Buy-Sell Agreement
Buy-Sell Agreements are still the most common planning method used for the sale and continuation of small business interests. The buy-sell is a business continuity plan where the current property owner enters into an arrangement for the purchase and continuance of the property upon their death with another party.


Properties of the Buy-Sell Agreement:
  • Guarantees a market for the business interest (liquidity).
  • Owner can continue to operate business until their death.
  • Avoids the probate process.
  • Business is more attractive to creditors (continuity plan).
  • Easier to determine the estate tax value of the business.
  • Owner can choose to who they desire to sell the business interest (third party, family member, employees, etc.).

Installment Notes
An installment sale is the taxable sale of a business or property where at least one principal payment is received in a year other than the year of the actual sale. The gain due to the sale of the property (in exchange for the installment note), will be delayed and recognized gradually over the installment period.


Downside:
Payments for the property can exceed the lifetime of the seller; therefore, there is an estate inclusion of the present value of the remaining payments at the seller's death:


Advantages:

    • Favorable income tax treatment under installment accounting.
    • Deferral of payments for buyer.
    • Freezes gift/estate value and removes appreciation potential.
    • Can be used to keep a business in the family.

Self-Canceling Installment Note
The self-canceling installment note (SCIN), is a variation of the installment note that includes a self-canceling provision at the seller's death. The SCIN is subject to the normal installment reporting rules, but is canceled if the seller dies before all principal payments are made to the seller. Because of the cancellation feature, these agreements usually carry a higher sales price.


SCIN features:
  • Buyer pays a higher price for a property or business.
  • Installment payments end at the death of the seller.
  • Nothing is included in the estate of the seller.
  • No gift or estate taxes if equal value is exchanged.
Private Annuity, Transfers In Trust, Intra-Family Loan

Related Articles
  1. Investing

    Avoiding A Big Tax Bill On Real Estate Gains

    Installment sales allow sellers to defer taxes on real estate profits.
  2. Insights

    Long-Term Installment Loans: Are They Worth It?

    Long-term installment loans help borrowers finance major purchases or consolidate credit card debt. Learn how they work, and identify their pros and cons.
  3. Investing

    What's a Hire Purchase?

    Hire purchase is a term used in Great Britain to describe an installment plan payment arrangement.
  4. Taxes

    Form 9465: Don't Pay Your Back Taxes Without It

    This form can lighten your tax load if you owe Uncle Sam.
  5. Investing

    The Ins And Outs of Seller-Financed Real Estate Deals

    There's more than one way to buy or sell a house. Seller financing presents yet another unique option.
  6. Taxes

    Can't Pay Your Taxes? What to Do Now

    Not enough cash on hand for your April tax bill? No need to panic. Here's what to do.
  7. Taxes

    How To Negotiate Back Taxes With The IRS

    Recently, the IRS has been more amenable to working out late tax payments. But you have to address the problem up front, and don’t keep Uncle Sam waiting on his tax money.
  8. Financial Advisor

    Buy-Sell Agreements: What Advisors Should Know

    Having a buy-sell agreement in place can cement a succession plan with a fair price and ensure a seamless transition to the new owner.
Frequently Asked Questions
  1. Where do most fund managers get their market information?

    Many fund managers, whether they manage a mutual fund, trust fund, pension or hedge fund, have access to resources that the ...
  2. What's the difference between short-term investments and marketable securities?

    Understand the difference between short-term investments and marketable equity securities, and learn the importance of short-term ...
  3. Are fringe benefits direct or indirect costs?

    Learn how to allocate costs associated with fringe benefits provided to employees and how to determine when a cost is either ...
  4. How is a bank guarantee different from a traditional loan?

    Read about the differences between a traditional bank loan and a bank guarantee, and why a third party might require a guarantee ...
Trading Center