Inside Your Business - How Your Business Can Provide More For You

Volume 10, Issue 1

Planning for Continuity: Your Business Estate

As a business owner, you have most likely devoted countless amounts of time, energy, and money into building and managing your company. As a result, your business may comprise a significant portion of your estate. Unfortunately, the business that provides for you and your family now may not do so at the time of your death. What will be the legacy of your business when you die?

Most owners begin planning by deciding whether to pass the business on to a family member, associate, key employee, or someone outside of the company. The heart and soul of a good business succession plan is the buy/sell agreement, a contract between owners, or the business itself and owners. It is a legally binding agreement that obligates the estate of the deceased to sell the interest of the business, defined at a predetermined price, to either the business itself (in a redemption agreement), to co-partners or shareholders (in a cross-purchase agreement), or to both (in a hybrid agreement). It creates a market for the business interest of the deceased, sets the price, and governs the transition of the business.

A buy/sell agreement is only as good as the funding available to execute it. For this reason, most agreements stipulate how the purchase is to be funded. Since the agreement is triggered by the event of your death, life insurance may be the logical and most cost-effective funding choice.

Selecting a succession plan can be an involved process. Certain tax, estate planning, and control advantages exist with each option, so be sure to discuss it with experienced tax and estate planning professionals. Keep in mind that long-range planning is subject to change, so your buy/sell agreement should be reviewed periodically to help ensure that it continues to meet your needs.

Back to Articles

Copyright © 2007-2019 Liberty Publishing, Inc.