Savvy Business Owners Plan for Success…ion–Fund a Buy and Sell Agreement
As one of several owners of an incorporated business, you have probably spent years developing this valuable asset. In fact a large part of your legacy could be the result of the cash received in the selling of your shares of the business. To help ensure the legacy is kept intact a buy sell agreement was created.
Typically there are 4 ways to fund a buy sell agreement in the event of death, disability, divorce, dispute, retirement.
- Save up money to buy out
- Buy out over time with installment payments
- Borrow from bank
- Insurance
Saving for It
- Cross Purchase —earn $9600/m—less dividend taxes–invest $6500/m, to have approximately $80,000. Watch out for higher tax rates and increasing share values and other owner not saving enough.
- Share Redemption— net $13,200—less passive income taxes–to have approximately $160,000. Watch out for failing to qualify for LTCGE for passive income.
- Looking for an inexpensive tax deferred strategy on retained earnings (contact Knights Financial management)?
Borrow from Bank
- Cross Purchase —personally repays $6900/m each–to buy $80,000 worth in shares. Watch out rising interest rates and interest tax deductibility and other owner qualifying for loan.
- Share Redemption– corporation repays $13,780/m –to have buy $160,000 worth in shares. Watch out rising interest rates, interest tax deductibility, and remaining owners qualifying for loan.
Insurance
- At Death
- Cross Purchase —personally pay life insurance premiums
- Term 10 for $80,000 on 40 years old cost $11/m for 10 years (depending on age and health)
- Term 20 for $80,000 on 40 years old cost $16/m for 20 years (depending on age and health)
Watch out for insurability, beneficiary, owner, other owner paying for their portion, option to add more insurance for increase in share values.
- Share Redemption–corporation pays life insurance premiums
- Term 10 for $160,000 on 40 years old cost $16/m for 10 years (depending on age and health) using corporate $ (not personal)
- Term 20 for $80,000 on 40 years old cost $23/m for 20 years (depending on age and health)
Watch out for insurability, beneficiary, owner, payout instructions for capital dividend account, and option to add more insurance for increase in share values.
- Cross Purchase —personally pay life insurance premiums
- At Disability
- Cross Purchase —personally pays disability insurance premiums
- Wait 360 days before claiming for $80,000 on 40 years old cost $35/m until disability claim or age 65. (depending on age, health, occupation)
Watch out for insurability, beneficiary, definition of disability, other owner paying for their portion, option to add more insurance for increase in share values, and taxes.
- Wait 360 days before claiming for $80,000 on 40 years old cost $35/m until disability claim or age 65. (depending on age, health, occupation)
- Share Redemption–corporation pays disability insurance premiums
- Wait 360 days before claiming for $160,000 on 40 years old cost $69/m until disability claim or age 65. (depending on age, health, occupation)
- Cross Purchase —personally pays disability insurance premiums
