Family Business Insurance

What About a Family Business?

When 50 percent or more of a business is owned by individuals who are members of the decedents family, or if they are natural objects of his or her bounty, the buy-sell agreement will be disregarded for federal estate tax purposes, unless the agreement (1) has a bona fide business purpose, (2) is not a testamentary device to transfer property to family members for less that fair market value, and (3) has terms comparable to those entered into by parties in an arms' length transaction.

Expert testimony is required to show that non related persons in the same business would have entered a similar agreement. The expert must consider: (1) the fair market value of the business when the agreement was made, (2) the expected duration of the agreement, (3) the anticipated changes in vale during the term of the agreement, and (4) the manner in which such businesses are commonly valued.