This form is set up as a Buy Sell Agreement between the LLC and a key member. It applies in the case of the death, disability, retirement or offer of member to sell his membership units during his lifetime.
Maryland Buy Sell or Stock Purchase Agreement Covering Membership Units in a Limited Liability Company (LLC) with an Option to Fund the Purchase through Life Insurance
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US-00835BG
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How to fill out Buy Sell Or Stock Purchase Agreement Covering Membership Units In A Limited Liability Company (LLC) With An Option To Fund The Purchase Through Life Insurance?
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FAQ
The business pays the premiums and therefore exists as the owner and beneficiary of the policy. When an employee-owner dies, that share of the company passes to the heirs of his or her estate. Then the business can use the policy's death benefit to buy the interest from the estate.
Life insurance proceeds provide liquidity for ordinary living expenses and estate tax liability. Buy-sell agreements can be structured under various forms, including 1) entity redemption, 2) cross purchase, 3) cross endorsement, 4) wait-and-see and 5) a one-way agreement.
Buy-sell agreements are normally funded by life insurance and disability insurance. Using life insurance to Fund a Buy-Sell Agreement is a business use of life insurance.
The life insurance premiums used to fund a buy-sell agreement are not tax deductible. In a Cross-Purchase Agreement where an individual shareholder purchases life insurance on the life of another shareholder and pays the premium, it is paid for with after-tax dollars.
A life insurance buy-sell agreement requires the business owners to carry life insurance that benefits each other or the business, so that the proceeds of the life insurance policy will be available to pay for the deceased member's ownership interest.
Along with offering cost savings over a lump sum cash payment, insurance policy funding also helps avoid the interest of a loan. Funding a buy-sell agreement with life insurance can also help make sure the business will have the means to purchase an exiting owner's shares, regardless of timing.