By Nils Peter Johnson
Johnson & Johnson Law Firm
CANFIELD, Ohio – For insurance agents, an insurance book of business often represents a lifetime of effort, client relationships, and substantial value. However, the question of what happens to this asset upon the untimely passing of the agent is frequently overlooked.
In Ohio, the sale of an insurance book of business introduces a complex interplay among state regulations, the Ohio Revised Code, and the jurisdiction of the probate court. This article explores these considerations to provide clarity for agents planning their legacies.
Understanding an Insurance Book of Business as an Asset
An insurance book of business is fundamentally a collection of clients and their associated policies managed by an agent. The value of this book lies in the recurring revenue from commissions, the strength of client relationships, and the potential for future sales. As an intangible asset, it can be bought, sold, or transferred, making it a crucial component of estate planning for insurance agents.
The Impact of the Ohio Revised Code
In Ohio, the Ohio Revised Code (ORC) governs estate administration, business succession, and the transfer of intangible assets, including an insurance book of business. In fact, §3905.09 of the code specifically contemplates the situation where an agent dies before selling his/her book of business. It authorizes the temporary issuance of an insurance agent license to a surviving spouse or other court-appointed person for purposes of completing the sale.
Upon an agent’s death, an executor (if named in a will) or an administrator (if no will exists) is appointed by the probate court to manage the estate. This person would apply for the authority to pursue such a temporary license in order to legitimize a posthumous sale of the insurance book. Indeed, the ORC requires the fiduciary to preserve the value of the estate, which includes transferring or selling the insurance book of business to maximize benefits for heirs, and to minimize liabilities to the estate.
In this way, any fiduciary tasked with administering the estate of a former insurance agent may first desire to clothe himself/herself with such temporary licensure to sell the book of business before actually doing so. ORC § 2113.39 authorizes a fiduciary to sell personal property of the decedent (including business assets like a book of business) with or without a court order, but only if the deceased agent specifically provided for such authority in his/her last will and testament. If not, the fiduciary needs the court’s blessing before entering into any such sale arrangement.
Best Practices for Planning the Posthumous Sale
A well-drafted buy-sell agreement can preempt complications by specifying the conditions under which an insurance book of business will be sold upon the agent’s death. Such agreements often include valuation methods and designated buyers, such as agency partners or competing agents. Even with a buy-sell agreement, the fiduciary should ascertain whether the agent was subject to any contractual restrictions on the transfer of the asset through any non-compete or non-solicitation agreements with his/her brokerage. If valuation becomes a problem, appraisals are always an option, though simpler valuation approaches may be appropriate (such as a multiple of yearly commissions) given the circumstances.
Conclusion
The posthumous sale of an insurance book of business in Ohio demands careful planning, a thorough understanding of the Ohio Revised Code, and effective navigation of probate court proceedings. By integrating these elements into his/her estate planning, insurance agents can safeguard the value of his/her life’s work. Consulting with an attorney experienced in business succession and estate law is an essential step in this process.