Buy-sell agreements can alleviate disputes that can arise between or among other business owners and can provide for payments to the deceased owner's family without disrupting the ongoing business.
Binding on the IRS:
If the buy-sell agreement is properly structured, the agreement can determine the value of the business interest for estate-tax purposes. In order to be binding on the IRS for estate-tax purposes, the agreement must be a fair agreement that has an enforceable buyout price that is fixed or determined in a way that is reasonably calculated to produce a fair-market price. In other words, a buy-sell agreement cannot be used to create an artificially depressed price just to save estate taxes. An "agreed-upon price" is rarely sufficient for estate tax purposes.
"Funding" a Buy-Sell Agreement:
A well-designed buy-sell agreement will be "funded" with life and/or disability insurance to the greatest extent possible, but it will also address the payment of the purchase price to the extent not funded by insurance.
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