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Estate Planning Considerations and Objectives: Using a Buy-Sell Agreement to Fix Estate Tax Value

Estate Planning Considerations and Objectives:  Using a Buy-Sell Agreement to Fix Estate Tax Value

Buy-Sell Agreements

The primary reason to create a Buy-Sell agreement in a typical business situation is to provide for continuity of control of a business., either within the family or among the current owners after the departure of an owner.

A well drafted Buy-Sell Agreement can also accomplish many other estate planning goals, however,individual shareholders and partners should consider their own estate planning goals and the legal and financial effects of these Buy-Out arrangements on those goals before entering into a Buy-Sell agreement.

One of the most important tax related estate planning issues to consider is whether a Buy-Sell agreement should be used to actually fix the value of a deceased shareholder’s or partner’s interest for federal death tax purposes.

If the decedent’s estate is not large enough to cause any concern about death tax matters, or if the agreement is between an owner and his or her spouse, so that a transfer for less than fair market value will be exempt from tax because of the marital deduction, the effect of the Buy-Sell agreement for less than fair market value may be undesirable, because the income tax basis of the business interest in the hands of the decedent’s heirs will be the value accepted for death tax purposes and will result in an increased gain when the business is sold. If this may be the case, and should the business be entirely family owned, it may be preferable to allow the decedent’s interest in the business to pass by bequest rather than purchase.

Contact Steven Peck’s Premier Legal toll-free at 1-866-999-9085 to talk to an experienced California Elder Law Attorney.

The Peck Law Group

About the Author

Attorney Steven Peck has been practicing law since 1981. A former successful business owner, Mr. Peck initially focused his legal career on business law. Within the first three years, after some colleagues and friend’s parents endured nursing home neglect and elder abuse, he continued his education to begin practicing elder law and nursing home abuse law.


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