Buy-Sell Agreements

    Methods of Funding a Buy-Sell Agreement

    Personal Funds of Buyers
    Most successful business people do not keep large sums of liquid assets on hand. Their money is working in their business.

    Sinking Fund in the Business
    Such a fund will be inadequate if death is premature and the time of need is uncertain. A corporation may develop an accumulated
    earnings tax problem.

    Borrowed Funds
    Loss of a key person may impair the credit-worthiness of the business and other partners and shareholders. Interest costs may be
    excessive and interest expense may not be deductible.

    Installment Payments to Heirs by Buyer
    The business may fail and the payments stop. The principal and interest payments may be too burdensome.

    Life Insurance Owned by the Buyer
    There may be several key advantages to life insurance in funding a buy-sell agreement:
  • Complete financing guaranteed from the beginning.
  • Death proceeds are generally free from Federal income tax.
  • Cash values can be used for a buyout due to retirement or disability.
  • It may be the most economical method - discounted dollars.
  • Credit position is strengthened.

    For more information and help with your business planning needs, contact an ABG representative.
Buy Sell Agreements Cont'd (page 2)
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