Our team will help prepare and fund a buy-sell arrangement. We will provide information to assist in the purchase and sale of an ownership interest. It is prudent for business owners to enter into a buy-sell agreement while they are still living to reduce the possibility that the IRS will include his/her business interest in the gross estate at a value that exceeds the price at which it is actually sold to a new buyer.
A binding buy-sell agreement benefits all parties by:
Complete our online buy-sell assessment, and we will help you prepare a fully funded legal arrangement for the purpose of a buy-sell agreement which depends primarily on all the relevant facts and circumstances surrounding the particular business interest being valued.
- Creating a market for closely held businesses or business interests
- Establishing a price or formula at which an ownership interest will be sold
- Providing the money to fund the plan
- Producing a sense of security that heirs are protected and that the business will continue
- Preventing the forced sale of assets
- Ensuring that the probate estate is settled
- Precluding valuation disputes with the IRS
- Avoiding higher estate taxes associated with excessive valuations of the business
In the event of a partner’s death, a buy-sell agreement prevents the dissolution and termination of the partnership.
There are two principle types of agreements:
- Entity Plan: Under this arrangement, the partnership purchases the deceased or withdrawing partner's interest.
- Cross-Purchase Plan: Under this arrangement, the surviving partners purchase the deceased or
withdrawing partner's interest.
Long-term disability prior to age 65 is more likely to occur than the probability of death. Frequently, however, the possibility of a permanent disability is not provided for in buy-sell agreements. Buy-sell agreements can and should include a disability provision. There are also special disability insurance policies that will fund the disability buy-sell.
Business Overhead Expense (BOE) is another form of disability insurance that can be used to protect a business owner.
These plans are set up to pay a lump sum, a series of payments, or a combination of the two. Some of the expenses typically covered by a BOE policy include:
- Legal fees
- Accounting fees
- Principal payments on debt
- Leased equipment
- Business insurance premiums
- Office supplies
- Professional dues
- Business taxes
- Workers compensation
- Salaries of non-owner, or non-family employees
Buy-sell agreements between family members are generally subject to very close scrutiny by the IRS.
The government recognizes the use of buy-sell agreements to "peg" the value of a business for estate tax purposes, and determine if the business is “fairly valued.”
If the buy-sell agreement is between shareholders who are not members of the transferor's family and who own more than 50% of the value of the property, subject to the agreement, the three above conditions are presumptively satisfied.