The Seven Sins of Buy Sell Agreements

Ted Kotsakis, President & CEO |


The 7 Sins of Buy-Sell Agreements


Even if you have an agreement in place, the Connelly Case shows us there are issues that could even lead to a taxable event if it isn't reviewed consistently. Here are some of the most common mistakes I've seen over the 40 years I've spent reviewing Buy-Sell Agreements:


  1. NEVER GOT SIGNED! The agreement gets drafted, and the partners never sign the agreement to execute it.


  1. The original agreement does not reflect the NEW OWNERS.


  1. NEVER FUNDED. The agreement was put in place, and even though the attorney told them to go fund it with insurance, they threw it in the drawer for it to collect dust.


  1. INCORRECT OWNERSHIP. Simply put, the party doing the buying should own the policy on the partner doing the dying.


  1. WRONG LANGUAGE regarding insurance. For example, some agreements will state that 100% of the life insurance needs to be used for the buy-out. What if the value is less? What about the left-over insurance money being used for replacing the deceased (key person).


  1. Life insurance should be the down payment and the remainder should be paid with an installment note no longer than 5-10 years tops.


  1. Lack of language regarding professional designation such as loss of law license or medical license.



Here are easy questions to ask:

  1. Do you have a buy sell agreement?
  2. Is it funded or unfunded?
  3. When was the last time you reviewed it?
  4. Are you familiar with the Connelly Case and the potential negative impact on agreements already in place?


Give us a call today 800-887-7587 to request our buy-sell review kit, discuss a case, or learn more about the current challenges keeping business owners up at night.