Buy Sell Agreement Setup

Summary

A buy-sell agreement funded by life insurance can help manage ownership transitions if an owner passes away. Draft the agreement with terms for buying out shares, determine valuation methods, and outline payment terms. Each owner should have a life insurance policy on the others, matching the estimated share value. Consult legal and financial advisors for drafting and setting up policies. For key person life insurance, ensure the business is the owner and beneficiary, with premiums paid by the business. Generally, death benefits are tax-free. To minimize estate tax, consider gifting shares, establishing trusts, and using life insurance proceeds. Life insurance proceeds used for buyouts are typically not taxable to the family, but consult a tax professional for specific advice.

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key holder policy that will not get taxed
For a key person life insurance policy that aims to avoid taxation, consider the following:
- Ownership and Beneficiary: Ensure the business is both the owner and beneficiary of the policy.
- Premium Payments: The business pays the premiums.
- Tax Implications: Generally, premiums are not tax-deductible, but the death benefit is typically received tax-free by the business.
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What about the case of U.S. Supreme Court decision in Estate of Connelly v. United States. How can owners get around estate tax
The U.S. Supreme Court decision in the Estate of Connelly v. United States mainly dealt with the valuation of closely held business interests for estate tax purposes. Here are some general tips for minimizing estate tax:
- Gifting: Owners can gift shares during their lifetime to reduce the estate's value.
- Trusts: Establish trusts to hold shares and avoid probate.
- Life Insurance: Use life insurance proceeds to pay estate taxes.

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If the business owns the life insurance policy to buy-out a deceased owner and they use that money to pay the family for the business shares owned by the deceased. Does the family owe taxes on that benefit
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In general, the proceeds from a life insurance policy used to buy out a deceased owner's shares are not taxable to the family. The family typically receives the payment for the shares directly, which is not considered taxable income. However, the specific tax implications can vary based on individual circumstances and the structure of the agreement. It's advisable to consult with a tax professional or attorney for personalized advice.
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