Did you know that having the right insurance policy for your business is a proper planning tool to fund a buy or sell agreement?
A buy-sell agreement is a sort of “prenup” between business partners. This plan outlines the agreement between partners to show the partner’s interest in the business that can be bought out by the other partner(s).
If the owner/owners pass away this is a cost-effective way to make cash available, provided that the owners do not have any incidents of ownership over the policy to avoid estate tax situations. Business owners must always work with their legal counsel and tax specialists in the planning stage to ensure the policy is applicable and in good working order.
Another reason why a life insurance policy may be a proper planning tool for a buy-sell agreement is if the policy has cash value in a permanent life insurance, a buyout of the business after retirement may be possible with those policy funds.
Questions you may ask are:
- How do you fund a buy-sell agreement?
- Are buy-sell agreements legally binding?
- How does buy-sell insurance work?
- Who owns a buy-sell agreement?
- What are the potential pitfalls?
- What are the structural, income tax, beneficiary, and family law considerations?