Buy-Sell Business Repurchase Agreement
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In order to guarantee a buyer for the interest in a business (particularly a minority interest which may be of very little value to one's heirs), consideration should be given to a lifetime agreement among the business owners as to how to dispose of the business.

Entity Plan/Stock Redemption (Business buys back the stock or deceased partner's interest)

Under a stock redemption plan the corporation (or partnership) buys the interest of the deceased shareholder (or partner).  This type of arrangement is often used when there are several owners.  The heirs have a "stepped up" basis in the stock and avoid income taxation on the gain.  Term or Permanent Life insurance supplies the money for this buy back at the exact time it is needed, income tax free, for pennies on the dollar.

buy sell insurance agreements are a must for any business

Cross-Purchase Plan (surviving partner  buys the deceased individual's interest directly)

Under this arrangement each surviving shareholder or partner agrees to buy the interest of any deceased business owner.  The surviving partner/stockholder gets a stepped up basis on the purchased stock/interest and can resell that stock at a later date with little or no income tax consequences.  Term or Permanent Life insurance supplies the money for this buy back at the exact time it is needed, income tax free, for pennies on the dollar. 

Insurance provides the money for stock redemption/buy back of partners interests at death

Your Attorney and CPA should be consulted in deciding which plan is most suitable for your needs.

Advantages of Buy-Sell Agreements

  1. Guarantees a buyer for an asset which probably will not pay dividends to one's heirs.
  2. Can establish a value for federal estate tax purposes which is binding.   IRC Section 2703
  3. Spells out the terms of payment and is easily funded with life insurance and disability insurance.
  4. Provides a smooth transition of ownership to those who are going to keep the business going.

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