Do You Need a Buy-Sell Agreement?
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 generally 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-free money to fund these agreements.
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.
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.
Business owners should have the proper life insurance and disability insurance in place to fund for the premature death or disability of a business owner.
Contact Tegner-Miller Insurance Brokers to discuss ways to protect your business for future generations. We can be reached at 310-828-9662.