Fully fund buy-sell agreements

Learn the detals of a buy-sell agreement.

Q: My partner and I are equal shareholders in a professional corporation and recently met with a financial planner. After answering several questions about our practice, he recommended that we contact our attorney to have a buy-sell agreement drafted. He also suggested we make sure that it is "fully funded." What is a buy-sell agreement and how do we fund it?

Under the terms of a buy-sell agreement (assuming you are the seller), you and the buyer enter into a contract for the transfer of the business interest by you, or your estate, at the occurrence of specified triggering events, including death, disability, or retirement.

Ideally, buy-sell agreements are "fully funded" using both life and disability insurance policies. Without fully funding the agreement, the surviving owner usually is only able to pay the purchase price over an installment period. This delay could cause the surviving owner and the decedent's estate to encounter unforeseen legal and financial problems.

Send your money management questions to medec@advanstar.com. Answers to our readers' questions were provided by Lawrence B. Keller, CFP, CLU, ChFC, founder of Physician Financial Services, a New-York based firm specializing in income protection and wealth accumulation strategies for physicians.