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Meet John and Mary:
Keeping the Business in the Family

Keeping the Business in the Family

Their Story

John and Mary, both in their fifties, are successful owners of a family bookstore. Their daughter Jennifer (age 28) had until recently been working in the bookstore full time. Her recent marriage to a physician and the subsequent move to another state have started them worrying about what would happen to the store if something should happen to both of them. Their son Jacob is 24, currently works full time at the store, and eventually would like to own the store.

John and Mary want to see both of their children treated "equally," and they want the business to continue without interruption if tragedy should occur.

They currently have a will that simply leaves everything to the surviving spouse if something should happen to either of them and divides their assets equally between their two children at the second death or in the event of a simultaneous death.

Solutions to Secure Their Future

An independent appraiser has recently valued the business at $1.8 million. John and Mary agree that this is a fair valuation. To keep the business running without interruption in the event of their deaths, they decide to execute a buy-sell agreement.

Jacob is going to purchase John's shares in the event of his death and Mary's shares in the event of her death. Jacob is going to purchase each of their

shares in 10 annual installment amounts at the time either turns age 70 with an agreed withdrawal from management on their part or in the event of a disability.

John and Mary's wills are going to be changed to reflect that the $1.8 million in cash is to be divided between Jacob and Jennifer with Jacob receiving $600,000 and Jennifer receiving $1.2 million.

Jacob is going to purchase life insurance policies on John and Mary for $900,000 each. The business is going to pay the premiums and bonus that amount to Jacob as W-2 income.

The Properly Funded Buy-Sell Agreement Assures
  • An orderly transfer of the business to Jacob.
  • Avoids conflicts between Jennifer and Jacob with each owning 50% and only one of them working in the store.
  • The children receive the fair market value of the business as an inheritance.
  • The value established in the buy-sell agreement is binding on the IRS for federal estate tax purposes.
  • The continuity in management provides stability for customers, staff, creditors and investors.

Western & Southern Life does not give tax advice. Please contact your tax advisor for information that applies to your situation.


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Last Updated: 12/14/2017