Could Your Business Buyout Plan Create a Tax Surprise?

You may already know who would buy your share of the business if something happened to you. But have you worked through what that purchase could mean for your family’s taxes?

A buy-sell agreement lays out what happens when an owner dies, retires, becomes disabled or leaves. It establishes who can purchase the ownership interest, how the price is determined and where the money will come from. Those details help owners and families prepare for a difficult transition.

Life insurance often provides the money for a buyout, but the way it’s arranged matters. In the 2024 Connelly decision, the Supreme Court ruled that company-owned life insurance proceeds increased the company’s value for estate tax purposes. The obligation to buy back the deceased owner’s shares at fair market value did not offset that increase. An arrangement intended to fund the purchase left the family with an unexpected estate tax bill.

You don’t have to sort through those questions on your own. Bring me your agreement, the details of any insurance funding it, and your questions about what happens next. We’ll look at the tax implications together and identify what needs a closer review with your attorney and insurance advisor.

Whether you’re putting an agreement in place or revisiting one signed years ago, let’s make sure the tax side gets a closer look. This is where I can help you plan ahead, with your business and the people counting on you in mind. Call me at Frazier & Co., CPA & Advisors at 765-631-1248, and we’ll work through your next steps together.

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