A Buy-Sell Agreement has Estate Benefits
Tax Tip:
In many cases, a large portion of a small business owner’s estate consists of the individual’s ownership share in the company. If the business doesn’t have a buy-sell agreement in place, heirs may face significant challenges when the owner dies. They may be forced to sell the business interest to pay estate taxes. In a limited market, that could mean selling at a steep discount. Heirs who opt to retain the business interest must obtain a qualified valuation for tax purposes, which the IRS may challenge. This brings the risk of penalties and higher taxes.
A carefully drafted buy-sell agreement resolves these issues by guaranteeing a sale under pre-approved terms, ensuring liquidity to cover estate taxes. It also establishes the business’s fair market value for federal estate tax purposes, which minimizes IRS disputes. In short, a buy-sell agreement protects the business owner’s estate, simplifies tax compliance and provides heirs with financial security.
This material is generic in nature. Before relying on the material in any important matter, users should note date of publication and carefully evaluate its accuracy, currency, completeness, and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.
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