Insurance

The unilateral buy/sell agreement, also known as the One Way Buy/Sell Agreement, is often used by business owners who want to sell in the event of their death and/or retirement but do not have a co-owner or partner to buy their interest.
If you are in this situation, here is the basic process. The following are steps to ensure your business continues after your death:

• You identify a potential purchaser interested in, and able to take over your business.
• You enter into a unilateral agreement with the buyer to buy your business in the event of your death.
• The buyer purchases life insurance on your life.
• At your death the life insurance is paid to the buyer.
• Your business interest passes to your heirs.
• The buyer purchases your interest from your heirs with the life insurance proceeds.

This arrangement fixes a value for your business. The value can be determined several ways: a price that both you and the buyer agree on; book value at date of death; or a predetermined formula.

There are several advantages to this arrangement:

1. Your family is guaranteed a certain amount of money upon your death for your business interest.
2. Your employees know that the business will continue even if you do not.
3. Your creditors and vendors will know that there is a continuity plan in place.
4. The purchaser might very well be a key employee and is now going to stay with you for the long run.

There are considerations that must also be addressed:

1. If the buyer is a child active in the business, inactive children may feel that they did not get their share of the business when you died. Explore with your Blueprints For Advisor® and attorney ways to equalize the estate for all of your children involved.
2. When it comes to buying the life insurance on your life you might actually find yourself paying the premium for the buyer. This could conceivably be designed as a bonus arrangement.
3. The situation where a lifetime sale occurs if you do not die must also be addressed. You will likely need to structure an installment sale with the buyer.

We tell our business owners on a regular basis that a properly designed exit/contingency plan is of the utmost importance. Don't wait! Effective planning ensures that your hard work will benefit your family/heirs. They deserve to see the fruit of your labors.