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A buy-sell agreement is a contract that provides for the sale of a business when a specified event happens. This event is usually a death of one of the business owner, but also can be disability or retirement.
Reasons for a buy-sell agreement:
• Predetermine the sale price or method for determining the price
• Create a market for each owner’s share of the business
• Provide money to fund the plan at the exact time it is needed
• Establish the business’ value for federal estate tax purposes
How it works?
1. The business owners will adopt a plan that will accomplish an orderly transfer of the business at a specific time.
2. Life insurance policies are purchased from Navali & Company on the lives of the business owners
3. Death benefit proceeds pass income tax-free to surviving business owners (under current tax law)
4. The remaining owner ends up with the entire business and the deceased family members receive a fair price in exchange for the business interest
There are two main types of buy-sell agreements: cross-purchase and stock redemption. There are a number of factors that determine the right plan. Navali & Company Insurance Services will work with the business owners to walk them through the best options for them.
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