Buy-and-sell Agreement

Buy-and-sell Agreement means:
an estate planning approach used for sole proprietorships, partnerships, and closely held corporations in which the business interests of a deceased or disabled proprietor, partner, or shareholder are sold according to a predetermined formula to the remaining owner(s) of the business.

Example of Buy-and-sell Agreement:

Learn more about tax examples, explanations and calculations here.

A partnership has three principals. Upon the death of one, the two survivors agree to purchase, and the deceased partner's estate agrees to sell, the interest of that partner according to a predetermined formula for valuing the partnership to the survivors. Funds for buying out a deceased partner's interest are usually provided by life insurance policies, with each partner purchasing a policy on the other partners. Each principal is the owner and beneficiary of the policies purchased on the other partners.

When a sole proprietor dies, usually a key employee is the buyer/successor. Under the entity plan a sole proprietorship, partnership, or closely held corporation can buy and own life insurance policies on the proprietor, partner, or shareholder and achieve the same result as when an individual buys and owns the policies.

See Inheritance Tax and Inheritance Tax.