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Business Continuation Planning
Buy-sell agreements are used to preserve the control and value of a business at the death, disability or retirement of an owner.
The agreements provide that the estate of an owner who dies will be paid fair value for his/her interest and that the surviving owners will maintain control and ownership of the business. Life insurance on the owners can provide the tax advantaged benefit to fund these agreements.
Our in-depth look at Succession Planning Strategies for Privately Owned Business, as well as our seminars and sales concepts, can assist you in educating your clients about these agreements.
Should you have a business succession plan?
Would it make sense for you to have a business succession plan? For many successful people, the answer is yes. The process of business succession planning benefits you in several ways:
First, you put your personal and business life in order. Taking this first step is important because you move from thinking about your financial well-being to actually doing something about it. Getting organized is something that's easy to put off, but can really make a difference in the successful transition of your business
Next, you'll plan the future of your business. You'll decide how, when, and to whom your business will be transferred or sold. For many business owners, it is important to be prepared for the future.
It helps you think about your entire estate. The process of planning the transfer of your business means that you'll need to thoughtfully consider your entire estate plan, including your tax liability and ways to pay it. Taxes may be unavoidable, but good planning today may leave yourlegacy intact.
Buy-Sell Agreements
There are typically two ways to structure a buy-sell agreement:
Entity Purchase Agreement:
The business agrees to purchase the interest upon each owner's death, disability or retirement.
Cross Purchase Agreement:
The owners agree among themselves to buy or sell their individual interest upon death, disability or retirement.
But the tax results may differ in the two methods, leading to a third type:
"Wait and See" Agreement:
Provides the flexibility to use either of the above methods at an owner's death.
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