Buy-Sell Agreements

Buy-Sell Agreements

Can Work For You

            When a farmer or business owner dies, what happens to the farm or business?  Many times it is divided and the business dies with the owner.  However, a buy-sell agreement can keep the farm or business alive and allow it to continue.

            Regardless of the type of business, the preferred method of planning for the disposition of a business interest is the buy-sell agreement.  A buy-sell agreement can be an integral part of a plan which provides an orderly transfer of ownership when a farmer or business owner dies or becomes disabled. A buy-sell agreement can be with a partner, family member, a stockholder or an employee.

            The purpose of a buy-sell agreement, or any farm or business continuation plan, should be clear, and the agreement should be prepared by an attorney.  The plan should allow the surviving owners to acquire the deceased's interest and continue operating the farm or business.  The plan can establish a value for federal estate tax purposes that is binding on the parties to the agreement and acceptable to the Internal Revenue Service.

            A buy-sell agreement funded with life insurance can help solve many problems arising at the time of death or disability of a farmer or business owner.  For the farmer or business owner it:

·          ensures a buyer and a purchase price for the farm or business;

·          provides for continuation of the farm or business and avoids liquidation;

·          provides the funds for the purchase when needed without increasing debt;

·          may lessen conflicts with heirs; and

·          gives peace of mind to the owners because they know their heirs will receive their fair share of the business with a minimum of legal difficulties.

For the heirs of the deceased, a buy-sell agreement:

·          ensures a fair price in cash for the farm or business;

·          helps establish the value of the business for estate tax purposes; and

·          reduces the potential for eliminates possible disagreements with each other over the disposition of the farm or business.

Almost every farm and business has potential for a buy-sell agreement to be funded with life and disability income insurance.  Life insurance is an excellent means of funding a buy-sell agreement because it can provide a funding mechanism to ensure successful completion of the agreement.

            Life insurance is a cost effective alternative to traditional financing. Life policies are written on the owners to ensure continuation of the business should any owner die.  The life insurance premiums are advance payments toward the purchase of the deceased owner's interest, and the death benefit guarantees the cash will be available when needed.

            A disability insurance policy can be used to provide money to hire a replacement when a farmer or business owner is sick or hurt and cannot work.

            It is important for any business to have a clear, well-written buy-sell agreement with the necessary funding to allow the agreement to be carried out.  You should discuss your options with your attorney and Anne Gannom, COUNTRY Financial Representative (360)802-5504.