: Business-paid premiums are generally not tax-deductible. Essential Plan Components
Unlike traditional buy-sell agreements between multiple partners, a sole proprietor agreement usually involves an external buyer:
: Death benefits paid to the buyer are generally income-tax-free. sole proprietor buy-sell plans
An effective agreement should be drafted by legal professionals and include: Funding a Buy-Sell Agreement with Life Insurance
Life insurance ensures the buyer has the funds to fulfill their legal obligation to purchase the business. : Business-paid premiums are generally not tax-deductible
: The buyer (e.g., the key employee) typically owns the policy on the life of the proprietor and is the named beneficiary.
: The business often "bonuses" the premium payments to the employee, who then pays the insurer. Tax Considerations : : The buyer (e
: Life insurance is the primary funding mechanism because it provides immediate cash when needed to activate the sale. How the Funding Works