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. Investing

    What's a Hire Purchase?

    Hire purchase is a term used in Great Britain to describe an installment plan payment arrangement.
  3. Personal Finance

    Explaining Equated Monthly Installments

    An equated monthly installment is a fixed payment a borrower makes to a lender on the same date of each month.
  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. Managing Wealth

    5 Reasons Small Business Owners Sell Their Companies

    Selling a business you've built from scratch isn't done lightly. Consider these moments when the opportunity might be right for you.
  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. 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.
  8. Investing

    What You Should Know About Real Estate Valuation

    Anyone involved in a real transaction can benefit from gaining a basic understanding of the different methods of real estate valuation.
  9. Investing

    4 Ways Millennials Can Buy Private Businesses

    Buying private businesses is a good way to have greater control over your investments while increasing your income and avoiding the fluctuations of the market.
  10. Trading

    Rent To Own; Own To Rent

    This method can help first-time buyers afford a home using a rent-to-own strategy, and it can also be good for investors.
Trading Center