In an individual business, the activity is generally not continued when the sole owner dies. The main problem is that any heir (or heir) of the business owner is not welcomed on business and nuances related to the continuity of the business. Therefore, the sale contract financed by life insurance, usually in the form of business life insurance of a key person or key person, will be able to make liquid assets available to the family of the deceased owner while they wait for a suitable candidate for the purchase of the business. This strategy also avoids ”fire sales,” where the business is sold for pfenniges on the dollar, as assets must be liquidated to envelop the business and the estate of the deceased owner. There are a number of ways to protect this business, regardless of the type of business. Cash Value All life insurance has many advantages and may be longer than the duration of estate planning. Another option is Universal Life. [1] In accordance with Regulation 20.2031-2 (h) or Section 2703, a price set in a purchase-sale contract may not be binding on the IRS for inheritance tax purposes. Thus, the estate of a deceased owner is required by the agreement to sell its shares in the business at the contract price, but it may have to declare a higher value for federal property tax purposes and, therefore, pay inheritance tax on that additional phantom value. In practice, the parties must be able to demonstrate that the agreement was intended to offer a fair price in all cases (which can be updated from time to time) and not to play the inheritance tax system.

A detailed discussion on the actual requirements of the Regatta. 20.2031-2 (h) and Desart 2703 are beyond the scope of this article. The repurchase agreement defines the types of events that trigger the contract. Each agreement is developed to best meet the needs of each company. It may contain specifications on who can buy shares and what type of life situation would trigger a buyout. It could also indicate how the purchase is financed. A chronic illness speeds up electronic money drivers in a purchase sales contract requires that the condition be permanent. If there is a chance that the partner or co-owner will recover, he or she cannot qualify for the driver with a chronic illness. [10] Rev. Proc 2005-25, 2005-1 CB 962, generally applies to the valuation of life insurance contracts for income tax purposes. If many business owners wish to enjoy the benefits of a cross-purchase contract while avoiding the risks associated with a cross-purchase, the creation of a limited liability company managed by managers (”Insurance LLC”) should be considered in order to maintain and manage the insurance policies that ensure the lives of entrepreneurs.

Existing policies owned by the owners can be transferred to Insurance LLC or new policies can be purchased by Insurance LLC. Each member of Insurance LLC is designated as the economic beneficiary of life insurance policies that insure other members whose interests in that member`s operating entity are required to purchase to death under the operator`s sales contract. Life insurance must also designate Insurance LLC as a beneficiary. Insurance LLC is owned by all policies that provide centralized management and creditor protection for policies it has taken out and avoids the inclusion of inheritance tax for their owners, benefits that are not otherwise available if individual owners own the policies. It also avoids poor tax results when an owner leaves the business and ownership of the directive needs to be adjusted.