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.
Washington 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 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.
Advantages of using life insurance Life insurance creates a lump sum of cash to fund the buy-sell agreement at death. Life insurance proceeds are usually paid quickly after death, ensuring that the buy-sell transaction can be settled quickly. Life insurance proceeds are generally income-tax free.
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.
As part of the agreement, the business buys life insurance policies on the lives of each owner. 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.
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.
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.
If you bought a life insurance for yourself ? meaning it pays out upon your death ? you can't deduct life insurance premiums.. The IRS considers life insurance a personal expense and ineligible for tax deductions. Employers paying employees' life insurance premiums can deduct those payments, with some restrictions.
There are four main types of buy-sell agreements. A redemption or entity purchase, a cross-purchase arrangement, a one-way buy-sell or a wait-and-see buy-sell.