Buy/Sell Agreements and Estate Planning
Generally, for a buy/sell agreement to establish the value of a business interest for estate planning purposes it must:
1. Be a bona fide business arrangement;
2. Not be a device for transferring the business to family members at a discounted value;
3. Have terms comparable to similar, arms length agreements;
4. Fix a purchase price that is reasonable when the agreement is executed; and outline a pricing formula to consider evaluation changes in the intervening years;
5. Require an owner’s estate or beneficiaries to sell the shares at a specified price; and
6. Restrict owners’ disposition of their interests during life and at death.
If at least 50% of a company’s value is owned by non-family members subject to the same terms as family members, a buy/sell agreement is presumed to meet these requirements.