Sole Proprietor Buy-sell Plans May 2026

An effective agreement should be drafted by legal professionals and include: Funding a Buy-Sell Agreement with Life Insurance

: The business often "bonuses" the premium payments to the employee, who then pays the insurer. Tax Considerations :

: Business-paid premiums are generally not tax-deductible. Essential Plan Components sole proprietor buy-sell plans

: Death benefits paid to the buyer are generally income-tax-free.

: 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). An effective agreement should be drafted by legal

For a sole proprietor, a buy-sell plan (often called a ) is a legally binding contract that ensures the business continues and provides liquidity to the owner's estate after their death, disability, or retirement. Without such a plan, the only options are often to dissolve the business or leave it to an heir who may not want to run it. Core Structure: The "One-Way" Plan

: Typically a key employee , a family member, or even a competitor. : The buyer agrees to purchase the business

Life insurance ensures the buyer has the funds to fulfill their legal obligation to purchase the business.