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A Look At Buy-Sell Agreements

December 8, 2011 by John Potter

Partners in small businesses face some specific challenges when they are making plans for the future. If you were to simply leave your share of the business to your family after you pass away questions may arise.

No one in the family may have the skills or the inclination to serve your role in the business. And if there were, how do you spread the value of the business out among all of your family members? In addition, what if your partner or partners does not feel comfortable working with the member of your family who wants to fill your shoes?

One very common way that these situations are handled is through the creation of buy-sell agreements. The two types of buy-sell agreements that are most frequently used are the cross-purchase plan and the entity plan. With the cross-purchase plan each partner takes out an insurance policy on every other. When one of the co-owners dies, the combined insurance policy proceeds are used to buy the share of the deceased owner from his or her family. This share is then absorbed by the remaining partner or partners.

The entity plan works the same way, with insurance proceeds being used to purchase the ownership share of the deceased partner from his or her heirs. The difference is that the business as an entity purchases the insurance rather than each individual co-owner taking out the policies.

If you would like to learn more about buy-sell agreements or business succession planning, arrange for a consultation with an estate planning attorney.

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John Potter

Latest posts by John Potter (see all)

  • What Happens If I Leave Assets Out of My Living Trust? - February 15, 2019
  • What are the Advantages of an Irrevocable Trust? - February 14, 2019
  • Charlotte Medicaid Attorneys Explain How to Protect Healthy Spouses - February 11, 2019

Filed Under: Estate Planning Tagged With: Estate Planning, Inheritance Planning, Legacy Planning

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Testimonials

My husband and I selected Ms. Potter to assist with our small business. She responsive and attentive every time I have a question or need assistance, and is extremely knowledgeable and able to answer any legal question I have had. I know I can count on Ms. Potter for all of my business legal needs and I would highly recommend her to anyone needing legal assistance with such.
Jillian
John Potter has been a real pleasure to work with. He is very knowledgeable and explains things in a very simplistic manner so the average person can understand how/why the laws are written. He is very attentive and asks questions in such a way that not only helps him understand your goals, but also helps you think about what type of goals and expectations you should be considering. Exemplary client service.
David J.
Overall The Potter Firm was very professional. They took what could of been a very complicated process and were able to break it down so it was a lot easier to understand. We are confident we now have made the right decisions in our estate planning. Good firm to work with.
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