Personal Finance

Friday, March 13, 2015

Does your buy-sell agreement need a check-up?

Financial Planner, Mike Repak, poses some poignant questions to business owners on the importance of buy-sell agreements.



The recent tragedy involving a young Silicon Valley tycoon who was fatally injured using gym equipment highlights the uncertainty we all face in life. Nobody knows if they will be met with an untimely demise (although most would argue all demises are untimely). But, it is our responsibility to have appropriate estate planning documents, addressing critical issues facing their survivors, in place just in case.

Is that one document enough for a business owner? Estate planning has been greatly simplified in recent years thanks to tax law changes. For many people, form or boilerplate documents will get the job done. Business owners, however, may need to dive deeper. Valuing and liquidating interest in a private, closely-held business involves challenging issues that may not be resolved by a standard form document. And, as much as terms applicable to relationships with key customers and suppliers evolve over time, aspects of the buy-sell arrangement need to be revisited from time to time. The best time to finalize an agreement of this sort is the day before it’s needed, but that’s rarely the case.

Some business owners will try to address the problem with life insurance. This certainly can play a role, and may be accompanied by a form document offered by the insurance agent. Or, corporate counsel may draft a document. Frequently, form documents neglect items of vital importance to the business. And, corporate counsel may have difficulty adequately representing multiple shareholders simultaneously. Have any new shareholders joined since the original buy-sell was prepared, and how has that been handled?

Although endings can be difficult to contemplate, problems can often be avoided by having a thoughtful, extended conversation about the unique issues of importance to you. Plan to start at the beginning and work your way through the entire process at the pace that’s right for you. For example:

  • When should the agreement be triggered? Of course, a death is an obvious triggering event, but what about other events?
  • Does your buy-sell agreement address what happens if a co-owner quits or gets fired? Suppose the co-owner quits to pursue a competing business. 
  • Could a co-owner be fired for cause, and if so, should there be some sort of penalty applied to the liquidation of his/her interest?
  • What if a co-owner becomes disabled or retires?
  • How long could someone be ill before the illness is considered a disability triggering a liquidation event? 
  • Would your business be disrupted if one of the owners got divorced or became insolvent?

These and many other issues can certainly be addressed in a legal document, but the elements of the agreement are frequently best resolved by negotiation among the interested parties. We can help you think and talk through the issues you may want to address in advance.

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Michael Repak
Vice President/Senior Estate Planner
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Mike provides advice and guidance in all aspects of financial, tax, and estate planning issues. He earned his Bachelor’s degree from William Paterson University in Wayne, New Jersey, and has a Master’s degree from the University of Wisconsin in Madison, Wisconsin. He has a CPA/PFS credential, and Series 7 and 66 securities licenses. He received his J.D. from the University of Florida and his LL.M. in Tax Law from NYU.

He has been an adjunct professor in the MBA program at Temple University and is a sought-after speaker for professional conferences and events. He is also frequently featured as a Money Doctor on www.360financialliteracy.org, the public education site of the American Institute of Certified Public Accountants. Mr. Repak has served on several non-profit and civic boards, is a graduate of Leadership Philadelphia, and a member of the Union League of Philadelphia.


Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any taxrelated statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

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