| There are three main options or ways to fund the | | | | extreme differences in the ages of the partners, or |
| Buy-Sell Agreement. I'm sure you won't be surprised to | | | | employees buy out the owner.ii) If the employee is the |
| find that most Buy-Sell Agreements are paid out using | | | | son or daughter of the owner, it allows the siblings and |
| life insurance. In fact, the first two funding options deal | | | | heirs to be compensated in cash for their share of the |
| with available options using life insurance: | | | | business interest.iii) It is particularly attractive in closely |
| 1. The criss cross option | | | | held corporations due to the lower corporate tax rate. |
| Under this option the life insurance is owned and paid | | | | This is not available to partners where the tax |
| for by the partner out of after tax income. In other | | | | advantage is considerably less advantageous. |
| words, life insurance are purchased and paid for by | | | | Whole life policy containing cash values is the best |
| the partner or shareholder on each other's life and the | | | | choice for life insurance used for buy-sell agreements. |
| owners are the beneficiary. This is the primary and | | | | 3. Corporate repurchase and corporate redemption |
| traditional method of structuring a buy-sell agreement | | | | method |
| and for sole proprietors and partners and it is the only | | | | The third funding option for buy-sell agreements is the |
| option available for unincorporated businesses. Under | | | | corporate repurchase or corporate redemption |
| the criss cross option, policies can be co-owned and | | | | method. This is used solely by corporations, who may |
| paid for by split dollar arrangements. | | | | also use the criss-cross method. The corporate |
| 2. Split dollar funding option | | | | repurchase or corporate redemption method may be |
| The second option to fund buy-sell agreement is split | | | | funded in one of two ways:a) Cross-purchase |
| dollar funding option that is the pre-determined | | | | agreement: |
| agreement between employer and employee on how | | | | This technique is funded by tax free dividends. It |
| to fund life insurance premiums. Split dollar funding | | | | provides for corporations:i. To own the required |
| became popular to fund several important functions.a) | | | | amount of insurance on the lives of the shareholders.ii. |
| Key man insurance and award.b) Employee buy-out.c) | | | | To pay the premiums.iii. To be the named |
| Corporate buy-sell agreements between shareholders | | | | beneficiaries.b) Corporate buy-back of shares. |
| and used as the incentive for a business to | | | | Premiums of insurance are paid by the corporation. |
| accommodate a split dollar buy-sell agreementi) The | | | | I hope this information will help. |
| premium payment creates unequal contributions due to | | | | |