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Tax and Structure Considerations for Buy-Sell Agreements

May 28, 2014

A buy-sell agreement needs to be written properly in order to ensure that it’s effective for invested parties. There are some specific aspects that should be considered in the planning of any buy-sell agreement. Here are some of the basic stipulations:

Tax and Structure Considerations for Buy-Sell Agreements
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  • The commitment of involved parties. The obligations of each party should be outlined clearly, leaving no room for questions
  • The purpose of the arrangement should also be specified
  • A formula explaining the purchase price of the business interest should also be included, like a value for the selling/buying price for the business. Furthermore, how this should be funded is also explained.
  • Any transfer restrictions should also be included, which can prevent the owners from transferring interest in the business while any other parties to the agreement are still alive.

Bear in mind that there are tax considerations for funding a buy-sell agreement with life insurance, such as:

  • Premiums used to fund the agreement are generally not tax deductible
  • There’s no gift tax that happens on the buy-sell agreement execution
  • In a cross purchase agreement, the cash value of the policies that are owned by the decedent can be factored into the decedent’s estate.
  • Death proceeds are paid out income-tax free, no matter who actually owns the policy.

If you’re planning on structuring such an agreement, you might use an entity purchase agreement, a cross purchase agreement, or a hybrid agreement. To learn what will work best in your situation, send us an email at info@lawesq.net or contact us via phone at 732-521-9455.



Schedule your free Exploratory phone call

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can be of assistance.

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Explore all available job
listings and become a part of an amazing team.

Our Social Media

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Visit our Podcasts

Listen in, Join the Conversation!

Recent Posts
How Insurance Deductibles Work

An insurance deductible is the amount you, the insured, pay before any claim is paid ...

The post How Insurance Deductibles Work first appeared on Integrated Tax Planning, Legal Planning & Financial Planning.

See more
Enhancing Estate Planning through Heir Involvement

Estate planning goes beyond legal formalities; it’s an essential process that facilitates meaningful family dialogue ...

The post Enhancing Estate Planning through Heir Involvement first appeared on Integrated Tax Planning, Legal Planning & Financial Planning.

See more
Social Security, Medicare, and HSAs

If your employer health plan is a health savings account (HSA) paired with a high-deductible ...

The post Social Security, Medicare, and HSAs first appeared on Integrated Tax Planning, Legal Planning & Financial Planning.

See more