Long-term tax planning and bank-owned life insurance

By: Hunter Weckerly

In today’s dynamic economic landscape, marked by inflation and uncertainty, long-term planning has become crucial.

I’ve taken steps to invest, grow and secure my family’s future. These actions provide a sense of comfort, knowing that plans are in place to navigate an ever-changing world.

However, long-term planning isn’t just a personal endeavor — it also provides benefits for organizations.

Financial institutions need to consider long-term changes and the preservation of critical assets. Among these assets, one group often overlooked is the key employees who contribute to an institution’s growth, direction and organizational culture.

The forgotten asset: Key employees

In the strategic world of financial institutions, key employees are an often overlooked asset. These individuals play a pivotal role in maintaining institutional knowledge, leadership continuity and organizational culture. Their contributions are essential for the institution’s success, yet their departure can disrupt operations, hinder decision-making and impact overall performance.

Recognizing their significance and proactively planning for their retention is crucial.

One powerful tool that financial institutions can leverage is bank-owned life insurance (BOLI). BOLI policies provide life insurance coverage for key employees within the financial institution and serve as a bridge between individual and institutional planning.

By insuring these individuals, financial institutions safeguard against the loss of critical talent while accumulating cash value over time. Policy growth occurs on a tax-deferred basis, effectively serving as an investment vehicle for the institution.

BOLI benefits

Financial institutions can also use BOLI to fund various employee benefits, including executive compensation and retirement plans. Doing so creates a robust incentive structure that aligns with long-term retention goals.

BOLI policies also offer an attractive benefits package for key employees. These individuals are more likely to remain committed to the institution knowing that their lives are insured and their families are protected.

And when a key employee retires or unexpectedly passes away, the financial institution receives the policy’s death benefit. This infusion of capital aids in smooth succession planning, allowing the institution to transition seamlessly.

BOLI policies serve as a strategic bridge, connecting the institution’s financial stability with the well-being of its key employees. By recognizing their value, incentivizing their loyalty and planning for continuity, financial institutions can thrive in a dynamic and competitive landscape.

How Wipfli can help

Wipfli’s team of tax professionals understands your long-term tax needs and is ready to help you meet them. With extensive experience supporting the financial institutions industry, we’re well equipped to guide you through identifying tax planning opportunities and taking advantage of the ones right for your organization.

Contact us today to learn more about our industry-specialized tax services.