a buy-sell agreement through Life or Disability insurance
Life & Disability
Insurance as part of a buy-sell agreement
fully funded buy-sell agreement in place at the time
of death or disability can provide for the quick sale
of a business interest which can spare the owners family
the worry about how to pay the taxes due from the value
of the business. The most common sources of funding
for these events are a life insurance or disability
insurance policy on each of the owners.
Impact of Taxes:
Generally, federal estate taxes come due within 9 months
after a persons death. In some states the death tax
are due even sooner than that. If your estate owes taxes,
the person or agent appointed as executor of your estate
will need enough cash to pay them. Unless enough liquid
assets are available or the business can be converted
to cash or used as colateral for a loan to pay the taxes,
a life insurance policy should be considered for creating
the necessary liquidity.
For federal estate tax
purposes, the buy-sell agreement must be structured
as an arm's length agreement providing for a fair price
to be paid. Some fairly recent changes to the estate
tax rules have made this a bit more challenging.
A Buy-Sell Agreement may also be structured
to provide for installment payments from the buyer to
the seller. Some of the most common sources for this
type of funding are:
Cash flow from the business:
Cash value life insurance
policy can also be used to provide cash to the buyer
in the event of retirement.