How liquidity can be the key to successful succession planning

Entrepreneurs need to plan carefully to secure the financial future. Liquidity can be the key to success for their families and their companies, but the task can be both complex and sensitive. The head of the family has to balance the needs of all its members and decide to what degree estate planning should focus on wealth preservation, as expressed by the wish to pass the estate down the generations, or wealth creation, which means ensuring that the ongoing financial needs of the family are not a drain on the resources of the business.

Véronique Simonin, head of sales and strategic key partner management at Swiss Life Global Solutions, says: “High net worth entrepreneurs have different needs when planning the future, their own and that of their family, as well as of their business. Their focus is on wealth preservation. In addition, family-owned businesses must deal with the handover to the next generation, with all the intra-family planning and estate preservation issues this involves.”

Smooth transition

Swiss Life has long experience of helping private clients and business owners prepare for their family’s financial future with products designed to ensure a smooth wealth transfer to the next generation.

Often a key element of a successful transition involves creating liquidity to manage tax and estate equalisation issues for family members, as well as the requirements of the business to enable it to cope with the absence of an individual who is in many cases its founder and primary driving force.

Says Simonin: “Our Variable Universal Life solution Swiss Life Generations is unique to the European market, offering a number of advantages that traditional unit-linked life insurance cannot. It incorporates features that resolve planning questions for entrepreneurs and their families, such as the creation of additional liquidity for estate equalisation, or to enable individuals to leave a philanthropic legacy without eating into existing wealth earmarked for other purposes.”

Liquidity creation

Swiss Life Generations is a variable universal life policy that combines wealth management life insurance with liquidity creation. The product offers jumbo life coverage in multiple currencies. The advantage of Generations, Simonin says, is that it “allows the creation of additional liquidity, thanks to the high death coverage it offers on top of the traditional advantages of unit-linked life insurance” - a single policy enabling the entrepreneur to continue to meet the requirements of building the business alongside securing their family’s future.

The policy is designed for clients who are seeking long-term growth of their investment portfolio, and can be adapted to the policyholder’s wealth management strategy, whether this prioritises wealth accumulation or wealth preservation.

Policy flexibility

The flexibility of a variable universal life policy means it can be tailored to clients’ individual needs. For example, the unexpected death of the policyholder may abruptly present the family with a large tax liability. With the policy’s ability to generate liquidity, the family can pay off the tax bill promptly, avoiding the need for a hasty sale of assets.

Generations can also facilitate the distribution or transfer of assets by providing equal treatment for all heirs, whether or not they are to participate in the business, as well as ensuring a smooth succession in its management of the business or management of the family estate. Its flexibility also means that the policy can be adapted to changing circumstances at any time.

The provision of liquidity can facilitate the repayment of liabilities, or if necessary to cement family control of the business through share purchases. It can also provide the resources the company may require to recruit a successor to its founder and/or commercial driving force. Outside the business, it can provide for donations to charitable causes.

Adds Simonin: “The essence of life insurance is planning for the next generation. We deliver sustainable wealth planning that meets every requirement of current and future generations: beneficiary clauses can be changed; investment strategies can be monitored and adapted when needed; the assets in the policy can be accessed when required; and life cover can be added at the discretion of the client or policyholder. Our goal is to enable people to lead a self-determined life and make their choices to achieve financial security and independence.”