Life proves over and over that it is full of uncertainties.

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's important to have the appropriate estate planning documents, addressing critical issues facing their survivors, in place just in case.

What Does Your Buy-Sell Agreement Look Like?

Is that one document enough for a business owner? Estate planning has been greatly simplified over the 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?

Considerations for Reviewing Your Buy-Sell Agreement

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.

Working with Janney

For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.

By establishing a relationship with a Janney Financial Advisor, we can build a tailored financial plan and make recommendations about solutions that are aligned with your best interest and unique needs, goals, and preferences. Contact us today to discuss how we can put a plan in place designed to help you reach your financial goals.

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.

About the author

Michael Repak

Vice President & Senior Estate Planner

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For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.

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