Business Continuation

If you're part of a closely-held business, what would happen to your interest in the business at your death? Would your surviving family struggle to find the cash to pay taxes, debts and immediate estate settlement costs? How would your business partners fund the purchase of your interest from your beneficiaries? A Buy-Sell Agreement funded with life insurance can provide the funds for the surviving owners to purchase your share of the business. The objective is to buy out your heirs while keeping business management within control of the remaining owners.

How does a Business Continuation Program work?

The structure of a Business Continuation program depends on the type of arrangement. Two common arrangements are Entity Purchase and Cross Purchase:

With an Entity Purchase your business is the owner and beneficiary of a life insurance contract. At your death, the business uses tax-free proceeds to purchase your business interest from your estate.

A Cross Purchase requires each business owner to purchase a contract on the life of the other owner(s). Example: Shareholder A is owner and beneficiary of a contract on B's life. Shareholder B is the owner and beneficiary of a contract on A's life. At either shareholder's death, death benefits are available to the surviving shareholder to purchase the deceased owner's shares from his/her estate. Both of these Business Continuation programs should be documented with a properly drafted Buy-Sell Agreement.

Advantages of a Business Continuation Program

  • Provides liquidity and orderly disposition of your business interest in a timely manner.
  • Allows business owner(s), rather than the IRS, to establish the sale price of your business.