Buy-sell agreements useful for succession planning


How to prepare a succession plan.

Q: My son has joined my practice, and I'd like to turn the practice over to him when I retire. How do I go about preparing a succession plan?

A: You should create a buy-sell agreement. These are generally for shareholders of a corporation, partners in a partnership, members of a limited liability company, or among any of them and a key employee (such as your son) or an acceptable outside buyer.

A buy-sell agreement ensures that the business interest of either a deceased, disabled, or departing owner is effectively transferred in accordance with predetermined, mutually agreed upon guidelines. They take many forms, each with its own legal, tax, and financial ramifications. The key is to find the one that best fits the needs of your business and family.

When setting the valuation method to be used, make sure that the transaction represents fair market value. Serious tax consequences may result from using a price that the IRS determines to differ from fair market value.

To ensure that the IRS accepts your sale price, your buy-sell agreement must meet three requirements:

Due to the constant changes in the healthcare market, it is critical to use a valuation firm that understands the industry. Also, you should work also with objective, experienced financial planners, accountants, and attorneys who can help you develop a fair and workable agreement.

Send your money management questions to
. Answer provided by Lawrence Keller, CFP, CLU, ChFC, founder of Physician Financial Services in Woodbury, New York.

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