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Section 79 Planning Opportunities
Closely held businesses produce over 50% of the Gross National Product (“GNP”). Less than 50% of these businesses have a continuation plan and almost one-third of these companies (29%) use a buy-sell arrangement to assist in their planning. (See, Estate Planning Uses of Buy-Sell Agreements Funded with Life Insurance, Sabene Hitchcock-Gear, J.D., ALI-ABA, Oct. 28, 1999.) Buy-Sell agreements are very simple tools that over the years have grown to meet increasing needs of closely held businesses.
Buy-Sell Agreements try to address many of the following problems:
- Death Buyout;
- Disability Funding;
- Withdrawal from Employment (for competitive or noncompetitive purposes);
- Retirement Planning;
- Tax Issues ' income, transfer, estate and gift;
- Protection from Creditors (corporate and individual);
- Fixing the Value of the Business Interest of the Owner; and
- Settle Shareholder Differences.
These goals are disparate, and many of the tools currently available do not address all goals successfully. Generally speaking, a buy-sell agreement contains a restriction on the right to transfer a business interest during the life and at the death of the business owners, as well as an option, or other right, to acquire property at a specified price. The agreement typically sets the value of a closely held business for transfer tax purposes in the form of a fixed amount or a formula. Such a value may reflect the fair market value of the property at the time of the agreement (rather than a later date such as the date of the owner's death). The buy-sell agreement is often funded by life insurance policies.
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