: Business-paid premiums are generally not tax-deductible. Essential Plan Components
: The business often "bonuses" the premium payments to the employee, who then pays the insurer. Tax Considerations : sole proprietor buy-sell plans
Unlike traditional buy-sell agreements between multiple partners, a sole proprietor agreement usually involves an external buyer: : Business-paid premiums are generally not tax-deductible
: The buyer agrees to purchase the business from the owner's estate at a predetermined price or formula upon a "triggering event" (usually death or permanent disability). : Life insurance is the primary funding mechanism
: Life insurance is the primary funding mechanism because it provides immediate cash when needed to activate the sale. How the Funding Works
An effective agreement should be drafted by legal professionals and include: Funding a Buy-Sell Agreement with Life Insurance
: Premiums paid as bonuses are taxable income to the employee.