Your Business


In 2007, the government estimates there were 27.2 million small businesses operating in the U.S.  If you are a small business owner, consider what would happen to your business if you die or become incapacitated.

Q. What is a buy/sell agreement?
A. A buy-sell agreement for a business is a contract that comes into play when one of the owners dies. Under such a contract, the decedent’s business partners offer a previously agreed-upon price for the decedent’s share of the business, and the executor must accept the payment and sign the papers required to close the transaction. Without this contract, the decedent’s share in the business would pass someone else according to his will or trust, or the executor could sell it to the highest bidder, just like any other property.


Q.   What if you become incapacitated?

A. A power of attorney allows you to appoint someone to make business decisions on your behalf when you can’t. You may want to make a separate power of attorney appoint someone to manage your business affairs.

If you have a living trust, make sure your interest in the business is titled in the name of the trust.  The trustee may be able to manage the business without involving the probate court.


Q.  How can key man insurance help your business and your family?

A. Some companies purchase a key man insurance policy to help buy the business if one of the owners die.

Key man life insurance works like individual life insurance – when the insured dies the policy pays out a benefit. Instead of an individual insuring himself or a family member, however, the business owns the policy and pays the premium. If the insured dies, the business is the beneficiary and will receive the policy payout.

To key man insurance proceeds can be used to pay off debt, find a replacement for the deceased, buy out the deceased’s shares in the company (buy-sell agreement), or even help to supplement the income of the deceased’s family.

If you purchase key man insurance, ask your advisors if the proceeds will be included as part of the decedent’s taxable estate. If subject to the estate tax, currently 45% of the value will be owed for estate taxes.