BY DEBRA VERNI
One estate planning tool that can protect
your family and business partners is a buy-sell
agreement. This legal document provides
owners with the first chance to buy an interest
in the company if another owner withdraws
or dies. Ideally, these contracts are drawn up
when a business is launched, but they can be
entered into later. However, don’t wait too long.
If you die without an agreement, it may be
difficult for your heirs to know how to handle
important matters that could have a significant
impact on the value, continuation or disposition
of your business. Further, if your partner
dies, you may be stuck with new, unexpected
Even if you stay with the company for decades,
the time to prevent disputes is before
they occur. Minimize legal fees, as well as
sleepless nights, by solving “what if” issues now.
Ask these questions to determine where you
need professional assistance to prevent future
Should the agreement apply only to the current
owners? Or should it be binding on all owners
throughout the life of the business entity?
Should the agreement be structured as a
redemption or cross-purchase agreement?
Should the agreement be structured to require
one party to sell and another party to buy?
Should the death of an owner cause an
automatic buyout of the owner’s interest or
should his or her family be allowed to remain
as an owner? If a surviving family member is
allowed to remain as an owner, what rights and
obligations will they have?
Should the buyout price from the estate or
heirs of a deceased owner be addressed? What
about the buyout price to a disabled owner or
an owner who resigns or is dismissed? An owner
who goes bankrupt? If yes, when should it be
paid? What interest rate should the obligation
Should the agreement provide that a buyout
be funded with life insurance or some other
If funded with life insurance, what type of
life insurance is appropriate? (For example,
term life, ordinary life, last-to-die, paid-up
life, universal life, whole life or an endowment
policy?) Should a life insurance trust be used?
Should owners have the right to transfer
or assign to a trust, for estate-tax planning
purposes, their rights and interests in the
Should the spouses of the owners sign the
It is better to plan for the worst and hope for
the best, than to have no plan at all. Remember
time is not on your side and if you answer the
“what if” questions now, you can rest assured
that your family, as well as your company, will
survive should something happen to you.
Verni is a principal of the Herzog Law Firm
in Saratoga Springs.
Photo Courtesy Herzog Law