Key person insurance: Simon Green makes a substantial financial contribution to the continued profitability of this company. His loss would create hardships for the principals in terms of lost sales and customer good will, decreased profits, and the cost of finding and training a suitable replacement.

Solution: The corporation should apply for, own and pay premiums for key person life insurance on Simon Green. If a five-times salary formula is used, the amount of protection purchased would be $260,000 (5 x $52,000). However, the principals may not be willing to cover this full amount. Though premiums are non-deductible, the corporation would receive death benefit tax-free, except if the alternative minimum tax applies to their case. Any post-retirement benefits to be paid to Mr. Green would be deductible by the corporation.

Personal life and disability insurance: The principals own modest amounts of personal life insurance in addition to their group coverage (of the three shareholders, only Robert owns any personal disability income insurance). However, they all have family obligations and objectives that indicate a need for additional life and disability income protection.

Solutions: Each principal should arrange to formally assess his or her personal financial security needs (income protection, college education funding, retirement income, etc.). It may be possible to purchase additional personal protection using corporate dollars. (See Executive Benefits.)

Estate planning: Individuals whose gross estates exceed $3.5 million may be subject to the federal estate tax, in addition to state death taxes and other expenses that can increase the costs of settling their estates. Through the use of the unlimited marital deduction, married couples whose net worth exceeds $7 million, in 2009, can postpone the federal estate tax until the surviving spouse dies; however, the IRS will eventually tax these assets at the second death.

Their shares of Franklin Electronics may be these businessowners' largest personal assets. Without adequate planning, these assets may eventually be exposed to estate taxation, thus reducing the amounts that can be received by the owners' heirs.

Solution: The majority shareholders should consider having an estate tax analysis prepared which can alert them to potential estate tax liabilities and give them time to plan for sufficient estate liquidity, if necessary.