You and your business partner or partners have a clear and common vision of how to run your business, where it's going, and how it's going to get there. As a team, you've worked together each and every day to share the daily demands and shape the success of your business. That said, have you thought about what would become of the business and all your hard work if you or one of your partners became ill, was injured, or died?

     A business doesn't have to become disabled or die just because one of the owners retires, dies, or becomes too sick or disabled to work. Whether the transition of business management or ownership needs to take place after death or during life, it can be orderly accomplished through appropriate business succession planning.
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     A buy-sell agreement is a tool commonly used in business succession planning. This planning feature, when correctly funded and designed, can orderly establish the value at which the business will be taken over and who will be doing the taking over. The owner can have a peace of mind from knowing that the business has a predetermined basis for which it can be sold in a ready market, thereby giving the owner a source of funds when they need it, such as when they are ready to retire. If the owner was to die prior to the above predetermined basis occurring, then the buy-sell can be used to meet the survivor's needs or pay hefty estate taxes.

While there are several ways that a buy-sell agreement can be established, an entity purchase agreement and cross purchase are the two most often used:

Cross Purchase
     Due to favorable tax results, this is a highly used approach by many small businesses. It's generally used by businesses that only have a small number of owners. The cross purchase is typically funded with a life and/or disability insurance policy that each of the owners must maintain on their co-owners. The death benefits from the life insurance policy aren't subject to taxation since the owners, not the business, actually own the individual life insurance policies. Each of the business owners are legally obligated to purchase the ownership interest of the other co-owner(s) upon death. The deceased owner's estate sells the owner's interest to the surviving owners in exchange for the proceeds from the life insurance policy. The surviving owners will get a step-up in the business's tax basis. Alternatively, the insurance cash value can also be used if one of the co-owners was to need to fund a buyout during their lifetime. One point to remember regarding a cross purchase is that administration is smoothest when there are only a limited number of owners and will become increasingly difficult to administer as the number of owners increase.

Entity Purchase Agreement
     This type of buy-sell agreement works somewhat like the cross purchase, but it's the business, not the owners, that will maintain an insurance policy on each owner and agree to purchase any deceased owner's interest in the business. As such, the taxation is different. The death benefits under both an entity purchase and cross purchase agreement, whether being paid to the business or an individual, are exempt from federal income taxation. However, unlike with the cross purchase, there are certain situations that a C corporation can be subject to the corporate alternative minimum tax under an entity purchase. There's also not a step-up in basis under the entity purchase plan.
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     Hopefully this brief overview of the entity purchase and cross purchase types of buy-sell agreements has spurred you to think about how vitally important business succession planning is to your business. Of course, this short article couldn't possibly cover all the factors to consider when developing a business succession plan. As you begin the preparations for you business succession plan with your attorney, accountant, and insurance agent, they should be able to answer any additional questions or concerns you might have.

     When your car gets damaged in an accident or stolen, the repair or recovery cost is only part of the story. Without another vehicle available, your only recourse may be to rent one. The good news is that your policy may already include coverage to defray the cost of a rental.

    The standard personal auto policy can include a coverage called "rental car reimbursement." If you have purchased collision coverage on your car and that car is damaged in a collision, this coverage will pay for "the cost of a rental car." The same applies if you have purchased comprehensive coverage. If the car is damaged by something other than a collision, the policy will cover these expenses. The policy pays up to $30 per day, up to a maximum of $900. This coverage applies to a vehicle to which you do not ordinarily have access, such as a friend's car or a rental.

     Time limitations apply. If your owned or borrowed car is stolen, coverage begins 48 hours after the theft and ends when you are able to use the vehicle again or when the insurance company pays you for the loss. 
If the cause of loss is something other than theft, the insurance pays the expenses incurred more than 24 hours after you lose use of the vehicle. Finally, the insurance stops paying at the end of the period of time reasonably required to repair or replace the vehicle.


How it works 

• John has both comprehensive and collision coverages on his sedan. A frayed wire in the engine catches fire, resulting in major damage to the car. The car is in the shop for 15 days, so he rents a replacement for $35 per day. His insurance will pay $30 per day, starting with the expenses he incurs starting 48 hours later.
• Sue walks out of a store to find an empty space where her car should have been. She reports the theft to the police and her insurance company. The insurer will pay $30 per day, starting 48 hours after she discovered the car missing. 
• Dexter has no collision coverage on his car. A month later, a bee stings him while he's driving and he plows into a highway sign. The insurer will not cover his rental costs because he had not purchased collision coverage.

NOTE: Not all auto insurance policies are the same. Some may pay more than $30 per day for rental costs, but they will pay only if the insured vehicle is stolen or in a collision. Check with us to find out what coverage you have. If it's not what you would like, ask if you can purchase additional coverage. We always recommend at least $50 per day to account for taxes and fees that most car rental companies charge.