuation, the father set up a life insurance trust (ILIT) for his daughter’s benefit.
Keyperson insurance
One important issue was that the father did not want to come back into the business full-time. But what would happen if the son were to become disabled or die? The son stated that if something happened to him, his wife wanted no part of the business. So, we placed keyperson insurance on the son, with the company as the beneficiary, to help cover a transition period.
Then we put a program in place in which two key employees would to take over the business at the son’s death. Utilizing a loan-based split-dollar arrangement, insurance was placed on the son with the two employees as owners and beneficiaries of the insurance, giving them the necessary money to buy out the son’s shares from his wife. The keyperson insurance gave the company the necessary money, at its discretion, to buy out the father, if that was his desire.
Additional benefits
Other benefits that we placed at the company included the health insurance and a 401(k) plans. On a personal basis, we transferred term insurance that the son and the company owned on the father, back to the father. This did not violate the transfer for value rule. This was done because of some health issues the father had, subsequent to getting the insurance. The father then converted those policies to permanent, no-lapse guaranteed insurance for his wife’s benefit. The insurance, along with 401(k) proceeds and other assets, more than adequately took care of providing lifetime income to the wife and allowing her to pass on to her children a substantial estate.
The bottom line
This case wouldn’t have happened as “completely” if I hadn’t taken a proactive approach with my client. Years ago, someone else would have benefited from the work I had begun. Hopefully, this example will encourage you to be proactive in your approach with your clients so you can reap all the rewards of your hard work.
This is an excerpt of the much longer speech “The Midas Touch: A Wealth of Sales” given at the 2007 MDRT annual meeting. Used with permission. All rights reserved.
Mitchell Wm. Ostrove, CLU, ChFC, of The Ostrove Group in White Plains, N.Y., is a 38-year MDRT member with two Court of the Table and six Top of the Table qualifications. Contact him at 914-428-4095
or mitch@ostrovegroup.com.
August 2007
Wrapping Up
Rings of Fire
More Tips From the MDRT Annual Meeting
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