HOW SHOULD A BUY-SELL AGREEMENT BE FUNDED?
A buy-sell agreement must include a plan for paying for a deceased owner’s interest. There are only four ways that this can be done: • Pay all cash from business or personal resources within a short time after death, without establishing a sinking fund. • Establish a sinking fund • Pay in installments over a period of time • Pay with insurance proceeds If you do not have insurance, the money must come out of your pocket or from the business, which is your other pocket. THE PROBLEMS WITH BUSINESS OR PERSONAL CASH Buy-sell agreements are often prepared years in advance of the time they are triggered by death. Plans that provide for cash payments from the business or from personal resources have these problems: • It is impossible to know if the cash will in fact be available when it is needed. • Using cash from the business may wipe out its ability to purchase or pay for the replacement of a key employee, or for needed equipment, supplies, or labor. • Using the personal cash of the contin
