Sole Proprietor Buy-sell Plans May 2026

: Life insurance is the primary funding mechanism because it provides immediate cash when needed to activate the sale. How the Funding Works

: The buyer (e.g., the key employee) typically owns the policy on the life of the proprietor and is the named beneficiary.

: Premiums paid as bonuses are taxable income to the employee. sole proprietor buy-sell plans

: Typically a key employee , a family member, or even a competitor.

Life insurance ensures the buyer has the funds to fulfill their legal obligation to purchase the business. : Life insurance is the primary funding mechanism

: Business-paid premiums are generally not tax-deductible. Essential Plan Components

For a sole proprietor, a buy-sell plan (often called a ) is a legally binding contract that ensures the business continues and provides liquidity to the owner's estate after their death, disability, or retirement. Without such a plan, the only options are often to dissolve the business or leave it to an heir who may not want to run it. Core Structure: The "One-Way" Plan : Typically a key employee , a family

: The buyer agrees to purchase the business from the owner's estate at a predetermined price or formula upon a "triggering event" (usually death or permanent disability).