California Elder Law Attorney Blog

The primary reason to create a Buy-Sell agreement in a typical business situation is to provide for continuity of control of a business., either within the family or among the current owners after the departure of an owner.

A well drafted Buy-Sell Agreement can also accomplish many other estate planning goals, however,individual shareholders and partners should consider their own estate planning goals and the legal and financial effects of these Buy-Out arrangements on those goals before entering into a Buy-Sell agreement.

One of the most important tax related estate planning issues to consider is whether a Buy-Sell agreement should be used to actually fix the value of a deceased shareholder's or partner's interest for federal death tax purposes.

if the decedent's estate is not large enough to cause any concern about death tax matters, or if the agreement is between an owner and his or her spouse, so that a transfer for less than fair market value will be exempt from tax because of the marital deduction, the effect of the Buy-Sell agreement for less than fair market value may be undesirable, because the income tax basis of the business interest in the hands of the decedent's heirs will be the value accepted for death tax purposes and will result in an increased gain when the business is sold. If this may be the case, and should the business be entirely family owned, it may be preferable to allow the decedent's interest in the business to pass by bequest rather than purchase.

Contact Steven Peck's Premier Legal toll free at 1-866-999-9085 to talk to an experienced California Elder Law Attorney.

A crucial issue for a closely held business that wishes to buy out one of its principal owners is whether it will have the funds to do so.  Because so few businesses have sufficient cash or other resources to fund a buyout, the seller must usually accept an installment payout and continue to share the risks of the future profitability of the business unless the business  has provided for a fund to buy out the major owner says California Business Lawyer Steven Peck.

There are essentially three methods for funding a buyout: (1) borrowing; (2) setting up a sinking fund or reserve; (3) acquiring insurance.

If a business has the borrowing capacity or available cash to fund a buy-sell agreement, the cost of life insurance should be compared with the cost of borrowing money  or using the company's own funds.

To talk to an experienced California Business Attorney contact Steven Peck's Premier Legal toll free at 1-866-999-9085.